Treasurer Tim Pallas will deliver his 10th state budget on Tuesday, in what shapes as another no-frills affair.
No pre-budget announcements have been unveiled for a second consecutive year and the state government is remaining tight-lipped on any details.
Overseeing her first budget since succeeding Daniel Andrews in September, Ms Allan said it would focus on Victorian families and demonstrate "sensible and disciplined" decisions.
"It's been a budget that's been challenging to put together ... in a domestic and global environment that faces many, many pressures," she told reporters on Monday.
"Whether it's the inflationary and interest rate pressures, the pressures of workforce shortages and what that means for project and service delivery, also too the global unrest, the ongoing impact of the pandemic.
"We simply can't put our heads in the sand and ignore these circumstances as we have putting this budget together."
The premier said construction sector costs had jumped 22 per cent since 2021, making it difficult to deliver projects on time and on budget in combination with workforce shortages.
She said she hoped the Reserve Bank would consider inflationary pressures when making future interest rate decisions.
"These are pressures that are having a real impact - they're having a real impact on families at their kitchen table, on businesses and on governments around the cabinet table," Ms Allan said.
Economist Saul Eslake said Mr Pallas' ninth budget was a "missed opportunity" to put Victoria's finances on a more sustainable footing.
He expects the 2024/25 state budget will contain tough decisions on spending after the previous edition featured a COVID-19 debt levy on large businesses and landlords.
"They hadn't been willing - and this is why I think Daniel Andrews' influence was important - to wind back any of there hyper-ambitious infrastructure spending," Mr Eslake told AAP.
"Which together with the self-inflicted wounds of how they handled COVID, has been the major driver of the enormous increases in Victoria's debt."
A budget update in December forecast Victoria's net debt will rise to $177.8 billion by mid-2027, $6.4 billion higher than the estimate in May.
By that point, taxpayers will be paying $24 million each day in interest.
"Money spent on interest is money that isn't spent on nurses, teachers and police," Mr Eslake said.
Mr Eslake noted net debt as a percentage of gross state product was higher than during the dark days of the Cain/Kirner government in the 1990s, and there were no longer a slew of assets to be sold to pay it down.
"You can't do that sort of thing twice, and you wouldn't expect a Labor government to do it anyway," he said.
"They really do need to get a handle on recurrent and capital expenditure."
Mr Pallas has flagged government infrastructure spending will be moderated following cost blowouts on the North East Link and West Gate Tunnel.
It would be stupid to cancel projects with work already underway but slowing them could take pressure off construction costs, Mr Eslake suggested.
– AAP
