In a speech to Sydney's McKell​ Institute signalling departure from past practice, Mr Pallas also said the previous government's efforts to limit spending growth to 2.5 per cent a year led to an "unsustainable" erosion of services when compared with population growth and inflation.

Instead, Victoria will adopt a more expansionary target of 3 per cent spending growth - which is still below expected revenue growth.

Although Mr Pallas promised to maintain a buffer of budget surpluses and protect Victoria's AAA credit rating, he said at a time of record-low interest rates it would be irresponsible not to consider increasing borrowing to boost the economy.

"I am throwing out the political play book - the populist decrying of debt - and advocating for an honest conversation about how we build that infrastructure, how we make smart choices, and how we deliver it responsibly," he said.

The May budget predicted net debt would fall sharply from about 5.8 per cent of the economy this year to just 4.4 per cent in mid-2016 as cash from selling the Port of Melbourne hits the bottom line. This is still considerably more than NSW, which is predicting net debt of just 1.9 per cent this financial year and 2.2 per cent next year.

The state government has promised to plough the proceeds from the port sale - expected to be about $6 billion - into its plan to remove 50 level crossings over two terms.

But beyond that there are lingering questions about how it will pay for other road and rail proposals, including the $11 billion Melbourne Metro rail project, which Labor has promised to start building before 2018.

"We also need to begin a serious and sensible conversation about the role of public debt in meeting our infrastructure needs," Mr Pallas said.

"If we can't have this conversation now - with continued population pressures, with state debt trending down, with the rate of recurrent spending growth below that of revenue growth, and with the cost of borrowing at an all-time low - we never will."

His comments follow calls by Reserve Bank governor Glenn Stevens for a carefully considered pipeline of national infrastructure projects to keep the economy healthy during slow patches.

Economist Saul Eslake also recently told a Senate committee the federal government could afford to borrow about $50 billion for infrastructure without jeopardising the AAA credit rating.

The business community has supported the notion of using state and federal debt for productive, rigorously tested projects.

Mr Pallas said the previous Coalition state government had refused to entertain the idea of debt to fund significant infrastructure. This thinking had necessitated cuts to spending on services.

"They significantly cut spending on essential services - health, education, police, child protection - to fund these services," Mr Pallas said.

Shadow Treasurer Michael O'Brien​ accused Labor of breaking a promise to keep a lid on debt. "Having wasted so much money, the Andrews Government cannot justify hiking Victoria's debt to pay for their unfunded promises," Mr O'Brien said.

But Mr Pallas said the previous government's attempts to limit spending increases to 2.5 per cent a year did not represent responsible economic management. Instead, Victoria will adopt a new target to keep spending growth at about 3 per cent a year, still less than the forecast revenue growth of 3.4 per cent.

That means future surpluses might be smaller than they otherwise would have been, which could make the already finely balanced task of keeping Victoria's AAA credit rating even more difficult.

"I will not rely on illusory surpluses to fund infrastructure of state significance, I want all the options on the table for serious consideration and debt is one of those," Mr Pallas said.