Thousands of large businesses and landlords will foot most of Victoria's COVID-19 debt bill under a $31.5 billion state budget repayment plan.

The 2023/24 Victorian budget, handed down by Treasurer Tim Pallas on Tuesday, detailed a 10-year COVID debt levy as part of a three-pronged strategy.

The $8.6b levy will firstly target the top five per cent of businesses with national payrolls above $10 million but include exemptions for hospitals and charities.

Victoria's tax-free threshold for general land tax will be lowered and a fixed charge added for those who own multiple properties under the second part of the levy.

Mr Pallas said about 860,000 Victorian landlords, people with holiday homes and commercial property owners will be affected.

An average landlord with $650,000 of land holdings would pay $1300 a year as part of the levy, which is expected to collectively raise $8.6b over the forward estimates.

"It's fair that Victorians with multiple properties make a modest contribution to repaying COVID debt," Mr Pallas told reporters.

Family homes won't be impacted by the changes.

Other elements of the strategy are returning the size of Victoria's public service back to pre-pandemic levels and growing the previously announced $10b Future Fund, including legislating it to ensure it can only be used for debt reduction.

About 3000 to 4000 public sector workers are expected to be affected by the cuts but frontline workers will be spared.

The public service staff bill is projected to rise from $35.3b next financial year to $38.3b for the 2026/27 financial year due to increasing wage costs.

Victoria spent $10.7b on health and $11b on business support through the pandemic, with Mr Pallas branding the debt-busting measures temporary and targeted.

"We're ensuring that while our kids will of course have memories of the trauma that was the COVID years, they won't have to necessarily be paying for that trauma for the rest of their lives and for future generations," he said.

The 2023/24 budget forecasts Victoria will post a $1b surplus in two years - $100m more than predicted before the November state election - and another of $1.2b for 2026/27.

Net debt is expected to hit $135.4b at the end of the next financial year before rising to $171.4b by mid-2027, equating to 24.5 per cent of gross state product.

Stamp duty will be scrapped for commercial and industrial properties from mid-2024 and be replaced with an annual property tax of one per cent of the property's unimproved land value.

Annual interest repayments are tipped to grow to nearly $8b over the forward estimates and tax revenue is projected to rise more than 20 per cent to 40.4b.

Commercial and industrial properties will transition to the new system once sold and the property tax will be paid yearly from 10 years after the transaction.

Reducing and eventually abolishing business insurance duty, increasing the payroll tax-free threshold from $700,000 to $900,000, and removing the payroll tax exemption for high-fee private schools are among other new measures.

The latter will mean about 110 schools lose their tax-free exemption.

As well, the absentee owner surcharge rate will rise from two per cent to four per cent and Victoria's wagering and betting tax rate will increase from 10 per cent to 15 per cent from mid-2024, almost doubling revenue for the state's racing industry.