Federal gov offers more cash for Melb Airport Rail to take flight, placing pressure on SRL

Jacinta Allan has vowed to “keep fighting” for two of the state’s major rail infrastructure projects, after a federal government cash promise for Melbourne Airport Rail put pressure on the Suburban Rail Loop.

• Why federal funding for SRL crucial for Allan govt

Victorian Premier Jacinta Allan has vowed to “keep fighting” for two of the state’s major rail infrastructure projects.

The Herald Sun on Friday revealed the Albanese government’s plan to pour billions into the stalled Melbourne Airport Rail, providing the state government was on board.

Ms Allan remained tight-lipped on what additional federal funding for the Melbourne Airport Rail would mean for the controversial Suburban Rail Loop and whether it would be reprioritised or put on the back burner.

The plan is understood to have been central to talks between federal Infrastructure Minister Catherine King and Jacinta Allan when they met in Melbourne this week.

Ms Allan on Saturday said she would continue to talk to the federal government about Victoria’s infrastructure projects and would “keep fighting” for the state’s “fair share” of funding.

“In Victoria’s infrastructure pipeline we are already committed to both (Suburban Rail Loop and Melbourne Airport Rail) projects and what I will do is continue to fight for our fair share of infrastructure funding,” she said.

Jactina Allan has vowed to keep fighting for both of the state’s major rail projects. Picture: David Crosling

Melbourne Airport Rail would be put back on a fast track under a federal government plan to pour more cash into the $10bn stalled project.

The bombshell move is set to put pressure on the Allan government’s priority project — its signature $34.5bn Suburban Rail Loop.

Under the plan, the Albanese government would put billions of dollars on the table to resurrect the airport rail — which has been effectively paused for four years by Victoria — providing the Allan government was on-board.

This could require prioritisation of works, including to the SRL.

The plan is understood to have been central to talks between federal Infrastructure Minister Catherine King and Jacinta Allan when they met in Melbourne this week.

It is understood Ms Allan and Prime Minister Anthony Albanese have also discussed infrastructure funding for Victoria this week.

A render of the proposed Melbourne Airport Rail link project. Picture: Supplied

If more money was secured for the project it would fill a funding blackhole for the airport link, which was caused by soaring infrastructure costs and delays in its construction.

The Premier has refused to shift her diehard commitment to the controversial rail loop project, the first stage of which would cost $34.5bn for a 26km tunnel between Cheltenham and Box Hill, despite growing concerns about the funding and state debt.

Senior government sources said the state government had for months been lobbied by some federal counterparts to hit pause on the SRL and delay the project by at least five years.

Under one scenario they wanted $2.2bn in Commonwealth money earmarked for the SRL to be shifted to airport rail. The Commonwealth committed the money to the SRL in 2022, but has delayed handing it over until the value of the project can be properly assessed.

But Ms King told the Herald Sun: “The two projects are separate. There is no link between the funding for each and any suggestions there is are wrong.”

“We work closely with the Victorian government on shared priorities,” she said.

“We discussed projects with states and territories all the time. Decisions are taken through the usual processes and announced in due course.”

Instead, they want the $2.2bn in Commonwealth money earmarked for the SRL to be shifted to airport rail.

The Commonwealth committed the money to SRL in 2022, but has delayed handing over money the value of the project can be properly assessed.

Ms King this week refused to say when the state government would gain access to that funding.

The Melbourne Airport Rail Link would feature a new station integrated with terminals. Picture: Melbourne Airport

State Labor MPs have become increasingly anxious about affordability and viability of the SRL project as the state faces ballooning debt expected to reach $187.8bn by 2026-27.

They consider the project a dead weight hampering the government’s ability to drive down debt and invest in key areas including health and education.

New polling released on Friday sparked alarm inside the government after it showed Labor’s primary vote had plummeted to a “catastrophic” 22.

A similar result replicated at the 2026 election would lead to an electoral wipe-out.

Sources close to the Premier said the SRL was becoming harder to defend as a priority given the state’s widespread financial woes.

Credit agencies have also put the state government on notice that it would face disastrous financial consequences if it pushed ahead with the SRL without Commonwealth funding.

The Allan government has locked in just $11.8bn of funding for the project, leaving a funding black hole of up to $20bn.

Senior government and industry officials have become increasingly nervous about a potential credit downgrade in light of last month’s half yearly budget update which showed the state’s deficit had blown out by $1.4bn for the financial year.

Work on the Suburban Rail Loop (SRL) could be ‘paused’. Picture: Mark Stewart

The deficit, originally forecast to be $2.2bn for 2024-25, has now grown to $3.6bn.

Department of Treasury and Finance sources said bureaucrats were actively working to fend off any potential downgrade in the weeks before former treasurer Tim Pallas abruptly resigned.

Such a move would lead to increased borrowing costs of between 0.1 per cent and 0.5 per and further drive up Victoria’s ballooning debt.

Current projections forecast net debt to grow to $187.8bn by 2027-28, but that figure is expected to blow out by billions more in May’s state budget.

There are also growing concerns about potential hidden borrowings that could be masking the true extent of the state’s debt burden.

Independent economist Saul Eslake said any credit downgrade would increase interest rates on newly-issued bonds, and add to the cost of servicing Victoria’s debt.

Mr Eslake said Victoria wasn’t the only state facing a credit downgrade.

“I would expect Queensland, NSW, Tasmania and the NT’s ratings also to be downgraded, although Victoria is probably the only jurisdiction at risk of being downgraded two notches,” he said.

“A ratings downgrade – and especially a double-notch downgrade – would certainly be politically embarrassing, and would probably catch public attention in a way that the release of data about Victoria’s financial position probably doesn’t.

“It might have a marginal adverse impact on perceptions of Victoria as an investment destination, but again I suspect that those making such decisions would have already factored the relevant considerations into their decision-making.”

Workers on the site of the Allan government’s signature $34.5bn Suburban Rail Loop. Picture: Mark Stewart

Shadow treasurer, James Newbury, said: “Victoria desperately needs saving from Labor at the next election”.

“The potential international rating agency downgrade is proof that Labor has economically vandalised this State.

“What’s so sickening is that in the private sector, collapsing a business would lead to legal charges.

“When Jacinta Allan retires, after turning Victoria into a financial rust bucket, she will get a life long pension that the taxpayer has to pay for.”

Originally published as Federal gov offers more cash for Melb Airport Rail to take flight, placing pressure on SRL