It’s hard to remember a ratings agency ever tying the state’s future to a single project in such a way

Concerns have reached political fever pitch over the $34.5bn political albatross strangling the Allan government. Forging ahead with the project may no longer be an option.

When is the right time to do a political U-turn?

It’s the question that must be front of mind for Jacinta Allan and her Cabinet right now as pressure mounts to dump the $34.5bn political albatross strangling the government: the Suburban Rail Loop.

We’ve long known Cabinet is split over its support for the project.

Leading the push ahead at all costs brigade is Allan, who says the state can’t afford not to proceed with the project.

The $34.5bn Suburban Rail Loop is a political albatross strangling the Allan government. Picture: David Crosling

Against her is her deputy Ben Carroll who sees it as a deadweight hampering the government’s ability to drive down debt and invest in key areas of health and education.

Detractors of the SRL also fear it is restricting the government’s ability to spend in vulnerable electorates including seats in its traditional heartland areas where it is haemorrhaging support.

Concerns have now reached political fever pitch with party elders openly discussing the need to dump the train line – a sure sign that a U-turn could be coming.

Crisis talks escalated among the highest levels of the ALP at the weekend after ratings agency Standard & Poors warned the state’s credit rating would be slashed if the government pushed ahead with Allan’s pet project.

Labor Party elders are openly discussing the need to dump the rail loop.

It’s hard to remember a ratings agency ever tying the state’s future to a single project in such a way.

Some politicos say it’s never happened.

The warning is clear: push ahead with SRL and risk financial collapse.

A credit downgrade would push Victoria to a record low rating which would lead to increased borrowing costs of between 0.1 per cent and 0.5 per cent at a time when the state’s debt is ballooning. S&P aren’t bluffing – they downgraded Victoria an unprecedented two notches to AA, from AAA, in December 2020.

But they are getting impatient.

Treasurer Tim Pallas has for years been promising that Victoria is on the path to fiscal recovery.

But he’s begun to resemble something of a Spring St snake oil salesman who is limping from budget to budget selling good news against a very bleak reality.

Tim Pallas begun to resemble something of a Spring St snake oil salesman. Picture: Luis Enrique Ascui

When he took over the state’s finances in 2014 Victoria’s debt level was about $20bn.

We’re currently on track to reach a net debt record of $187.8bn by 2027-28.

At least that’s the official forecast.

Just three months on from the budget and senior government sources say it’s spending assumptions are already in tatters.

Since May the government has announced an extra $1.5bn in health spending over the next 12 months – put that over the forwards and Pallas is looking at a $6bn blowout.

Three months on from the budget and senior government sources say it’s spending assumptions are already in tatters. Picture: David Crosling

Then there’s the unbudgeted $1bn wages deal for nurses, and probably another $1.3bn in extra pay demands for our emergency service workers who are all negotiating new wage agreements.

Just 13 weeks on from the budget and we can already estimate almost $9bn in obvious blowouts, never mind what else is to come.

Pallas knows things are dire.

How else to explain his completely unsolicited public comments last week in which he left the door open to hiking taxes while warning his colleagues to stop spending so much.

It appeared a message targeted squarely at ratings agencies who he met with in New York last month to assure them, no doubt, Victoria was on the path back to fiscal responsibility.

That would have taken some doing, given sources familiar with the conversations insist the SRL was a hot topic of conversation.

There are varying versions of how the talks played out, but most agree Pallas was told to stop the expensive indulgence.

The public commentary on the issue was blunt enough.

“If Victoria pushes ahead with the Suburban Rail Loop without additional federal government funding, the state’s fiscal outlook may weaken, further eroding its credit standing,” S&P analyst Anthony Walker told this paper.

One can only imagine how the private chats went down.

Some claim Pallas is slowly backing away from SRL but having a tough time convincing Allan and her train gang to follow suit.

Publicly he appears to be living a fantasy where the SRL is immune from Victoria’s disastrous track record of blowouts and ever rising construction costs.

It’s claimed Tim Pallas is slowly backing away from the Suburban Rail Loop.

He told a parliamentary hearing recently that not only would the project be delivered on budget, he wasn’t worried that the Commonwealth had shown no interest to expand on their initial $2bn investment.

And he kept a straight face.

Former UK chancellor George Osborne and his shadow, Ed Balls, discussed political U-turns in a recent episode of their Political Currency podcast.

Osborne argued that a good politician always knows if things are going pear-shaped they need to U-turn, fast, and have a damn good explanation for it.

But that depended on having left the door ajar for a potential exit strategy.

Balls reckoned the greatest political leaders pushed on against all odds, refused to U-turn, and ultimately prevailed.

The Premier might have left herself very little wriggle room to get out of the SRL politically unscathed.

But forging ahead may no longer be an option.