Budget blowouts to put brakes on essential road, rail projects

Victoria’s mega infrastructure projects will be hit with budget blowouts and delays as skills and materials shortages wreak havoc.

Road and rail projects face new budget blowouts and delays due to an overflowing construction pipeline and critical skills and materials shortages.

Infrastructure Australia’s annual market capacity report shows the price of core materials has soared an average of 24 per cent in 12 months, while labour costs have spiked in Victoria by 14 per cent.

These issues are putting enormous pressure on public infrastructure budgets amid a whopping $237bn pipeline over the next five years – more than $60bn of which will be spent in Victoria.

The sector snapshot says “every state and territory jurisdiction is experiencing a shortage in their public infrastructure workforce”, pointing to about $410bn in private construction work — such as residential and commercial buildings — competing with taxpayer-funded projects.

Road and rail projects around the country face new budget blowouts and delays. Picture: David Caird

“The pressure the industry is experiencing to supply labour and materials in step with demand creates unprecedented uncertainty on project outcomes,” the report says.

“It is no longer a question of if a project will slip, but more likely when, by how long and at what cost,” it says.

The report presents a stark warning for Victoria, with the Andrews government already forecasting state debt to hit $165bn by 2026 to help pay for a huge array of road, rail and hospital infrastructure.

Two signature projects – the Metro rail tunnel and the West Gate Tunnel – already have combined cost overruns worth about $7bn.

The two most expensive projects in the Victorian pipeline – the $16bn North East Link road tunnel and the Suburban Rail Loop – are yet to begin major construction.

Some of the solutions to the looming crisis include using more recycled material in roads, with the potential to replace about 54 million tonnes of asphalt, concrete, and other materials.

Skilled migration may also play a role, with the report saying Australia was “missing” almost half a million people in net overseas migration between 2019—2020 and 2021—22 due to international border closures.

Two signature projects – the Metro rail tunnel and the West Gate Tunnel – already have combined cost overruns worth about $7bn. Picture: Andrew Henshaw

Engineers, scientists, and architects are “acutely scarce” and Australia will “continue to face severe shortages in the workforce available for public infrastructure until at least early 2026”.

While Victoria’s steel industry roundtable was praised for co-ordinating a critical sector’s supply and demand issues, there were questions raised about quarries.

Industry leaders interviewed suggested there could be a “quarry gap” within five to 10 years once current providers run out of raw material.

Infrastructure Australia’s acting chief executive Adam Copp said the industry “is facing significant disruption to supply chains caused by the Covid-19 pandemic, volatile demand and more recently, the war in Ukraine,” he said.

“This is causing delays and cost escalations for imported items, while delivery risks are being compounded by severe labour shortages that industry report as having the greatest impact on capacity.”

Overall, the report expects brakes will have to be tapped on some projects due to these issues.

“The culmination of today’s difficult market conditions means that projects are being delivered in a reality that is vastly different than planned,” the report says.

“The likely result is a dramatic slowing of progress, not by choice and therefore not by plan.”