Feds have rejected pleas to shoulder more of the funding burden for the $34.5bn SRL East

Treasurer Tim Pallas has denied suggestions the Suburban Rail Loop is facing billion-dollar blowouts, despite rising construction costs and a federal budget snub.

Treasurer Tim Pallas has rejected suggestions the cost of the first stage of the government’s signature Suburban Rail Loop is facing billion-dollar blowouts.

Mr Pallas continued to back-in the project despite a lack of federal funding.

Being grilled on the estimated $30-34.5bn price tag for the Cheltenham to Box Hill section of the loop before a parliamentary budget inquiry on Thursday, Mr Pallas conceded construction costs were forcing infrastructure project costs to increase by up to 22 per cent.

But he rejected suggestions that the cost of SRL stage 1 (which is known as SRL East) could blowout to more than $42bn.

“I do accept that we are seeing a peak in pricing around infrastructure in the state,” he said.

“But I also take the view pretty clearly that, having looked at these numbers, we remain confident that the range that we’ve identified is deliverable.”

Mr Pallas said he believed the federal government remained a supporter of the project, despite not including a single dollar of investment in Tuesday’s budget, and said Victoria would forge ahead despite the snub.

“We’re a long way shy of getting to a point where the state is not able to provision going forward,” he said.

“We have more than ample capacity.”

The Allan government is banking on the Commonwealth stumping up a third of the funding. Picture: Wayne Taylor

Premier Jacinta Allan insisted on Thursday the federal government remains committed to the rail loop.

Despite no new money for the project in Tuesday’s federal budget, Ms Allan said she was confident the Commonwealth was fully supportive of the rail line.

And she said an initial injection of $2.2bn, committed in last year’s budget, was proof of Canberra’s commitment.

“We have a partner in Canberra for this project,” she said.

Ms Allan also told the inquiry was a project “we simply can’t afford not to build”.

And she insisted the $30-34bn cost range was accurate.

“You have to factor in cost escalation across any sector or project...we have done that in this project,” she said.

It comes as the Herald Sun revealed funding for the first stage of the SRL is in disarray two years before tunnelling is due to start, with the mega project facing a $20bn budget shortfall, even if it comes in at $34.5bn.

Federal Treasurer Jim Chalmers on Wednesday said he had so far rejected pleas to shoulder more of the funding burden for SRL East, because he was yet to get Infrastructure Australia’s advice on whether the project provides “value for money”.

The Allan government, which has committed a third of the funding – $11.8bn – is banking on the Commonwealth also stumping up a third.

But so far, only $2.2bn has been promised by Prime Minister Anthony Albanese, bringing total funding to $14bn.

The state has also said it expects taxes on developments in the areas benefiting from the project to provide a third of the cash, with suburban skyscrapers of up to 40 storeys planned around stations.

But it is yet to release details on how this would work.

And despite funding uncertainty, it is ploughing ahead, spending $2.4bn on early works and inking a $3.6bn contract for tunnelling scheduled to begin in 2026.

On Wednesday, economists at global credit rating agencies warned the mega project, estimated in 2021 to cost $30-34.5bn, would already be facing budget pressures due to rising construction costs.

A $3.6bn contract has been signed for tunnelling scheduled to begin in 2026.

This came just a week after Victorian Treasurer Tim Pallas himself acknowledged in his tenth budget that the sector had experienced price hikes worth 22 per cent since 2021.

Anthony Walker, an analyst at S & P Global Ratings, warned that if “Victoria pushes ahead with the project without additional federal funding it will further delay the state’s already slow fiscal consolidation and increase its debt levels”.

In December 2020, S & P downgraded Victoria to its current AA credit rating, the lowest of any state or territory.

“There is limited headroom within the (Victorian) AA rating for additional spending and debt-funded infrastructure,” Mr Walker said.

Federal Treasurer Jim Chalmers has so far rejected pleas to shoulder more of the funding burden. Picture: Martin Ollman

“We believe there is an elevated risk that the SRL will cost more than budgeted given the size and complexities of the project.”

Moody’s lead analyst John Manning said the fact the costings for the project had been unchanged for years while the market and inflation pressures had “changed fundamentally” meant it was “unclear what the costs of the SRL are”.

“If you remove any uncertainty as to the scope of the SRL, the inflationary impacts of labour and raw material cost pressures on the SRL costings provided several years ago, they will have increased exponentially since that time,” he said.

The federal coalition has previously rejected calls for more Commonwealth cash to go to the project, which the state opposition says should be paused.

The $34.5bn SRL East is set to run from Cheltenham to Box Hill via six underground stations.

Mr Pallas said the State wanted and “would expect” the Commonwealth to be a major funding partner, but understood the need to show “this is a project that’s worthy of their contributions”.

Late last year, the first major contract for the project was signed with infrastructure giants CPB, Ghella and Acciona Construction, to build 16km of twin tunnels between Cheltenham and Glen Waverley for $3.6bn, starting in 2026. The next contract, for tunnelling between Glen Waverley and Box Hill, is about to be inked.

Opposition transport infrastructure spokesman David Southwick said “it’s clear the Federal Labor Government doesn’t back the SRL and the Allan Labor Government should not be proceeding with a project they simply cannot pay for”.