Stalling the Melbourne Airport Rail Link for four years is likely to cost taxpayers an extra $2bn

The state government says ongoing delays on the Melbourne Airport Rail Link mean “cost escalations are inevitable” as new analysis shows how much the project could end up costing.

Stalling the Melbourne Airport Rail Link by four years will add up to $2bn to its budget, as cost hikes continue to hammer major projects.

An analysis of rising rail-building costs by global engineering firm Arcadis shows total increases worth 15 per cent up to 2027 – the year when the Allan government plans to revive the mothballed airport project.

This could propel the final project price tag, which had already blown out to $13bn due to delays and Covid-19 related price rises, to as much as $15bn.

The long-awaited rail line, which would allow 30-minute trips from Tullamarine to the CBD, was paused last year by former premier Daniel Andrews amid a review of federal infrastructure funding.

The final Melbourne Airport Rail Link price tag could top $15bn.

It was later given a tick of approval by the federal government but has failed to get back on track.

That’s due to a dispute between the airport and state government over whether a Tullamarine station should be above or below ground.

In July, the airport backed down from its push for an underground station, with chief executive Lorie Argus saying the project could be resurrected and built by the time a third runway was added to the site in 2030.

The state government has resisted fast-tracking the process at a time that its budget is swimming in debt but has conceded that more delays to the link mean “cost escalations are inevitable”.

At the same time, it has steamrolled ahead with its controversial $34.5bn Suburban Rail Loop East project, which would create a 26km tunnel between Cheltenham and Box Hill and pave the way for suburban high-rises around six new station precincts.

Matt Mackey, national director for cost and commercial at Arcadis in Australia, said it was difficult to quantify exact blowouts for individual projects – but delays always meant extra costs.

Melbourne Airport chief executive Lorie Argus says the rail link could be built by the time a third runway was added to the site in 2030. Picture: Nicki Connolly

“Costs are not going to go backwards. We would need the deepest, darkest recession that we have ever seen to get costs back to where we were,” he said.

The Arcadis report shows recent construction sector spikes have slowed, with projected annual increases of between 3 and 4.4 per cent out to 2028.

Part of the increase is due to labour costs, not just from skill shortages but also a new sector-wide workplace agreement that hiked wages by 21 per cent over four years.

Mr Mackey said governments had to deliver infrastructure based on a range of factors, not just price, pointing to the Sydney Opera House as something “nobody wanted” when it was first planned.

“We’ve got to let government direct and just deliver some of this infrastructure, because we’re going to need it,” he said.

In 2018, the former Turnbull federal government and Andrews state government agreed to stump up $5bn each to share the cost of the airport link.

An Infrastructure Australia assessment in 2021 expected a construction cost of $11.3bn to $11.6bn. However, when Treasurer Tim Pallas released his 10th state budget this year and confirmed the project would be shelved until beyond forward estimates, he revealed the infrastructure sector had been hit with a 22 per cent increase in costs since 2021.

When recently asked who would pay more if the link cost $13bn, Ms Allan pointed to the federal government.

“With delay does come cost, and so this will be something that the Commonwealth government will need to work through with its project partners,” she said in July.

More than $1bn has been spent on early works for the project, which are still wrapping up. The state government continues to blame the airport for a four-year delay despite the project only being paused early last year.

Federal opposition infrastructure spokeswoman Bridget McKenzie pointed the finger at the Albanese government and CFMEU saying the cost to taxpayers would keep rising the longer the project was stalled.

“The Albanese government’s failed airport rail mediation is directly responsible for the estimated $2bn additional cost blowout in delivering the project,” Senator McKenzie said.

“Instead of bringing both the Victorian Labor Government and the airport to the table, Minister King allowed Premier Jacinta Allen to put the project on ice for at least four years.

“The report confirms my concerns that the CFMEU deals have escalated the costs of critical infrastructure which include Melbourne Airport Rail blowout by 50 per cent to $15bn,” she said.

An Allan government spokes­man said an initial “ambitious” plan was to get the project built by 2029 but that “the airport’s unreasonable dem­ands for an underground station and compensation have meant project delays of four years”.

“While cost escalations are inevitable because of the airport’s unreasonable demands and delays, we’ll continue to work with the Commonwealth to deliver the best outcome for Victorians because this project remains a priority,” he said.

Federal Infrastructure Minister Catherine King recently said that the project would go through Commonwealth budget processes once it was back on track, adding: “We’ll have more to say about airport rail either in the budget next year or during the election.”