Report finds there is a material risk that the economic value of the rail loop is overstated

The Andrews government’s Suburban Rail Loop has been savaged as overhyped and overpriced by the state’s official auditor.

The Victorian Auditor-General’s Office has slammed the government’s business case for the Suburban Rail Loop, stating it does not stack up under the department’s own guidelines.

The office says there is a real risk the value of major projects has been overstated and that the benefit to cost ratio (BCR) of the SRL may really be 0.51.

This figure would mean that just 51c was returned to the economy for every dollar spent on the loop.

The government disputes their VAGO’s findings, arguing different formulas are needed for larger long-term projects.

A BCR of 0.51 is worse than the number provided by the independent Parliamentary Budget Office, who tipped a return of less than 70c per dollar spent.

This was based off the PBO’s costings which say the first two stages could as high as $125b, without accounting for inflation.

“We concluded that three out of the four business cases we assessed in this audit do not support fully informed investment decisions because their content was not sufficient or timely and did not meet the requirements set out,” VAGO said.

The government’s business case for the Suburban Rail Loop has been criticised.

In a new report tabled on the last sitting day of parliament, VAGO has criticised the way the government has justified its spending on the loop, Melbourne Airport Rail and two other road projects in Mickleham and Barton.

“The economic analyses in the SRL and MAR business cases lack transparency and are not consistent with key elements of relevant guidance,” VAGO said.

“The methodology used for the economic and cost – benefit analyses in the SRL and MAR business cases creates a material risk that the economic value of these projects is overstated.”

“The business case Department of Transport and Suburban Rail Loop Authority provided to the government for the SRL program did not support informed investment decisions.”

Premier Daniel Andrews and Jacinta Allan at the Clayton rail loop construction site. Picture: Andrew Henshaw

The report stated one of its key concerns was the discount rate, used to account for economic benefits in today’s dollars, was 4 per cent when the Department of Treasury and Finance (DTF) recommended a rate of 7 per cent.

It also raised questions about how both documents had included “wider economic benefits” when discussing whether the project stacked up.

This is not typically allowed by the DoT or Treasury, with guidance from both departments requiring these figures be kept separate.

VAGO said these two changes significantly improved the benefit to cost ratio.

There are concerns over a lack of transparency in the Suburban Rail Loop business case. Picture: Supplied

“For SRL, the business case highlights BCRs ranging between 1.0 and 1.7.

“The BCR for the project is 0.51 when calculated in line with DTF’s guidance by excluding wider economic benefits and other non-standard benefits and using a discount rate of 7 per cent.”

Under the same working, the BCR for the airport rail would fall from between 1.1 and 1.3 to 0.48.

But Transport Infrastructure Minister Jacinta Allan disputed the findings, and said the size of the projects meant they needed to be assessed differently.

“You’ll find that the departments and agencies respectfully disagree with that assessment,” she said.

“They outlined that there was a vigorous and rigorous process that is worked through for all of our projects.

“They are big multi year projects that did require an approach that was appropriate for projects of that size and scale.

“That’s why when you have a standard business case approach, you know, it’s really an approach that has to be tailored to the project.”

VAGO has recommended the government deliver a full business case for the entire loop, rather than just the first two sections, with full economic analysis for every stage.

Opposition Transport Infrastructure spokesman Matt Bach accused the government of “cooking the books” following the release of the VAGO report and demanded the project be shelved.

“Labor is getting caught in its own web of lies,” Mr Bach said.

“The Cheltenham to Box Hill rail line does not stack up, and the Auditor-General’s report proves that it is a colossal waste of money at a time when our health system is in crisis.

“The Liberals and Nationals’ position is clear – we will shelve Cheltenham to Box Hill rail line and reprioritise every single cent into the health system. That must be the priority.”

Opposition Leader Matthew Guy said the government “mismanaged” the project and has accused the Premier of lying to Victorians about the SRL and MAR.

“The government said this project stacked up. Yet again, we found it hasn’t. They’ve lied to us again,” Mr Guy said.

“How many more times is this government going to be caught out lying to the people of Victoria about its infrastructure agenda?

“The simple question is, how the hell does it cost $13bn to build an airport rail link? In Perth it’s costing $2bn. How does it cost $13bn in Melbourne for a similar sized project?”

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