Funding feud looms for Victoria’s two biggest rail projects

The cash-strapped Allan government faces funding brawls over Airport Rail and the Suburban Rail Loop after a federal review of the nation’s infrastructure pipeline axed 12 Victorian projects as part of an overhaul of Commonwealth investment.

A $4 billion plan for faster rail between Melbourne and Geelong is dead after the independent report recommended it be abandoned.

The Morrison and Andrews governments committed $4 billion towards fast rail between Melbourne and Geelong.Credit: Luis Ascui

Federal Infrastructure Minister Catherine King on Thursday released the review of the nation’s infrastructure pipeline, totalling $120 billion over 10 years, and its recommendations to improve how major projects are approved and funded.

But its findings on a $13 billion railway to Tullamarine and the Suburban Rail Loop have exposed a looming rift between Victoria and the Commonwealth over the mega projects at a time when the state’s net debt is on track to reach $171.4 billion by 2027.

The document repeats the findings of the Victorian auditor-general, who criticised the business case for the rail loop, arguing it did not follow standard investment requirements, did not properly assess alternatives to the project and may have overstated its benefits.

The federal review acknowledged that these findings were rejected by the Allan government, warning that the disagreement between the auditor-general and the state showed the major projects needed “tailored guidance” to ensure investment decision-making was transparent.

However, the inclusion of the auditor-general’s findings has frustrated senior figures within the Victorian government, according to three sources speaking on condition of anonymity.

One said the move had cast doubt over the Suburban Rail Loop’s business case when the government still hoped the Commonwealth could contribute a third of the $35 billion needed for the first section.

The Albanese government has so far provided $2.2 billion for the project. King said this week Infrastructure Australia would independently assess it, and any future funding commitments would rely on greater detail about its total cost.

Victoria has already committed to funding a third of the project. Another third is expected to come from the private sector through value capture, which some experts doubt will deliver the money required.

A more immediate funding stoush is looming over Melbourne Airport Rail. The state and federal governments have each committed $5 billion to the $13 billion project, but have not agreed on who will cover the $3 billion shortfall.

Premier Jacinta Allan said her expectation was the total cost would be split 50-50.

“We will engage with the federal government that the total cost of the project will be ongoing on that arrangement,” she said.

Allan also called on the federal government to use its planning powers to ensure a speedy resolution to a stalemate over the planned station at Tullamarine.

Melbourne Airport wants the station built underground and has sought compensation if this is not the case, which Treasurer Tim Pallas previously hinted could be as much as $500 million.

“It’s been incredibly frustrating,” Allan said. “Frankly, some of the demands from the airport have really stretched the boundaries.”

An airport spokesman said it remained ready to work with the state and federal governments on the project, but its preference was still an underground station.

“The airport station must be fit for purpose and future-proof, to ensure that passengers are well served and so that neither the airport precinct or rail line are constrained as Melbourne continues to grow,” he said.

Moonee Valley Mayor Pierce Tyson called on the airport to resolve the dispute, so the project could proceed, including a new station to be built in Keilor East.

“The least we can expect from Melbourne airport is for them to deliver back to our community,” he said.

Laureen Bourne, 61, from East Gippsland said it was ‘about time’ Melbourne got the go-ahead for an airport railCredit: Paul Jeffers

Traveller Laureen Bourne, 61, from East Gippsland, who arrived at Southern Cross Station via SkyBus on Thursday, said it was about time Victoria got the key piece of infrastructure.

“I’ve travelled a lot over the world and this is the only place where you can’t get straight to the airport on train,” Bourne said.

Rick Makin, of Wantirna, who was using the SkyBus services to get to Tullamarine for a flight to Manchester, UK, said using a bus was “a bit archaic”.

Amid rising construction costs across Australia, the federal review has recommended the cancellation of 82 projects to keep spending within the $120 billion figure and to leave headroom for other projects.

A dozen of these are in Victoria, and include the plans for Geelong Fast Rail. Investigations for other “faster rail” corridors across Victoria will also lose funding, along with plans to upgrade the rail line past Frankston.

The 12 axed Victorian infrastructure projects

• Melbourne Inland Rail Intermodal Terminal
• Calder Freeway upgrades from Gap Road to the M80 Ring Road, Sunbury
• Intersection upgrade to the intersection of Camberwell Road,  Monteath Avenue and Redfern Road, Hawthorn East
• Rail upgrade from Frankston to Baxter 
• Geelong Fast Rail
• Shepparton Bypass stage one on the Goulburn Valley Highway
• Connectivity improvements to the Port of Melbourne
• Upgrade to the intersection of McKoy Street and the Hume Freeway, West Wodonga
• Upgrade to the Mornington Peninsula Freeway 
• Heavy vehicle alternative route, Rutherglen
• Victorian Faster Rail Corridor investigations
• Upgrade to the Western Freeway between the M80 Ring Road to Ferris Road, Melton

Commuters travelling from Southern Cross Station to Geelong on Thursday afternoon were largely unfazed by the axing of the fast rail service.

Geelong resident David Freeman said the multibillion-dollar project would have cut his daily commute from Melbourne by only about 10 minutes.

“It’s a few minutes of my life. In the scheme of things, it is nothing,” the 66-year-old said. “Everyone needs to take a chill pill.”

Geelong commuter David Freeman.Credit: Justin McManus

Another Geelong commuter described the plan as a “pipe dream” from the start.

“Look, how much debt we are in?” he said. “It was never going to happen.”

However, Geelong Mayor Trent Sullivan said it was a bitter blow for the people living in the state’s second-largest city. “Having promised our community a world-class rail system, the federal government has now abandoned those promises,” Sullivan said. “As one of the fastest growing regions in Australia, Geelong desperately needs public transport investment. Our rail service is under extreme pressure and a high-speed rail is long overdue.”

Improvements to the Calder Freeway in Sunbury, between Gap Road and the M80 Ring Road, have also been scrapped, along with upgrades to the Mornington Peninsula Freeway and the Western Freeway from the M80 to Ferris Road.

An intersection in Hawthorn East, where Camberwell Road meets Monteath Avenue, will also miss out.

In regional Victoria, the Shepparton Bypass Stage 1 is among the 12 projects in the state to be cancelled, along with an alternative route for heavy vehicles around Rutherglen and a Hume Freeway intersection upgrade in West Wodonga.

Business cases for a freight terminal in Melbourne to link to Inland Rail and for projects improving transport connections to the Port of Melbourne have also been abandoned.

In the past month, the International Monetary Fund and the OECD have raised concerns about the volume of infrastructure projects underway across the country. The IMF warned without change, the inflationary pressures caused by so much construction could force the Reserve Bank to keep interest rates higher for longer.

Fifty projects across the country worth a combined $11 billion were axed by King while an extra $6 billion was committed towards a series of road, rail and bridge works that are already under construction.

While committing to billions of dollars worth of projects, King signalled some would be delayed to smooth out the construction timeline. At present, construction – expected to reach $14.1 billion this year – peaks at more than $18 billion in 2027-28 before falling away to $7 billion two years later.

King said the federal government can, at most, spend between $10 billion and $12 billion a year.

Victorian Opposition Leader John Pesutto said the cancellations would have ramifications right across the state, particularly for freight and liveability in the regions.

“The federal Labor government has had a look at Victoria’s infrastructure pipeline under Jacinta Allan and they’ve given her government a big fail,” he said.

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