Gallagher claims ‘detailed business case’ supports Suburban Rail Loop spending

Finance Minister Katy Gallagher has defended the Commonwealth’s decision to pour $2.2 billion into the Andrews government’s flagship Suburban Rail Loop in Tuesday’s budget, insisting the project rigorously stacks up with a “very positive” cost-benefit ratio.

The federal budget will cut hundreds of millions of dollars from Victorian infrastructure projects promised by the former Coalition government, including $475 million for a rail line to link Monash University’s Caulfield and Clayton campuses and $110 million previously earmarked for the Wellington Road duplication, in Melbourne’s outer south-east.

Finance Minister Katy Gallagher is insisting Victoria’s Suburban Rail Loop has been rigorously assessed.Credit: Alex Ellinghausen

Gallagher told ABC Radio National on Monday that the government had found $22 billion in savings in a budget audit.

“There’s definitely projects that we will be stopping,” she said.

But the federal government is adamant the Andrews government’s controversial Suburban Rail Loop project – a 90-kilometre orbital rail link running from Cheltenham to Werribee via the airport – has been rigorously assessed.

Prime Minister Anthony Albanese and Infrastructure Minister Catherine King earlier this month announced a $2.2 billion contribution to the first stage of the project, which runs from Cheltenham to Box Hill and is expected to cost up to $35 billion.

The Victorian government’s planned Suburban Rail Loop. The first stage, from Cheltenham to Box Hill, is expected to cost up to $35 billion.Credit: The Age

Asked whether this was a good use of spending, given the link hasn’t been assessed by the federal umpire – Infrastructure Australia – Gallagher said the Commonwealth had been working closely with the Andrews government, which had released its own business case. She said the project had a “very positive” cost-benefit ratio.

“This is one that we have been working with the Victorian government on,” Gallagher said. “There is a very detailed business case that underpins this project and a very positive cost-benefit ratio for the project.”

She said the Victorian government had also been talking to Infrastructure Australia about the project.

But despite Gallagher’s insistence that the loop has been rigorously assessed, questions persist about whether it stacks up.

The first section of the Suburban Rail Loop is due to cost $35 billion and be finished in 2035.Credit: Jason South

The Victorian Auditor-General’s Office last month released a report finding the project had not been properly assessed.

The state government’s business case estimated the project would return between $1 and $1.70 in benefits for every $1 invested.

But the auditor found the project would return a loss-making 51 cents for every $1 invested when the benefits and costs were calculated in accordance with state Treasury’s guidelines, excluding so-called wider economic benefits and applying a more conservative discount rate, which is the interest rate used to translate future costs and benefits into current dollars.

Infrastructure Australia has included the problem of “Melbourne middle and outer suburban transport connectivity” on its infrastructure priority list as an “early-stage proposal”.

As a second step, the Victorian government is supposed to conduct a thorough analysis of various options to solve the problem, ahead of a business case.

A spokesperson for the federal major projects body confirmed Infrastructure Australia had engaged with the Victorian government and the Suburban Rail Loop Authority over a submission exploring “potential investment options”.

The state government’s decision to apply a discount rate of 4 per cent in its business case to the project is also a potential sticking point. The rate, which is lower than the normal 7 per cent recommended by Infrastructure Australia, results in a higher return on the project.

The spokesperson said: “Infrastructure Australia’s assessment framework recommends the use of a 7 per cent discount rate as the central rate for analysing infrastructure proposals.”

Infrastructure Victoria has also not considered the project. Victoria’s first 30-year infrastructure strategy was prepared by Infrastructure Victoria in 2016, and did not include a recommendation for a suburban rail loop.

The state budget, announced in May this year, detailed $11.8 billion of state government funding for the rail project. But the Andrews government has signalled it will need a much larger contribution than the $2.2 billion presently on the table from the Commonwealth for the project is to go ahead.

The state budget papers make it clear the government is banking on one-third of the first stage of the loop being funded by the federal government, and one-third coming from as-yet unspecified “value capture” provisions, potentially involving profits from commercial development opportunities around the new line.

That suggests at least a further $9 billion will be required from the Commonwealth in coming years.

Liberal senator Jane Hume accused the federal Labor government, which in opposition demanded projects were assessed by Infrastructure Australia before being funded, of double standards.

“If Labor are genuine about this idea of quality of spending ... how an earth they could support a $2.2 billion investment in the [Victorian] suburban rail loop has us all scratching our heads,” she told ABC’s Radio National.

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.