Victoria warned of cost blowout and skills shortage risks to big ticket projects

Victoria was warned that a predicted skills shortage and the soaring cost of materials could constrain the state government’s ability to deliver on its pipeline of major infrastructure projects.

The briefing note from the Office of Projects Victoria (OPV) said the state would face a “high economic cost to not addressing skills shortages”, suggesting the lack of workers could drive up wages by 6 per cent a year, adding an extra $500 million in costs to the state government’s line-up of work.

Victoria was warned that a skills shortage and the soaring cost of materials would “constrain” infrastructure projects.Credit: Jason South

It comes as the federal government demands Victoria keep a lid on the cost of mega-projects – including the $35 billion first stage of the Suburban Rail Loop – warning that the state needs to prove its economic case before Canberra hands over funding.

The briefing note to Treasurer Tim Pallas, released to the Coalition under freedom of information laws, said there was estimated to be a shortfall of 4800 full-time equivalent jobs covering “several key occupations in the public infrastructure workforce”.

“There are likely to be shortages in several key occupations in the public infrastructure workforce between 2023 and 2025 that could constrain the delivery of public infrastructure projects,” the briefing note said.

“OPV estimates that workforce shortages could delay in the order of $1.7 billion in jobs being hired which would flow on to the delay of $4.7 billion in total expenditure between 2023 and 2025.”

Treasurer Tim Pallas was warned about skills shortages.Credit: Joe Armao

The note also warned that future peaks in demand for concrete and steel, driven by the North East Link Program, Suburban Rail Loop and Melbourne Airport Rail were likely to coincide with higher “competing demand from other states”.

The warning came just weeks before the 2022 state election, when Labor recommitted to building the rail loop, North East Link and Airport Rail – despite cost overruns on the Metro Tunnel and West Gate Tunnel projects.

Since then, the North East Link has blown out by more than $10 billion and is now estimated to cost $26.1 billion, while the Melbourne Airport rail link will be delayed for at least four more years.

Meanwhile, Victoria’s net debt continues to mount, forecast to reach $188 billion by 2028, with a daily interest bill of $26 million.

The proposed Suburban Rail Loop.Credit: Supplied

The Sunday Age has spoken to five Allan government ministers – almost a quarter of cabinet – who have privately raised concerns about the state’s financial position and accompanying risk to our credit rating.

Some questioned the logic in sticking to the current timetable for the Suburban Rail Loop – the state’s most expensive infrastructure project.

Speaking on the condition of anonymity to discuss internal party matters, they favoured putting the mega-project on ice and redirecting the cash to rural and regional road and rail projects. Other ministers were happy for it to continue, but with a later delivery date to reduce skills and supply chain pressures.

Amid the private concerns, Victorian Infrastructure Minister Danny Pearson recommitted on Friday to delivering SRL by 2035 with the east section – linking Cheltenham to Box Hill – on track to cost up to $34.5 billion.

“I can base it on the fact that we have let one contract to date, and that came in below our targeted expected cost, and we remain committed to delivering this project,” he said.

Asked whether the project could be “rephrased” to delay when funding would be needed, Pearson left open the possibility that the rollout could be altered in December’s mid-year budget update, committing only to the overall completion date.

“If we were to change that order and restructure it would be disclosed through the normal ways ... but the bottom line is that we are committed to delivering this project by 2035,” he said.

“Every budget ... has brought its own challenges and brought its own issues that we’ve had to confront and deal with.”

A Victorian government spokesperson this week said: “While we continue to deliver the infrastructure and world-class services that families need, this year’s budget made sensible, disciplined decisions to deal with high inflation and workforce constraints.”

While acknowledging the state government had implemented strategies to address the skill shortage, OPV said the measures may be “insufficient” given the state’s record level of infrastructure investment and tight labour market.

According to the briefing note, more than a quarter of the estimated 4800 skilled worker shortages were in commercial management, with the state also needing to recruit more plant operators, land surveyors, engineers and procurement professionals.

It also noted that while the overall demand for materials was projected to reduce slightly, there would be a substantial increase in demand for items such as bitumen binders, asphalt, bluestone and rail track – up to 40 per cent – by August 2025.

In response, OPV urged Pallas to write to federal Treasurer Jim Chalmers requesting help to address skills shortages by boosting skilled migration and more action on the supply chain.

Opposition finance spokeswoman Jess Wilson said the briefing was evidence of “mismanagement” of the infrastructure pipeline, accusing the state government of crowding out the private sector and fuelling inflation.

“Despite clear warnings of tightening market conditions and impending price spikes, Labor has failed to improve procurement practices or increase the efficiency of supply chains.”

On Saturday, this masthead revealed federal Transport Minister Catherine King sent a warning to the Victorian government about the SRL, making it clear it would need to convince Infrastructure Australia of the economic case for such significant spending.

But in response, Allan government minister Steve Dimopoulos said King had also recognised the importance of projects such as the rail loop because they presented an opportunity to build thousands of new homes.

“It was really refreshing and good to hear the federal government talk about the importance of rail corridors in relation to housing,” he said on Saturday.

“Now, they’ve already invested $2.2 billion in SRL, and we look forward to future collaboration.”

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