Premier concedes soaring costs a risk to Suburban Rail Loop

Surging construction costs pose a risk to the first stage of the Suburban Rail Loop, Victorian Premier Jacinta Allan has acknowledged.

Speaking at Victorian budget estimates on Tuesday, the premier faced questions about a 2024 meeting of an SRL East committee made up of the heads of multiple departments that discussed managing the project’s $34.5 billion cost envelope.

Premier Jacinta Allan was grilled over the cost of the Suburban Rail Loop on Tuesday. Credit: Darrian Traynor

Minutes from the meeting, released to the state opposition through freedom of information rules, show the committee discussed “the importance of keeping the program on track while resolving cost issues”.

When asked what these issues were, Allan said the discussion was focused on the fact that since 2021 Australia had recorded a 22 per cent increase in the cost of construction.

The $34.5 billion cost for SRL East was announced in 2021 with the release of the project’s business and investment case, prompting questions from Liberal MP Richard Welch about whether this figure was still accurate given soaring building prices.

Allan said no project was immune to these pressures, but the government had to deliver the rail loop within the range already announced.

“That is the task of the interdepartmental committee, the minister responsible for the project and the authority delivering that project,” she said.

About $2.37 billion will be spent on early works alone, which Allan said were included in the project’s total price tag.

In March independent federal agency Infrastructure Australia released an evaluation of SRL East, which said it had low confidence in the $34.5 billion figure.

It recommended that the federal government not provide any further funding to the project until it was re-costed and further details provided about value capture, or charges collected on the improvement the project is expected to make to land values.

Victoria will contribute a third of the cost of SRL East but wants the Commonwealth to contribute another third, with the final third to be raised by a yet-to-be-announced value capture mechanism.

The Albanese government has released $2.2 billion for the project, but has isolated this spending to utilities upgrades and land acquisition costs that provide value for the taxpayer even if the project is suspended or cancelled.

No further funding has been committed and could depend on whether Infrastructure Australia is satisfied with the information provided by the Victorian government. Allan said her government will continue to work with the body.

Opposition major projects spokesman Evan Mulholland said the premier had refused to address the “glaring implications” of construction price hikes on the rail loop’s ultimate cost.

“This figure, derived from a 2021 business and investment case, is now demonstrably obsolete, with costs having surged by over 20 per cent in the intervening years,” he said.

Earlier on Tuesday, Department of Treasury and Finance secretary Chris Barrett conceded the department had not done any modelling of the impact of a possible credit downgrade on the state.

“The reason why we haven’t modelled that is because the five-step fiscal strategy is aimed at retaining the current credit rating and improving it over time,” he said.

Barrett said the department had only modelled the impacts of a 100-basis-point increase in interest rates.

Victorian Treasurer Jaclyn Symes will depart for New York on Wednesday to meet with credit rating agencies, including Moody’s on Friday.

Victoria has an AA credit rating, the lowest of any Australian state.

S&P Global Rating downgraded Victoria’s credit rating from AAA to AA in 2020, while Moody’s downgraded it to AA2 in 2022.

Speaking after the hearings, shadow treasurer James Newbury said it was concerning that the government had not prepared for a possible ratings downgrade.

“Despite warnings from credit rating agencies that our credit rating is at risk, they’ve done no modelling as to the impact of a further downgrade,” he said.

“It’s concerning to know the government is trying to hide from the fact that we are at risk of a credit rating downgrade, so much so the treasurer is flying to New York this week to beg the agencies not to downgrade us, but Treasury has refused to model the cost of what that downgrade would be.”

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