Victoria’s debt soars to almost $180bn amid $10.3 North East Link blowout

By 2026-27, Victorian taxpayers will be forking out more than $24 million a day to service the state’s escalating debt levels, which are set to reach almost $180bn that year.

Victorian Premier Jacinta Allan. Picture: David Caird

The road project that was already Victoria’s most expensive will now cost an extra $10.3bn, putting the state’s debt on track to reach almost $180bn by 2026-27.

Premier Jacinta Allan announced on Friday that the North East Link – estimated in 2016 to cost $10bn before that figure was revised to $15.8bn in 2019 – will now cost $26.1bn.

The news was rolled out hours before Treasurer Tim Pallas unveiled a mid-year budget update, revealing net debt has blown out by $6.4bn since May, and is now set to reach $177.8bn over the forward estimates, up from $171.4bn just seven months ago.

The escalating debt will see annual interest expenses rise to $8.8bn – almost $1bn more than predicted in a Treasury update ­tabled two months ago – meaning the more than $15m a day Victorian taxpayers spend on interest repayments will rise to more than $24m.

Despite the rising debt levels, taxation revenue is also set to increase, from $35.8bn in 2023-24 to $41.6bn in 2026-17.

Ms Allan confirmed the North East Link cost blowout as she revealed the government had signed two new contracts for the 10km project, which will link the Eastern Freeway at Bulleen with the M80 Ring Road at Greensborough, via 6.5km of tunnels, and is due to open in 2028.

One $5.7bn contract will pay for the Eastern Freeway upgrade aspect of the project, while another $3.8bn contract covers the M80 Ring Road upgrade.

The updated design for the the North East Link - M80 Ring Road interchange.

The Premier attributed the $10.3bn increase in the project’s price tag to $6.4bn in initiatives that have added to its scope, and $3.9bn in extra “ cost pressures”.

The added scope includes $2bn for a longer tunnel, $2.5bn to cover freeway management systems for the Eastern and M80 freeway upgrades, $600m to improve operation and community outcomes through initiatives such as improved noise standards, better technology and interchange design, $400m to extend a rail tunnel along the Hurstbridge line to make room for the road, $70m for park and ride bus facilities in Bulleen, $100m to improve sporting facilities in parkland adjacent to the project, and $750m for a dedicated busway.

The “additional cost pressures” include another $780m “to comply with 110 performance requirements” from the project’s environmental effects statement, such as noise and air quality protection and two-for-one tree planting, and $3.1bn attributed to “escalation rates of critical construction supplies such as concrete, asphalt and steel and broader inflationary pressures”.

Ms Allan blamed the Covid pandemic and war in Ukraine for some increased costs. “I don’t think anyone’s particularly happy,” she said. “There’s great frustration … and disappointment particularly at the cost escalation that’s come as a consequence of the Covid pandemic and the war in Ukraine, and that’s … being felt by households, by businesses and by governments.”

Victorian Treasurer Tim Pallas. Picture: NCA NewsWire / Luis Enrique Ascui

Despite the rising debt, and warnings in the budget update that the risks to Victoria’s economic outlook “are greater than normal”, Mr Pallas said the state’s economy was performing well, with economic growth and job creation outpacing NSW.

“It is still a challenging time and the government doesn’t step back from that,” he said. “We understand we have responsibilities … to manage our pathway back into budget surplus and also budget strength.”

Wednesday’s mid-year economic and fiscal outlook reduced Victoria’s share of federal infrastructure funding from 23 per cent to 19.2 per cent, prompting Mr Pallas to accuse government of “reverting to the bad behaviour” of its Coalition predecessors.