Suburban Rail loop: SRL costs will outweigh benefits, analysis reveals

Every $1 spent building the first two stages of the controversial 90km Suburban Rail Loop would result in social benefits of between only 60 and 70 cents, an independent report has revealed.

Every $1 spent building the first two stages of the 90km Suburban Rail Loop would result in social benefits of between only 60 and 70 cents, an independent analysis says.

The Parliamentary Budget Office assessment is likely to inflame debate about whether the SRL presents value for money, with the report saying that conventional economic models show “investment in SRL East and North would definitively realise a net cost to society”.

It comes after a blowtorch was turned on the Albanese government’s commitment of $2.2bn for the first stage of the SRL, a 26km tunnel between Cheltenham and Box Hill expected to cost up to $34.5 billion.

A second stage would link Box Hill to Tullamarine, but is yet to be committed to by the Allan government.

The PBO was asked by Opposition Leader John Pesutto to test the predicted benefits of the first two stages of the SRL contained in a government business case, against a PBO analysis of the route’s costs released last year.

The Parliamentary Budget Office assessment is likely to inflame debate about whether the SRL presents value for money.

In a report to be released on Thursday, the PBO says construction costs for the 60km tunnel would be about $96bn, while the cost to operate the link over about 50 years would be $120bn.

Those operational costs are reduced in economic modelling by what is known as a social discount rate, applied to all long-term multi-generational projects under Infrastructure Australia guidelines.

The end result was a benefit-cost ratio of 0.6 to 0.7 – meaning for every $1 spent 60 to 70 cents is returned – and an expected net loss of between $10.6bn and $7.4bn.

The discount rate used by the PBO is the same as the one Treasury uses for public transport, but was different to the rate used by the government in its project business case.

The report by the PBO says that the only way to produce a positive result was to also include a variety of wider economic benefits and “urban consolidation” assumptions that would spit out a net positive of $7.1bn to $17.3bn.

Wider economic benefits were used by the Napthine government to justify the East West Link road it wanted to build under central Melbourne, which was later ditched by former Premier Daniel Andrews because it didn’t “stack up”.

Former premier Dan Andrews ditched East West Link because “it didn’t stack up”. Picture: Andrew Henshaw

Opposition transport infrastructure spokesman, David Southwick, said the “Allan Labor Government is throwing taxpayer dollars into a project that simply doesn’t stack up and does not provide a financial benefit for Victorians”.

“A benefit-cost ratio below one demonstrates the SRL will cost more money than it generates,” he said.

“To saddle future-generations with hundreds of billions of dollars of debt to pay for it is financially reckless.”

Premier Jacinta Allan has repeatedly said the project was vital for a booming Melbourne population set to hit 9 million people by mid-century – the scale of London today.

She has told parliament that the SRL is something “we simply can’t afford not to build”.

The State was promised $2.2bn in funding by Anthony Albanese for the SRL East when he led the federal opposition, but an audit of the decision-making around that pledge released on Wednesday shows “no evidence” of a merit review once Labor won the 2022 election.

Acting federal auditor-general Rona Mellor found there was limited documentation from the Commonwealth about meetings, emails and verbal briefings related to SRL East.

Mark Knight’s Suburban Rail Loop cartoon.

But departmental records dated October 17, 2022 show Infrastructure Minister Catherine King’s office asked the department to “hold off on the minister’s requested audit for election commitments above $5m in respect of the project — we will await the project proposal report”.

Opposition infrastructure spokeswoman Bridget McKenzie said: “Now we know there was no merit review process, there was no cost benefit analysis, just an old-fashioned $2.2bn hand-out to Victorian Labor mates colour-coded red”.

Infrastructure Australia, which needs to assess the project before federal funding can be released, is yet to receive information it has requested from the State.

Ms King said SRL was a transformative project for Melburnians that would open up opportunities for new housing and jobs, but there were “additional steps for a project of this size before final funding is released”.

Originally published as Suburban Rail loop: SRL costs will outweigh benefits, analysis reveals