The Suburban Rail Loop is a money sink - Grattan Institute

The Suburban Rail Loop is all systems go, it would seem. Never mind that the federal government is refusing to commit to the hoped-for billions the state government has been banking on – Victoria plans to get cracking on the construction now and worry later about how to fund it. The best that Victorian taxpayers can hope for is that our state government has a change of heart on this massive money-sink.

On Tuesday, the state government reaffirmed its plans to build the first stage of the 90-kilometre new passenger rail line that will link Cheltenham to Werribee, via Box Bill, Bundoora and Broadmeadows.

Construction of the Eastern section, from Cheltenham to Box Hill, is expected to cost $30 to $35 billion, according to the business and investment case. Intriguingly, that same case also claims that construction from Cheltenham to the airport plus 50 years of operations will cost $31 to $51 billion.

The costs are hotly disputed, with the independent Parliamentary Budget Office estimating the East and North, plus 50 years operations, would cost a whopping $200 billion.

The federal government promised $2.2 billion towards the Suburban Rail Loop during the federal election campaign, and made good on that promise in its October 2022 budget. But that’s it. Infrastructure Minister Catherine King is fixing a gimlet eye on the overstuffed infrastructure pipeline, and has made it clear she won’t look favourably on projects that haven’t been through a proper costing process.

The federal government’s spending discipline reflects that it carries a debt equivalent to 22 per cent of GDP, and that it is operating in an environment of higher inflation and interest rates, with upside risks. Moreover, just last week, the International Monetary Fund recommended a more measured and co-ordinated approach to building public infrastructure to alleviate inflationary pressures.

It’s no secret that now is a particularly expensive time build: transport infrastructure costs have spiked since 2021, due to shortages in labour, equipment and materials.

It’s not as though Victoria has much fiscal headroom either. Victoria’s debt is $116 billion and heading towards 25 per cent of GDP – a ratio that means we can’t afford for anything too major to go wrong. That’s why this year the Victorian government has announced that it was cancelling the Commonwealth Games and delaying the Melbourne Airport Rail and Geelong Fast Rail indefinitely. Hard choices perhaps, but at a combined cost of about $24 billion, these projects are nowhere near as expensive as even the first stage of Suburban Rail Loop.

Supporters of the Suburban Rail Loop may argue that it’s too late to back out. Just consider the $1.1 billion it cost Victorians to back out of the East West Link contract back in 2015, or the half a billion to back out of the Commonwealth Games this year. These costs are high, but the costs of proceeding would have been far higher.

The Suburban Rail Loop was promised ahead of the 2018 election, well before our response to the pandemic radically changed the patterns of work and travel of many Melburnians. Now that more people work from home, public transport projects are less certain. How plausible will it be to fill a train between Glen Waverley and Doncaster, for instance, or Cheltenham and Reservoir? And if trains aren’t full, how often will they run?

The five years since the Suburban Rail Loop was announced has been a time of change: federal and state budgets have gone from somewhat healthy to highly indebted, inflation has gone from very low to rather high, and a pandemic upended our community. The world changes more quickly than project spruikers would have you believe.

Looking forward, two things need to happen. First, with the federal government pulling back, Victoria needs to bite the bullet and cancel this project. Given we don’t have a sensible way to pay for it, the sooner it’s off the books the better. And second, federal and state governments should make sure we don’t end up here again. They should establish and enforce proper processes for development and appraisal of potential infrastructure ideas, including getting Infrastructure Australia to appraise a business case for any major project before any decision to invest even a dollar, let alone a generation’s worth of infrastructure spending.

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Danielle Wood – CEO