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Eventually, something’s got to give.
Victorian Labor returned to power at the end of 2022 promising the public they could have everything they needed. The opposition pledged to scrap the Suburban Rail Loop to fund fixing the health system, but then premier Daniel Andrews used this promise as a wedge to say governments needed to deliver in both areas.
Treasurer Tim Pallas delivers the bad news on Friday.Credit: Wayne Taylor
“Not rail or hospitals. Both.” he tweeted ahead of the election while referencing the Old El Paso advertisement in which a little girl reveals we can live in a world where soft and hard tacos are consumed peacefully.
The voting public agreed with Andrews, but revelations on Friday that the North East Link is going to cost $10 billion more than forecast show that this logic is not flawless, and as a state, we may need to assess our priorities.
Budget blowouts have been announced and weathered by this government before. The $14 billion Metro Tunnel bill rose by $2.74 billion and was revised further across the pandemic. The infamous $10.8 billion bill for the West Gate Tunnel increased by $4 billion and its final price is not set in stone while it remains a hotspot for industrial disputes.
But the North East Link’s revised $26.1 billion value shows a more difficult financial environment where these blowouts are getting bigger and their impacts are being felt harder. It should also be noted that bigger projects lead to bigger blowouts, so Victoria’s largest road project was always in danger of being more exposed to these pressures.
Amid this context, the Allan government this week announced it had signed a $3.6 billion tunnelling contract for its largest project yet, the Suburban Rail Loop. It is hoped that breaking this $35 billion underground railway into smaller packages will manage price escalations.
Yet, it is difficult to imagine the rail loop will be delivered within this budget without a significant change to how infrastructure is built. The cement, steel and electricity Premier Jacinta Allan cited as “additional cost pressures” on the North East Link are vital to the construction of this project too, even if it does have the benefit of not having to link in withing existing infrastructure which can often drive up costs.
By 2027, net debt will be $177.8 billion and the state will spend $8.8 billion a year on interest payments. This will also influence funding decisions on issues we don’t even know about yet.
Allan and Treasurer Tim Pallas were rightly asked on Friday if we could afford to embark on one mega-project while ramping up another that is significantly over expectations. Pallas said the state could afford both because the risks were too great to not invest in the Victorian community.
However, in the same breath he acknowledged that the state’s infrastructure program was limiting private sector efforts to create housing, at a time when Victoria wants to build 80,000 homes a year and rents are soaring.
Pallas has previously suggested there needs to be a rethink on the timing of infrastructure, and on Friday said he’d like to see the average $21.3 billion spent each year come down because of “the crowding out effect that it’s having on the private sector”.
It is jarring to admit this is a problem the same week your government signs construction contracts worth $13.8 billion.
There is probably no better environment to suggest major projects should be delayed and take pressure out of the market, as the Commonwealth has. Despite this, the government will never back down on the rail loop. It has previously argued that delaying the project will only make it more expensive.
“Things cost what they cost,” Andrews would often say when asked about previous blowouts.
But costs aren’t just numbers in a budget, they correspond with real people and real policies, and if Victoria is going to keep spending on these projects, it is important to note what else is at stake.
The allowances paid to foster and kinship carers are among the lowest in the country, despite significant pressure on the child protection system and internal reports recommending the government address this.
Ten community hospitals promised at the 2018 election are having their scope reviewed as they are well over budget. Damaging floods have contributed to a regional road network in a dire state of disrepair.
There are massive staff shortages in essential services such as teaching, health and child protection despite genuine government efforts to recruit in this space. Consultancy use is on the rise even as the government tries to cut parts of the public service.
Whatever your position is on the Suburban Rail Loop, even the former secretary of the Department of Economic Development, Jobs, Transport and Resources acknowledged the project had not always been considered in the context of what it was blocking out.
“A project of this scale and complexity necessarily competes with many other claims on public funds – in all portfolios, not only transport,” he told the Victorian Ombudsman in a recent report.
“That the opportunity costs of the SRL were not able to be tested by DEDJTR [Department of Economic Development, Jobs, Transport and Resources] and Department of Treasury and Finance creates a high risk that better uses of funds have been crowded out.“
The Allan government is steadfast in the idea that the rail loop will reshape the way Victoria functions, and thinking big with reform is something to be encouraged. Voters have tended to agree.
But that is not a blank cheque, and the public is right to question the timing, scope and which resources are being diverted away to maintain the state’s Big Build, particularly when the treasurer wants more money from the Commonwealth and accuses his federal counterparts of treating Victoria with contempt.
It might also be time to reassess how we justify government spending. Funding predictions contained in two separate business cases, for the Commonwealth Games and the North East Link, have been wildly off the mark. This should be a concern when politicians take these figures to an election.
Daniel Andrews promised “both”. Voters are discovering now there is always a choice involved.
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