Victoria’s public debt is already the highest in the nation, with the state having the lowest credit rating.
One of the drivers behind Victoria’s debt explosion is the state’s wasteful infrastructure binge, often involving giant projects that don’t stack up to rigorous analysis.
Recently, Victoria has seen a cost overrun of $2.5 billion on the Metro Tunnel, $4 billion on the West Gate Tunnel, and $16 billion on the North East Link.
Indeed, The AFR reported this week that Victorians are paying $2.8 million a week in interest on the unfinished North East Link road project, which is now slated to cost $26 billion.
The North East Link State Tolling Corporation, a public entity intended to finance, operate, and collect tolls on the project scheduled to open in 2028, has accumulated $3.9 billion in debt since March 2021. It also paid $145.3 million in interest during the previous financial year.
Marion Terrill, an independent infrastructure expert, warned that the project, originally projected for $16 billion in 2018 and expected to return $1.30 for every $1 spent, would struggle to stack at a far higher cost of $26 billion.
“Six years ago there wasn’t a strong business case. The benefits were expected to very modestly exceed the costs. Now that they’ve blown out so dramatically, it’s hard to see how that can be true”, she said.
“In other words, building this road destroys value”.
The “ruinously expensive” Suburban Loop Project (SRL) will bury Victorians deeper in debt.
The SRL was initially projected to cost $50 billion but has since blown out beyond $200 billion to build and run all three of the project’s stages.
Worse, the Victorian state budget expects the federal government to provide one-third of SRL East’s cost, with another third coming from extra state revenue raising — referred to as “value capture”.
Source: Victorian Budget 2023-24
However, the federal government has signalled that it will not provide the assumed funding.
“The government should be transparent about what is going on”, Terrill said.
“This project is ruinously expensive, and we still don’t have a viable way to pay for it”.
Meanwhile, Victorian Labor MPs have become increasingly nervous and agitated about the SRL after the state’s finances were scrutinised by the auditor-general last week.
According to The AFR, a group of Labor MPs discussed the SRL and the “dam wall broke” with senior figures, including some ministers, expressing their frustration and concern over the project.
“The main gripe was that it is sucking out all of the state budget funding and what is the plan B if Albo [Anthony Albanese] loses the [federal] election and a Coalition government refuses to fund it”, the MP said to The AFR.
The Age also reported this month that Labor MPs – state and federal – are concerned about Premier Jacinta Allan’s determination to push ahead with the project, regardless of cost.
The SRL will inevitably push Victoria farther into debt, resulting in more credit rating downgrades and rising interest payments.
Victorian Premier Jacinta Allan should never have ignored expert advice and signed the first two contracts to build the SRL.
In doing so, she will condemn Victorians to a life of debt servitude.
The project will also starve the rest of the state of vital funding for infrastructure and services.
