The federal government has effectively provided Victoria with a financial bailout by delivering the state around $7.5 billion in extra GST revenue over two years, meaning it will receive $1.07 for every dollar raised in 2025-26.
Victoria’s GST ‘bailout’ has come at the expense of New South Wales, which has received a diminishing share of the GST (0.86 cents per dollar raised), despite receiving the nation’s largest intake of migrants, which requires new infrastructure and services.
Even so, Victoria is in dire financial straits. The Victorian government has pursued wasteful projects and overspent its budget. As a result, Victoria has the nation’s poorest credit rating (AA) and the highest per capita debt.
The major credit rating agencies have warned that unless Victoria gets its debt under control, it will face more downgrades.
Interest repayments on Victoria’s debt are already forecast to climb to $10.6 billion annually by FY 2029 and would increase with any downgrade.
One central area of concern for the ratings agencies is the Victorian government’s pet infrastructure boondoggle, the Suburban Rail Loop (SRL).
The Victorian government has committed to proceeding with the $34.5 billion first stage of the SRL, but has only secured funding for $14 billion (including the federal government’s existing $2.2 billion commitment).
Source: Victorian Budget 2023-24
In August, ratings agency S&P warned of an “elevated risk” that the flagship SRL project could lead to a ratings downgrade, citing concerns that the project could cost more than the government has forecast. S&P also cautioned that the federal government has yet to commit to providing the expected “matching contribution”:
“The Victorian Auditor-General’s Office and Victorian Ombudsman both raised concerns about certain governance practices not following established investment processes and guidelines, such as those on Victoria’s largest-ever project—the Suburban Rail Loop”, S&P said.
“The government estimates the first stage of the project will cost up to A$34.5 billion…
“We see an elevated risk that this project will cost more than the government forecasts. This is given the size and complexities of the undertaking, concerns raised by the Victorian Auditor-General’s Office and Victorian Ombudsman in the planning and costings, and the state’s recent history of major projects going well over budget”.
“Both agencies cited lack of engagement with the key transport department, excessive secrecy, and assumptions in the cost-benefit analysis that were inconsistent with the government’s own guidelines”.
“The central government has yet to commit the additional A$9.6 billion the state is seeking in its business case”.
“If Victoria pushes ahead with the project without additional central government funding, it could weaken the state’s fiscal outlook”, S&P warned.
The Herald-Sun reports that the Victorian Allan government has made a formal request for $9.3 billion in federal funds for the first stage of the SRL:
A funding request was submitted on September 1 as part of the Albanese government’s mid-year economic and fiscal outlook process — a key part of how states seek new funding in upcoming federal budgets.
Officials at the federal infrastructure department confirmed that the request had been made and said it would be considered through the usual budget processes.
They also said that new information provided by Victoria that had not been sent to Infrastructure Australia during a previous assessment — including about project risks such as value capture funding forecasts — would be worked through before funding could be allocated…
The SRL East is estimated at $30-34.5 billion in a 2021 business case, but industry experts have warned that post-Covid cost hikes were likely to blow that budget…
Infrastructure Australia also raised concerns about whether cost forecasts could be met while assessing the $2.2 billion funding pledge.
“Based on the information provided, we have low confidence in the cost estimate for SRL East, presenting a major risk to the SRL East project, and the SRL Program as a whole,” the Infrastructure Australia assessment states…
So, will the Albanese government bail out its Labor mates in Victoria, thus averting further credit rating downgrades?
If the federal government gives the SRL more funding, it will be another bailout for a wasteful project that should never have been approved.
The SRL boondoggle risks burying Victorians in debt and starving Melbourne’s growth areas of infrastructure and services for a decade.
