Treasurer says big transport projects close to ‘tapping out’

Key points

  • Government will spend about $19 billion on projects this financial year.
  • Tim Pallas says the government could stagger its future projects.
  • Lack of skilled workers and higher material costs   are making it more difficult for firms to complete projects.

Construction firms are struggling to build Victoria’s massive pipeline of road and rail projects, prompting Treasurer Tim Pallas to flag a future slowdown in infrastructure spending to avoid more cost blowouts.

The Andrews government will spend about $19 billion on projects this financial year and more than $21 billion on average over the next four years, a four-fold increase to the state’s infrastructure spending between 2005 and 2015. More than $23 billion will be spent in 2023-24.

Treasurer Tim Pallas Credit:Joe Armao

But the capacity of the construction sector to keep pace with the government’s ambitions could “tap out” at about $18-$20 billion, Pallas said on Tuesday.

The Treasurer said the government could stagger its future projects, the largest of which is the Suburban Rail Loop, the first stage of which will cost up to $34.5bn and open in 2035. The government has been criticised by some experts and the state opposition for the scale of its infrastructure agenda and ability to pay for it.

“So we’ll have to, over time, make a value judgment about exactly how quickly we can deliver on projects,” he said without naming specific projects. “The industry is demonstrating signs of stress, both in terms of competitive capacity in terms of skills, and in terms of resources availability.”

“Where the government has made commitments around timelines we try as best we can.

“Quite frankly, we are starting to get a better appreciation of how to deal with these projects and how to manage them.”

The government has been criticised by some experts and the state opposition for the scale of its popular infrastructure agenda and ability to pay for it.

The budget included close to $6 billion in project cost over-runs, though the bulk of this stems from the West Gate Tunnel project and will eventually be paid by private firms. The government’s approximately $1.9 billion blowout on the tunnel project was confirmed in the budget.

A $2.5 billion suburban road upgrade program will cost $300 million more than expected due to market conditions, while the government will spend almost $2.5 billion to get rid of 10 extra level crossings.

A lack of skilled workers and higher material costs, driven by global inflationary pressures, are making it more difficult for firms to complete projects.

The budget papers acknowledge “market capacity constraints due to high levels of infrastructure activity” are putting pressure on builders.

“With a high number of projects well advanced in delivery, a growing focus for the government is the efficient commissioning of new infrastructure to ensure public value is maximised.”

Tim Piper, the Victorian head of employer association Ai Group, welcomed the government infrastructure spending while suggesting industry was running hot due to labour shortages.

The Metro Tunnel project will be completed in the next few years..Credit:Joe Armao

“The program for delivering this infrastructure will also need to take into account and address industry’s overall capacity to meet the additional demands,” he said.

“We know that industry is concerned at the lack of labour and particularly skilled workers. This effectively constrains capacity. We hope government will be recognising these constraints and actively pursuing an agenda to develop industry capabilities and particularly workforce capabilities.

“This is a budget with the government’s eyes firmly set on November and ensuring its social agenda is pursued.

“The government projections are for the state to have a lower growth rate than the rest of the country as a whole over the next two years. We expect the government’s ambition would be to at least meet, if not do better than, the rest of the Australian economy.”

The Metro Tunnel project will exceed its cost forecast by more than $2.5 billion. The budget includes spending for 300 train drivers and station staff who will soon be hired to work in the tunnel when it opens in a few years’ time.

Regional commuters will benefit from $250 million worth of new VLocity trains and $205 million in V-Line upgrades.

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