Project cuts and delays but Vic debt to soar higher

A long-awaited rail line to Melbourne Airport has hit more turbulence as the Victorian government axes major project spending to curb spiralling debt.

Unveiling his 10th state budget on Tuesday, Treasurer Tim Pallas revealed Melbourne Airport Rail will be completed at least four years later than its original target of 2029.

Early construction on the mega rail project began in 2022 but has stalled as the government and airport remain in a stand-off over whether the Tullamarine station should be elevated or underground.

"We basically are not in a position to have any certainty of what stage this project proceeds," Mr Pallas told reporters.

The Victorian and federal governments have previously committed to contributing $5 billion each to the project, which is expected to cost between $8 billion and $13 billion.

A Melbourne Airport spokesman said the timing has always been a matter for government.

"Melbourne Airport was part of a consortium that offered up to $7 billion towards an underground airport station and express tracks from Sunshine," he said.

"The state government rejected this."

Victorian Treasurer Tim Pallas
Tim Pallas has revealed Melbourne Airport Rail will be finished at least four years late. (Diego Fedele/AAP PHOTOS)

Business, tourism and public transport groups have urged compromise.

"You can't have people walking out of your airport and having to take a bus to carry their bags to the rail station," Victoria Tourism Industry Council chief executive Felicia Mariani said.

The 2024/25 state budget papers shows infrastructure spending is projected to fall from its peak of $24 billion this financial year to $15.6 billion by 2027/28.

"That doesn't mean going from feast to famine," Mr Pallas said.

Labor's signature level crossing removal program hasn't escaped the infrastructure slowdown, with projects along the Upfield train line delayed until at least 2030.

In a major about-face, new campuses for the Royal Melbourne and Royal Women's hospitals will not be built in the Arden precinct, the site of a new Metro Tunnel station.

An investigation found electromagnetic interference from the trains would have interfered with medical instruments, with work to fix the problem likely to cause project delays and extra costs.

The hospitals' Parkville sites will instead be fully redeveloped, with the government flagging more homes will be built in Arden.

Labor committed $2.5 billion to the medical precinct plan before the 2022 state election and was spruiking it as recently as January.

Mr Pallas denied the location change amounted to a broken promise, saying building the hospitals on the site could have compromised patient care.

The government has also pulled the plug on its scheme for casual workers to claim five days of annual sick or carer's pay.

Its scrapping, along with cuts to government advertising and office space, was among $1.79 billion in budget "savings and efficiencies".

Workforce constraints have been blamed for the statewide rollout of universal pre-prep for four-year-olds being completed by 2036 instead of 2032.

Similarly, 35 planned mental health and wellbeing locals will be set up slower than scheduled as Victoria cannot find the extra 2500 psychologists, psychiatrists and mental health nurses required to support the services.

Victorian Opposition leader John Pesutto
John Pesutto is concerned about the implications of the state's mounting debt. (James Ross/AAP PHOTOS)

There were no new taxes in the budget but waste and fire services levies have been hiked marginally.

Parents of school-aged children will pocket a $400 bonus in a $287 million move, one of the only new cost-of-living relief measures.

Net debt is expected to rise to $187.8 billion by the end of 2028, accounting for 25.1 per cent of gross state product.

Interest expenses to service debt are forecast to top $9.4 billion annually by 2027/28 or $25.8 million a day.

Opposition Leader John Pesutto said the government had not done enough to reduce debt or provide cost-of-living relief.

"We will be spending more on interest than we spend on families," he said.


Deficit: $2.2 billion

Revenue: $96.1 billion

Tax revenue: $39 billion

Expenditure: $98.3 billion

Net debt: $156.2 billion by 2024/25, $187.8 billion by 2027/28

Interest repayments: $6.5 billion

Infrastructure investment: $23.3 billion

Employee expenses: $36.5 billion