Melbourne’s biggest rail project is likely to cost billions more than the benefits which it is expected to deliver, a new report has found.

The Victorian Parliamentary Budget Office has released its cost benefit analysis for the East and North section of the Suburban Rail Loop.

On a net present value basis, it found that if its ‘Central’ 7 percent per annum discount rate was applied, the cost to build the East and North sections of the SRL and to operate these sections for 50 years would exceed the benefits by between $7.4 billion and $10.6 billion.

This would deliver benefit to cost ratio of between only 0.6 and 0.7 to 1.

In other words, for every dollar that was invested to build and operate the project for 50 years, SRL East and SRL North would deliver only between $0.60 and $0.70 in benefits.

Only on the project’s ‘low’ discount rate of four percent would the project deliver benefits which exceed its costs.

The analysis contradicts a previous business case released by the Victorian Government in 2021, which found that SRL East and SRL North delivered benefits which exceeded the costs by a factor of between 1.1 and 1.7 to one.

That business case, however, has been heavily criticised by the state’s Auditor General on grounds of its inclusion of wider economic benefits and the adoption of a low 4 percent discount rate used to calculate the present value of future costs and benefits which are associated with the project.

(map of SRL)

Announced by the current Victorian Labor Government in the lead-up to the 2018 Victorian State Election, the Suburban Rail Loop is a planned 90-kilometre orbital railway line that will connect Cheltenham in Melbourne’s south to Werribee in the west and would connect major Melbourne metropolitan railway lines from the Frankston Line to the Werribee line through Melbourne Airport.

The project provides railway connections between Melbourne’s middle suburbs and would establish three transport super hubs at Clayton, Broadmeadows and Sunshine. These super hubs will connect SRL services with regional services and will mean that passengers who travel outside Melbourne will have less need to travel through the Melbourne CBD.

The project is being delivered through four stages:

• SRL East, which is currently under construction and will connect Cheltenham to Box Hill via a new transport super hub at Clayton (expected opening 2035).
• SRL North, which will initially extend from Box Hill to Reservoir and will then extend to Melbourne Airport via a new transport super hub at Broadmeadows.
• SRL Airport, which will extend from Melbourne Airport to a new transport super hub at Sunshine (construction commenced in 2022, with completion originally expected in 2029 but now not expected until at least 2033 as a result of delays).
• SRL West, the final stage of the line that will extend from the new transport super hub at Sunshine to Werribee.

The business case and analysis referred to above relates only to SLR East and SRL North.

SRL West is still in the early planning stages whilst construction on SRL Airport began in 2022.

The release of the Parliamentary Budget Office advice comes after the office received a request from Opposition Leader John Pesutto to provide independent advice comparing the cost to building and operate the East and North sections of the SRL for the first 50 years with the expected benefits of doing so.

As part of its analysis, the Office has applied ‘low’, ‘central’ and ‘high’ annual discount rates of four, seven and ten percent respectively to discount the real value of benefits and costs (In 2020 dollars) which the project is expected to deliver.

This approach is consistent with that which is recommended by Infrastructure Australia in its Assessment Framework.

Under its ‘central’ scenario, the Parliamentary Budget Office believes that the project will deliver benefits over its first 50 years of between $16.7 billion and $19.7 billion in 2020 dollars.

This, however, will be outweighed by expected costs to build and operate the two sections over that period of $27.3 billion.

It is only when the low discount rate of four percent is applied that the expected benefits ($48.5 billion to $58.7 billion) will outweigh the expected costs of $41.4 billion.

Whilst the approach to discounting future benefits and costs which has been adopted by the Parliamentary Budget Office is consistent with that recommended by Infrastructure Australia, it contrasts with that which was adopted by the Victorian Government in its original business case that was published in 2021.

That business case adopted a low four percent discount rate in its benefit to cost analysis.

That much lower discount rate produced a more favourable result as it gave a higher value to the benefits of the project, which are only expected to begin flowing once the project is in operation.

Victorian Shadow Minister for Transport and Infrastructure David Southwick hit out at the Government.

Southwick said that the SRL East and North sections will cost Victorians more than they will ever return at a time of funding crisis in areas such as health, housing, education and crime prevention.

“The Allan Labor Government is throwing taxpayer dollars into a project that simply doesn’t stack up and does not provide a financial benefit for Victorians,” Southwick said in a statement.

“A benefit-cost ratio below one demonstrates the SRL will cost more money than it generates. To saddle future-generations with hundreds of billions of dollars of debt to pay for it is financially reckless.

“Labor cannot manage money, cannot manage infrastructure projects and Victorians are and will be paying the price long into the future.”

However, Victorian Minister for Transport Infrastructure Danny Pearson said the project would deliver significant benefits, especially given an expected population spit for Victoria over the next several decades.

“This project just stacks up…we’re going to create 70,000 homes along the corridor and we’re going to provide modern transport infrastructure to Australia’s largest university,” he told reporters.

“We’re going to be the size of London by the 2050s and that’s going to come in the blink of an eye, that’s why we have to get on and deliver this project.”

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