With rail loop cash hole, state woos federal assessor

Tuesday's federal budget had no new cash for the Victorian government's pet project, the Suburban Rail Loop, which is expected to cost up to $34.5 billion for the first stage alone.

The state has pledged $11.8 billion to build the eastern section from Cheltenham to Box Hill and is counting on the federal government to cover a third of the project's total cost but has received only a $2.2 billion commitment so far.

The other third of funding is expected to come from "value capture" revenue.

At a state budget estimates hearing on Thursday, Mr Pallas said the Victorian government was working with the independent assessor for projects of national significance to secure more federal cash for the project.

"We know that the prime minister is a supporter of this project, and he was standing with the premier when we announced this project," the treasurer said.

"We will need to go through the appropriate processes of engagement with Infrastructure Australia and provide them with the surety and certainty of the work that's already been done around the business case that was produced a couple of years ago."

Infrastructure Australia did not evaluate the rail loop's business case, to recommend if it represented value for money and should be placed on a priority project list, before Anthony Albanese's $2.2 billion pledge before the 2022 federal election.

The Suburban Rail Loop, a planned 90km orbital rail line from Cheltenham to Werribee via Melbourne Airport, was subsequently exempted from a federal review that led to the axing of 50 infrastructure projects in 2023.

Mr Pallas said the federal funding shortfall would not hinder the project's delivery in the medium term and took faith from federal counterpart Jim Chalmers handing out an extra $3.25 billion to the North East Link project after the toll road's total cost blew out to $26.1 billion.

"From our perspective, yes, we've got to prove up the case ... and we are confident the funds will come in," he said.

Despite the state budget flagging construction costs have jumped 22 per cent since 2021, Mr Pallas insists the contentious project's eastern section is deliverable within the business case's estimated cost range of $30 billion to $34.5 billion.

The treasurer said a 7.5 per cent consumer levy on short-stay accommodation such as Airbnb and Stayz did not appear in his 10th budget, delivered on May 7, because the reforms were yet to pass parliament.

The forecast takings from the incoming tax were incorporated into "other revenue" and are expected to net the state $37.5 million in 2024/25 and $75 million for each financial year across the rest of the forward estimates.

The Australian-first levy is expected to affect about 36,000 properties across the state when it comes into effect from January 1, 2025.

The state budget revealed Victoria's net debt is forecast to reach $156.2 billion by 2024/25 and rise to $187.8 billion by 2027/28, pushing up the daily interest bill to almost $26 million.

Mr Pallas reiterated the government was committed to reducing debt as a share of the Victorian economy and was working to convince credit rating agencies the state was on the right fiscal track.

Australian Associated Press