Victorian Infrastructure Red Book

The Victorian Labor Party, led by Premier Daniel Andrews will form government following the Victorian State Election over the weekend. This page outlines the Andrews Government's infrastructure policy and project commitments including an overview of public infrastructure investment and market dynamics.

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November 2022

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The Victorian Labor Party, led by Daniel Andrews, has formed majority government following the Victorian Election over the weekend. We’ve followed the returning government’s commitments over the course of the campaign, and this is what you need to know.

Introduction

The Victorian Labor Party, led by Daniel Andrews, has formed majority government, following another landslide win at the Victorian Election over the weekend. Labor’s election platform has included a strong focus on delivering the existing transport infrastructure pipeline, a significant new program of health infrastructure projects to be delivered over the next decade, and the continued decarbonisation of the State’s energy grid.

At midday on Monday, the composition of the 88 seat Victorian Legislative Assembly stands at 52 seats won by the Victorian Labor Party, 25 seats won by the Victorian Liberals and Nationals, four by the Greens, with seven seats still in doubt.

Analysis of the Andrews Government’s infrastructure policy and project commitments, including an overview of public infrastructure investment and market dynamics, is set out below.

Public infrastructure overview

The returned Andrews Government will continue to deliver the infrastructure investment laid out in the 2022-23 Budget handed down in May. The 2022-23 Victorian Budget projects general government infrastructure funding of $85.3 billion over the period to FY2025-26. While this is $4.9 billion lower than the previous year’s Budget, the forward pipeline of projects remains substantial. This expenditure represents a commitment of around $1.8 billion per month on infrastructure works in Victoria over the next four years.

The Victorian Budget allocates 22.7 per cent of general government expenditure to infrastructure. This is a slight reduction on the 24 per cent share in last year’s Budget but remains the highest among Australia’s jurisdictions.

The Victorian Government’s projected infrastructure spending, compared to the historical trend, is illustrated in Figure 1.

Figure 1: Public Infrastructure Investment

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Source: Public Infrastructure Investment

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Infrastructure market dynamics

The Andrews Government will continue in earnest with the task of delivering an already strong infrastructure pipeline. While the $85.3 billion committed to infrastructure over the next four years in the 2022-23 Victorian Budget is a $4.9 billion moderation on the 2021-22 Budget allocations, it still represents almost 23 per cent of total general government expenditure – and an average monthly spend of $1.8 billion. As revealed in the 2022-23 Australian Infrastructure Budget Monitor, this allocation is the highest across all states and territories in Australia – almost five percentage points greater than second place NSW.

Using Infrastructure Partnerships Australia’s forecast expenditure modelling capability – which looks across both public and private spending – ang average quarterly output of $4.3 billion will be spent on the infrastructure pipeline over the next five years in Victoria. Meanwhile, the quarterly output across Australia averages to $18.3 billion over this same timeframe. Figure 2 shows this national forecast.

Figure 2: Forecast expenditure on Australian infrastructure by state

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Source: Infrastructure Partnerships Australia

In order to deliver this expenditure, the infrastructure labour force in Victoria will be required to grow by 15 per cent by 2024. This growth in labour demand will be partly driven by the ongoing delivery of major road and rail projects in the State, including Suburban Rail Loop East and Suburban Rail Loop – Airport (formerly the Melbourne Airport Rail). However, a new and more unknown challenge is beginning to emerge in the delivery of social infrastructure.

The Victorian Government plans to deliver 8 new or redeveloped hospitals worth $6.5 billion between now and 2029, which will have to be achieved at the same time another 35 hospitals worth $26.7 billion are expected to be delivered across Australia. It is forecast that this growth in the hospital pipeline will cause labour demand for social infrastructure in Australia to grow by over 120 per cent. Figure 3 shows the labour demand profile across Australia over the next five years.

Figure 3: Forecast Labour Demand for the Infrastructure Pipeline in Australia over the next five years

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Source: Infrastructure Partnerships Australia

While these labour shortages are of concern, they are not insurmountable. In experiencing a $5.3 billion underspend during FY2021-22, the Victorian Government has shown that it is well aware of the current skills and supply chain crunch. With the majority of this underspend reprofiled into future years, the Government will have to continue to devise innovative approaches to delivering infrastructure that ensure existing commitments, and those promised in this election campaign, are met.

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Infrastructure policy and reform

The return of the Victorian Labor Government will largely see a continuation of its existing infrastructure policy and reform agenda, with just one major diversionary commitment – re-establishing the State Electricity Commission (SEC) as a broader player in the electricity market. The Andrews Government will also maintain its commitment to the function of a distance-based road user charge for zero- and low-emissions vehicles, which came into effect on 1 July 2021.

The Victorian Government has committed to reinstate the SEC as an energy generation market participant and pledged to protect it within the Victorian Constitution. As part of this, the Government will make an initial $1 billion investment to enable the SEC to take controlling interests in new renewable energy projects and assist the delivery of 4.5 gigawatts of energy generation. The Government has promised to enshrine the SEC in the Victorian Constitution in order to make it more difficult for future governments to remove the SEC.

Infrastructure Partnerships Australia supports ambitious decarbonisation agendas to facilitate a transition to net zero by 2050, however, a move to reinstate the SEC as a market participant induces significant balance sheet risks, and is a dangerous reform direction to lead the State in. The modernisation and reform of energy asset ownership under the Kennett Government laid the foundation of Victoria’s economic success over recent decades, and is a hard-learned lesson that must not be forgotten.

With the Victorian Government facing a daunting challenge of bringing public sector debt under control – and the State’s net debt forecast to reach an eye-watering $167.5 billion in FY2025-26 – sending Victoria back down a path of fiscal uncertainty and exposure to unnecessary commercial risks will be viewed as perplexing, or worse, by industry.

On the transport side of policy and reform, the Andrews Government has maintained its commitment to the historic and world-leading implementation of its distance-based road user charge for zero- and low-emissions vehicles, which came into effect on 1 July 2021. The modest charge applies just 2.6 cents per kilometre for electric and hydrogen vehicles, and 2.1 cents per kilometre for plug-in hybrid electric vehicles, and successfully secures a long-

term funding mechanism for Victoria’s roads. The reform has now been emulated in a majority of Australian jurisdictions.

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Economic and fiscal overview

The 2022-23 Victorian Budget forecasts the economy to grow by 3.25 per cent in FY2022-23, underpinned by improved business conditions and continued investment in infrastructure over the next four years. Economic growth is then expected to range between 2.25 per cent and 2.75 per cent over the forward estimates period.

Victoria’s labour market has also improved, with the unemployment rate forecast to hit four per cent in FY2022-23. The key economic measures assumed in the 2022-23 Budget are summarised in Figure 4.

Figure 4: 2022-23 Victorian Budget key economic indicators

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Source: Victorian Government

On the fiscal front, the State forecasts an operating surplus (net results from transactions) of almost $700 million in FY2025-26. Victoria will continue to borrow to build over the coming years, with net debt set to reach $167.5 billion by June 2026. While net debt is elevated, it remains low by international standards at 26.5 per cent of GSP in FY2025-26. The key fiscal aggregates in the 2022-23 Budget are summarised in Figure 5.

Figure 5: 2022-23 Victorian Budget key fiscal measures

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Source: Victorian Government

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Transport

The re-elected Andrews Government made few major transport infrastructure commitments through the election campaign, instead prioritising its previously announced major project pipeline. Despite this, Victorian Labor made several commitments to smaller additional projects and transport packages throughout the campaign.

The Labor Government’s transport commitments are largely targeted at the rail sector, headlined by a $1 billion regional rail fares package, which will cap the cost of a daily ticket on the regional network at $9.20 for a full fare, or $4.60 for a concession. The package will also cap regional commuters using a myki Pass more than 28 days per year at $5.52 per day. The package will also include the delivery of an additional 200 weekend services on major train lines in regional Victoria.

In regard to major infrastructure projects, the Andrews Government has committed ‘up to’ $650 million for the Melton Line Upgrade. The project comprises the removal of four additional level crossings on the Melton Line by 2028, a new Melton Station and upgraded stabling works at Maddingly, with main works to commence next year. In addition, Victorian Labor has committed to continuing the Level Crossing Removal project, targeting a total of 110 level crossings removed by 2030.

While the Andrews Government’s transport commitments are largely in rail, the Government has committed to funding three intersection upgrades in Melbourne with a combined capital cost of $174 million. This includes a $79 million upgrade at Point Cook, $70 million upgrade at Cranbourne, and $25 million upgrade at Bacchus Marsh. The Labor Government has also committed $125 million to deliver Stage Two of the Barwon Heads Road Duplication project, as well as committing funding to other smaller road upgrade packages including $130 million to upgrade the Watson Street and Hume Freeway interchange in Wallan.

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Social infrastructure

Social infrastructure was the key political battleground in this election, with both major parties committing billions of dollars to health infrastructure, in addition to commitments to education, aged care and social housing infrastructure. The bulk of the Labor Government’s election promises flow to large hospital projects, meaning the Government will need to ensure it carefully manages the expanding pipeline in order to ensure the public and private sectors have capacity to successfully deliver it.

Health

A number of commitments have been made by the Labor Government to health infrastructure projects, with the largest funding allocation signalled for the development of a new Arden medical precinct, which includes upgrade works to the Royal Melbourne Hospital and Royal Women’s Hospital. The project is expected to cost $5 billion to $6 billion and be delivered over 12 years. The Government has committed to an initial $2 billion to $2.5 billion allocation to the project.

Victorian Labor has also outlined a $1 billion Hospital Plan for the North, including an up to $855 million investment to upgrade the Northern Hospital at Epping and an up to $300 million investment to upgrade the Austin Hospital at Heidelberg.

A number of other construction and upgrade works have been signposted for hospitals across the region including:

  • up to $1.1 billion to rebuild and refurbish the Maroondah Hospital, which is to be renamed Queen Elizabeth II Hospital
  • up to $675 million for a new hospital in West Gippsland
  • up to $560 million to upgrade Monash Medical Centre
  • up to $295 million for upgrade works to Dandenong Hospital, and
  • up to $290 million for the redevelopment and expansion of Wonthaggi Hospital.

These election commitments sit alongside an existing health infrastructure pipeline laid out in Victoria’s May 2022-23 Budget, which included $2.9 billion allocated to new and upgraded health infrastructure over the next four years. This comprised a $1 billion commitment to the construction of the Melton Hospital and a $525 million commitment for the Barwon Women and Children’s Hospital in Geelong. The Victorian Government has also previously committed $225 million in funding, alongside $225 million committed from the Federal Government, for the $558 million Albury-Wodonga Base Hospital Redevelopment.

The Andrews Government has also committed up to $170 million to redevelop three public aged care homes in regional Victoria as part of overall investment into social infrastructure.

Education

In education, the Andrews Government has committed up to $850 million for upgrades across at least 89 primary and secondary schools, and $705 million to build and expand approximately 180 government-owned ‘kinders’. A further $717 million has been outlined to assist Catholic and ‘low fee independent schools’, including $450 million to build and upgrade schools across the State, and $250 million to build and upgrade 60 Catholic and independent school kinders.

Housing

The Victorian Labor Government provided no additional commitments to housing during its election campaign, however, will continue with the previously announced $5.5 billion Big Housing Build program.

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Energy

In energy, the Andrews Government has pledged to reinstate the State Electricity Commission (SEC) an energy generation market participant, and enshrine the SEC in the State’s Constitution. This commitment is accompanied by an initial $1 billion of funding to enable the SEC to take controlling interests in new renewable energy projects.

The Victorian Government will also continue its previously announced offshore wind program rollout. The Government announced its offshore wind energy targets earlier this year in March, of two gigawatts of offshore generation by 2032, four gigawatts of offshore wind capacity by 2035, and nine gigawatts by 2040.

In the wider context, the Federal and Victorian Governments entered into an agreement prior to October’s Federal Budget to provide concessional financing for energy projects as part of the Federal Government’s Rewiring the Nation plan. The agreement includes $1.5 billion in concessional financing for Victorian Renewable Energy Zones projects including offshore wind farms, and $750 million concessional financing through the Clean Energy Finance Corporation for the Victoria to New South Wales Interconnector project.

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Water and Waste & Recycling

The Victorian Labor Government provided no additional commitments to water or waste and recycling throughout its election campaign; however, it will continue with previously announced commitments. This includes the ongoing commitment to its Building Victoria’s circular economy plan and the establishment of Recycling Victoria, which will oversee the State’s waste and recycling schemes and provide strategic planning for waste and recycling infrastructure.

For more information
please contact:

Mollie Matich
Director, Policy and Research
Infrastructure Partnerships Australia
[email protected]

Jack Bateman
Senior Policy Adviser | ANZIP Lead
Infrastructure Partnerships Australia
[email protected]

For media enquiries contact:

Boronia Blow
Director, External Affairs
Infrastructure Partnerships Australia
[email protected]