Victorian Premier Jacinta Allan reveals $10-billion blowout on North East Link

ABC Victorian state political reporter Richard Willingham

Victoria’s most costly road project — the North East Link — has become even more expensive after a $10-billion budget blowout.

Premier Jacinta Allan this morning announced the cost of the North East Link project had increased to almost $26 billion dollars, saying there were additional works for the road and tunnel project as well as increased pressures on the budget.

In 2019, the price tag was $16 billion — a 2008 plan discussed during the Brumby government suggested the project could be built for $6 billion.

“I don’t think anyone is particularly happy, there is certainly great frustration, great frustration and disappointment … particularly at the cost escalation that’s come as a consequence of the COVID pandemic and the war in Ukraine,” Ms Allan said.

But earlier this week Infrastructure Australia found a scarcity of material and a 230,000-person labour shortage was driving up the price of major projects.

An aerial artist impression of road on-ramps and off-ramps connecting traffic to the proposed Eastern Freeway interchange.
An artist’s impression of the Eastern Freeway interchange once the North East Link project is completed.(Supplied: Victorian Government)

Ms Allan labelled the extra $10 billion an additional investment in the project, which will add to the state’s already large debt.

The Premier revealed the cost blowout this morning while announcing a $5.7-billion contract to upgrade the Eastern Freeway from Burke Road to Tram Road as part of the North East Link.

Another $3.8-billion contract has been inked to upgrade the M80 Ring Road Upgrade at the northern end of the North East Link.

“This is productive infrastructure, supporting a productive economy,” Ms Allan said.

Opposition says hefty price tag ‘should shock all Victorians’

The Commonwealth government is contributing $1.75 billion to the project, but Ms Allan said she would continue to lobby for more investment.

Of the $10-billion blowout, $3.1 billion is due to an increase in building materials.

Nearly $2 billion has been added to the price tag to build longer tunnels, and another $2.5 billion is due to additional works on the existing Eastern Freeway and M80 Ring Road.

North East Link construction site
Construction on parts of the North East Link project have intensified in recent months.( ABC News: Kyle Harley )

Shadow Major Projects Minister David Southwick laid the blame on the premier, who had overseen the project as a minister under her predecessor Daniel Andrews.

“She is renowned for her cost blowouts, but the scale of this latest blowout should shock all Victorians,” Mr Southwick said.

“This project has blown out by more than $1 billion a month since a cost update was provided in the May budget.

“The scale of this blowout demonstrates that Labor’s major project budget figures can no longer be believed.”

The budget blowout has largely driven a surge in Victoria’s net debt to a record $177.8 billion in 2026-27, representing a quarter of Victoria’s economy.

It is an increase of $6.4 billion from May’s budget.

The state’s more immediate financial position has slightly improved, with this year’s deficit forecast to only rise by $3.5 billion, an improvement of $500 million.

Tax revenue continues to climb, with stamp duty forecast to increase by 7.9 per cent per year over the next four years, after several years of decline.

Busy pipeline of projects risks overheating market, expert warns

Experts have warned Victoria needs to carefully stagger major project builds to ensure there is an available workforce as well as access to materials.

Woman wearing a black top and light grey blazer leaning against a brick wall.
Infrastructure analyst Marion Terrill says the market is at capacity.(ABC News: Scott Jewel)

Grattan Institute infrastructure expert Marion Terrill warned this week that forging ahead with the Suburban Rail Loop while projects like the North East Link were underway risked overheating the market.

“The infrastructure market is at capacity,” she said.

“And that’s now a question of project slippage, not if, but when, and by how much and at what cost.

“So it’s really not prudent to go ahead and push more work into to an already overheated market. When you do that, you just push up the costs.”

The state government said it had created a pipeline of work to ensure workers could finish on one job and then start on another.

Posted on the ABC Website 15 Dec 2023, updated 15 Dec 2023. See: https://www.abc.net.au/news/2023-12-15/north-east-link-vic-budget-blowout-jacinta-allan/103232986.