Gus McCubbing and Patrick Durkin
Australian Financial Review, November 25, 2024
Victorians are paying $2.8 million a week in interest on the unfinished North East Link road project, the cost of which has blown out to $26 billion, annual reports and documents obtained under freedom of information show.
The North East Link State Tolling Corporation, a public agency established to finance, operate and collect tolls on the road, which is expected to open in 2028, has incurred $3.9 billion in debt since March 2021. It also paid $145.3 million in interest during the last financial year.
A ministerial brief from June 2023, obtained by the state opposition under freedom of information and provided to The Australian Financial Review, shows Treasurer Tim Pallas approved raising the agency’s borrowing limit from $644.3 million to $2.35 billion.
Treasury justified the increase by saying “the future toll revenue stream will be sufficient to repay the debt that is capitalised during the North East Link construction phase”.
Independent infrastructure expert Marion Terrill said the project, which was forecast to return $1.30 for every $1 spent when it was originally budgeted for $16 billion in 2018, would struggle to stack at a blown-out cost of $26 billion.
“Six years ago there wasn’t a strong business case. The benefits were expected to very modestly exceed the costs. Now that they’ve blown out so dramatically, it’s hard to see how that can be true,” Ms Terrill said.
“In other words, building this road destroys value.”
The former Grattan Institute transport and cities program director also said the government’s plan for drivers to pay back rapidly escalating capital costs on the project with potentially higher toll fees would damage its social utility.
This comes as household income in Victoria has fallen behind Tasmania for the first time, according to an extensive audit of the state’s finances by economist Saul Eslake.
“Pushing extra cost onto drivers has a perverse effect on the ultimate point of the road, which is for people to use it,” Ms Terrill said.
“In Sydney, having excessively high tolls, and too many of them, has proven a real political headache. There’s been a number of short-term toll relief measures to deal with excessive tolls without an overall strategy for movement in the city.”
The North East Link has been presented as the “missing link” between the eastern end of Melbourne’s M80 Ring Road in the northern suburb of Greensborough and the Eastern Freeway-Bulleen Road intersection.
Annual reports also showed that the tolling corporation employed 23 staff members earning on average $244,000 a year, including 4.37 full-time equivalent executives who pocketed an average of $352,000 each.
Victorian Premier Jacinta Allan has said the link would take 15,000 trucks a day off local roads, save 35 minutes in travel time from the east to the outer north, and create 12,000 jobs, as well as supporting a “productive economy”.
“We set up the first-ever Victorian state-owned tolling corporation to help build transformational road projects like the North East Link – which will cut travel times and get trucks off local roads,” a state government spokesman said on Monday.
“The majority of road projects of this scale in Australia are delivered with partners like Transurban. Using a state-owned toll road operator for North East Link means Victorians get a better deal, while the toll road market becomes more competitive.”
David Hayward, emeritus professor of public policy at RMIT University, said toll roads were basically “a licence to print money” and he was confident the debts would be recouped, but drivers were right to feel dudded by the blowouts.
“When the government decided to get private companies to build infrastructure, the argument was that it would lead to efficiencies, and they’d stop getting blowouts, but that obviously hasn’t happened,” he said.
“It’s easy money for private companies, and it gets footed by the public purse. At the end of the day – there’s a lack of discipline around spending.”
Institute of Public Affairs research fellow Lachlan Clark said the main problem with extending the borrowing capacity of the tolling corporation was that it exposed Victoria’s balance sheet right “at the moment it is most vulnerable”.
Transport experts this year blamed the North East Link’s $10 billion blowout on costly CFMEU disruptions, a failed tender process and expensive design decisions that pander to environmental and community groups.
The Albanese government in May committed an extra $3.2 billion of funding to the project – which is on track to become the most expensive road in Victoria’s history – increasing the federal funding to $5 billion. Opposition finance spokeswoman Jess Wilson said the project’s blowouts would leave motorists paying higher tolls for longer.