Victorian budget infrastructure spending cuts add to construction industry concerns

The state’s budget for the 2024-25 financial year (64-page / 4.4MB PDF), published this week, confirms a reduction in infrastructure spending – from AU$24 billion to AU$15.6 billion over the next four years – and delays to key infrastructure projects, including the highly anticipated Melbourne Airport rail link.

Other projects confirmed to have been delayed were new campuses for the Royal Melbourne and Royal Women's hospitals. Plans to build the campuses in the Arden precinct have been scrapped in favour of further developing the existing hospital sites in Parkville, and redeveloping the Arden site, including to accommodate new homes. New hospitals in Diamond Creek/Eltham, Emerald Hill and Torquay have also been delayed.

Overall, the state government has forecast a deficit of AU$15.2 billion (US$9.9 billion) for this financial year, although the budget is expected to reach a surplus by June 2026.

Rebecca Dickson, a construction contracts and project delivery law expert at Pinsent Masons, said the delays may be a concern for the construction industry which would now face greater uncertainty over future projects.

“In the aftermath of long Covid-19 lockdowns in Victoria, the construction industry was heralded as the likely saviour of Victoria’s economy. However, some key infrastructure projects have lost out in the state budget,” Dickson said.

“The news that projects identified as vital for Victoria – including a rail link to Melbourne Airport – are now delayed, may spur further industry frustration with an uncertain project pipeline and procurement timeframes.”

“As the need for new hospitals and upgraded schools grows, we hope to hear the more exciting news of stable and progressive market engagement and efficient approaches to tendering and contracting.”

Dickson added, however, that the decision to delay development of the Melbourne Airport rail link by at least four years may provide the state government and Melbourne Airport the necessary time to resolve ongoing differences over whether the rail line should be built above or below ground.

Further updates in the budget include the allocation of AU$996 million towards Victoria’s Big Build initiative, particularly further additional funding for the Melbourne Metro and West Gate Tunnel projects.

In addition, AU$1.8 billion was allocated to maintaining and upgrading schools, and building 100 new schools by 2026, with a further AU$1.7 billion allocated to building and improving hospitals and health facilities. This includes new emergency departments for the Northern and Austin hospitals, and a new inpatient tower for the Monash Medical Centre.

AU$107 million was also allocated to housing, some of which has been earmarked for the Victorian Building Authority, the state’s building regulator.