Building inflation won't hit rail loop price: treasurer

Victoria can overcome a $20 billion funding gap to build the contentious Suburban Rail Loop and spiralling construction costs will not blow out the final price tag, the treasurer insists.

Tuesday's federal budget had no new cash for the Victorian government's pet infrastructure project, 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 of the rail line from Cheltenham to Box Hill.

It is counting on the federal government to cover a third of the project's total cost but has only received a $2.2 billion commitment so far.

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

Mr Pallas said the Victorian government was working with Infrastructure Australia, the independent assessor for projects of national significance, to secure more federal cash for the project.

A map of Melbourne's proposed Suburban Rail Loop
The Suburban Rail Loop is expected to cost up to $34.5 billion for the first stage alone.

"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 told a budget estimates hearing on Thursday.

"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."

Infrastructure Australia did not evaluate the rail loop's 2021 business case, to recommend if it should be placed on a priority project list, before Anthony Albanese's $2.2 billion pledge during the 2022 federal election campaign.

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 funding shortfall would not hinder the project's delivery in the medium term and took faith in federal budget finding an extra $3.25 billion for the cost-plagued North East Link toll road.

Despite the state budget flagging construction costs have jumped 22 per cent since 2021, Mr Pallas rejected they would to push the eastern section's estimated price beyond $42 billion.

"We remain confident that the range that we've identified is deliverable," he said.

Premier Jacinta Allan was similarly dismissive of a suggestion from Nationals MP Danny O'Brien that the price estimate was out of date given the rise in construction costs.

"I certainly am not going to accept any numbers that have been drawn up on an Liberal National Party envelope," she said.

Ms Allan was joined at the hearing by former COVID commander Jeroen Weimar, who is leading the government's implementation of the housing statement and answered questions about its bold target to build 800,000 homes across Victoria over the next decade.

The state budget, Mr Pallas' 10th as treasurer, showed 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 remains committed to reducing debt as a share of the Victorian economy and working to convince credit rating agencies the state was on the right fiscal track.

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