State infrastructure funding and financing

Victorian Government infrastructure investments of $10.1 billion in 2017-18 represent 2.5% of the Victorian economy.

The Victorian Government’s approach to funding and financing infrastructure seeks to maximise economic, social and environmental value. The government draws on a range of different funding and financing mechanisms to achieve this.

Regardless of the source, well-targeted investment in infrastructure improve living standards and expand the productive capacity of our economy, which grows the revenue base for future state and Commonwealth budgets.

State funding

Infrastructure can be fully or partially funded by the state by drawing on state revenue through the State Budget. The Victorian Government fully funds many infrastructure projects through the State Budget, including some major projects like the $11.3 billion Metro Tunnel. Fully funding major projects incurs a high cost to the state, making it possible only when the balance sheet is strong.

Commonwealth funding

The Commonwealth provides payments to state and local governments for some infrastructure projects. As the nation’s fastest growing state and home to one in four Australians, around eight percent of infrastructure funding currently flows to Victoria. The Victorian Government advocates for Commonwealth funding equity, and on behalf of state infrastructure projects.

Public sector borrowing

Prudent use of debt for major projects is an important source of finance particularly when the costs of borrowing are low. Many of the transformational projects that have shaped Victoria have been financed in part by debt. Ensuring the state maintains its triple-A credit rating is an important factor in keeping borrowing costs low.

Asset recycling

The government uses ‘asset recycling’ to invest in priority infrastructure projects. State assets are sold or leased and the proceeds are reinvested in infrastructure, effectively ‘recycling’ the value locked up in the existing asset. For instance, the $9.7 billion long-term Port of Melbourne lease has allowed the government to invest in significant infrastructure projects, including level crossing removals, that will deliver benefits for decades to come.

Private sector contributions

The government works with the private sector by contracting them to design, build, finance and maintain infrastructure, through public private partnerships (PPPs). PPPs help to maximise value and share risks that arise from infrastructure projects.

Value creation and capture

Value capture and creation aims to enhance the public value of government activity. Value creation helps to maximise the economic, social and environmental outcomes of a project, above and beyond the direct consequences of what government could achieve alone. Value capture harnesses the economic value created by government investments, activities and policies and helps to generate alternative revenue streams to offset the government’s original investment.