The Victorian Auditor-General's Office (VAGO) on the 19 February 2025 released their Major Projects Performance Reporting 2024. The report highlighted an increase in total estimated investment of $11.66 billion, or 8.7% of budgeted expenditure, on major projects.
Below, our Economists Ben Mason and Dinesh Kumareswaran lend their vast experience in the economics of public sector infrastructure projects to summarise a few key issues.
Two key themes underpin VAGO’s findings:
1. There is currently insufficient transparency in public reporting for Parliament, and to the Victorian community, to understand why these projected costs have increased. Are the increases due to overruns and poor project management, or are they due to changes in the scope of projects? The Victorian Minister for Transport Infrastructure has disputed the accuracy of VAGO’s $11.66 billion estimate but has also declined to provide the ‘correct’ figure. This simply demonstrates VAGO’s point about the lack of transparency.
2. When the scope of a project changes, there is no systematic reassessment of its expected costs and benefits to ensure that the new scope represents value for money. The Minister has also argued that scope changes can arise following “community consultation” and “feedback from the community.” Whilst community consultation is essential, it is not a substitute for sound and dispassionate cost-benefit analysis that ensures public money is invested well. VAGO is correct that it is incumbent on government agencies to justify the value-for-money of scope changes through a proper assessment of expected costs and benefits.
VAGO also highlighted that the substantial increase in total expected costs suggests that cost estimation is not always reliable at business case or investment decision stages, and that business cases for major projects are not adequately accounting for the uncertainty and variability of construction costs. This is a serious problem given the scale of infrastructure investment in Victoria, and the current weak fiscal position of the State.
This report by VAGO makes an important contribution to the Victorian community by seeking to improve transparency around variance in project costs, timelines, and scope, and by urging that government decisions about public investment be guided by reliable business cases. VAGO also plays a critical role in providing impartial assurance to Parliament and the Victorian community about how effectively government agencies are providing services and using public money.
