The Albanese government has cautiously agreed to provide about $10 billion in federal funding for Victoria's Suburban Rail Loop, paving the way for the Allan government to sign a major new contract to build and operate the project, according to multiple state and federal government sources.
The commitment follows a formal submission from Victoria to the federal government's expenditure review committee about a month ago, with ministers now signalling in-principle support for the additional funding needed to progress the project.
At the same time, Victoria's budget and finance committee has finalised plans for new state taxes to help fund the SRL, the most expensive infrastructure project in the state's history.
The 90-kilometre orbital rail line is designed to link Cheltenham in Melbourne's south-east to Werribee in the west via Melbourne Airport, with the first stage, SRL East, estimated to cost $34.5 billion.
The proposed federal contribution would account for about a third of that cost, potentially delivered as $1 billion a year over a decade, although a final decision has not yet been made.
Prime Minister Anthony Albanese has previously indicated further funding would be allocated in the 2026 federal budget, after $2.2 billion was approved earlier this year.
A cabinet subcommittee has also approved a value-capture model to raise roughly another third of the funding through mechanisms such as charges on new developments, higher commercial stamp duty and a congestion levy, despite internal concerns the revenue projections are optimistic.
The decision now requires full cabinet approval, with a public announcement expected soon.