FEDERAL funding for the Melbourne Metro rail project would see Victoria's GST share slashed by hundreds of millions of dollars more than if a national road project was given the money.
Under Commonwealth infrastructure funding rules, the amount of GST given to a state is reduced significantly if money is given to a rail project.
But if a "national network" road gets a federal cash injection, there is a 50 per cent "discount" on the GST clawback.
A Victorian Treasury analysis shows that after a $3.2 billion federal cash injection for the Regional Rail Link, $2.2 billion will be ripped from Victoria's share of tax revenue.
If the money were spent on a national road instead, the clawback would only be $1.2 billion.
The Metro project, which is a 9km rail tunnel through inner Melbourne with new underground stations at North Melbourne, Parkville, CBD North, CBD South and the Domain, will cost billions to build.
This means if federal funding is provided for part of the project, GST cuts would be hundreds of millions of dollars more than if a road were funded instead.
Victorian Treasurer Michael O'Brien raised the issue personally with Federal Treasurer Wayne Swan earlier this month, but there was no commitment to resolve it.
"The federal government view seems to be that if you build a national road project, they will support you. But if you dare to build a significant rail project, then we will treat you much more harshly," Mr O'Brien said.
"The effect of the formula is that it hurts Victoria badly at the expense of some of our (state) neighbours, just because they've chosen road projects over rail projects."
The news comes as a report by Agenda Victoria found the state needs urgently to tick off vital transport projects such as Melbourne Metro and the east-west road connection.
The Federal Government has hinted at providing funding for the Metro project, while the Opposition says if it were in government, $1.5 billion would be given to the east-west link.
According to Agenda Victoria and the RACV, which yesterday released its views on infrastructure funding ahead of the federal election, both projects are necessary.
The RACV says more than $30 billion must be spent on critical Victorian infrastructure projects like the east-west link and Melbourne Metro over 10 years.
Completing the Metropolitan Ring Rd from Greensborough to EastLink, duplicating the Western Highway to the South Australian border and duplicating the Princes Highway in eastern and western Victoria are also on the RACV's wish list.
RACV general manager of public policy Brian Negus said successive governments had "dropped the ball" on infrastructure funding.
matthew.johnston@news.com.au
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