Almost $200 million in savings from the Regional Rail Link project has been stripped out of public transport to pay for country highway upgrades, sparking protests from Australia's rail industry that it has effectively been punished for being efficient.

The Abbott government's second budget diverted $187.5 million in savings from the Regional Rail Link towards the duplication of two regional highways; the Western Highway between Ballarat and Stawell and the Princes Highway between Traralgon and Sale.

It was revealed in the Andrews government's 2015-16 budget that savings had driven down the cost of building the Regional Rail Link from $4.1 billion to $3.65 billion.

The rail industry said it was being penalised for helping to deliver the multibillion-dollar regional rail link hundreds of millions of dollars below expectations, with the project's savings given to upgrading roads that were a direct competitor to rail travel.

"Decisions such as these are disincentives for the rail industry and its constructors and suppliers to work efficiently and effectively," Australasian Railway Association interim chairman Bob Herbert said.