"It goes to show that the Canberra Liberals will be able to stop light rail if we win the next election."

The light rail project has been lauded frequently by federal Treasurer Joe Hockey as an example of the success of his asset recycling policy, in which the states receive extra Commonwealth funds towards projects paid for by the sale of assets.

Sovereign risk

Parliamentary Secretary to the Treasurer, Kelly O'Dwyer, told The Australian Financial Review that the recent uncertainty surrounding infrastructure in Australia was a bad look given Mr Hockey, who is in the United States, will this week be signing memoranda of understanding with other nations to establish a global infrastructure hub in Sydney. This would complete a deal the Abbott government engineered at the Group of 20 in November.

"Australia has a very good reputation when it comes to infrastructure development," Ms O'Dwyer said.

"It's absolutely ridiculous to think sovereign risk enters into the discussion now when people are thinking about infrastructure and investment.

"Any government that decides it's going to rip up contracts that have been signed by a legitimate government escalates this issue of sovereign risk."

The Financial Review has reported previously that the Abbott government's decision a year ago to water down the renewable energy target also fuelled fears of sovereign risk abroad.


Mr Corbell said any tearing up of a contract on light rail could cost the ACT's minuscule budget $340 million.

The ACT Liberal threat undermined Mr Abbott's efforts to blame Labor for the sovereign risk problem. But when asked about the ACT the Prime Minister claimed there were differences.

"There is no contract and the position of this government is that contracts should be honoured," he said.

"What we have seen yesterday is the tearing up of a contract which had been signed, sealed and delivered and the message which is going out to people who might be thinking of investing in Victoria is 'no contract is safe'."

Mr Andrews has contended that the former Victorian government should not have signed a contract so close to the state election, when the East West link was a key issue of contention and Labor was vowing not to proceed with it.

At the time, Mr Abbott declared the election a referendum on East West.

On Thursday, he said it could still go ahead.

"I think the Andrews government might be dead, but I think the East West Link project is necessary," Mr Abbott said.