The Victorian Government will not give back $1.5 billion in funding originally earmarked for the East West Link, Premier Daniel Andrews says.

In the 2015 budget papers, the Federal Government promised to provide $3 billion to a Victorian Government that proceeds with the project.

“However, the Victorian Government has advised the Commonwealth that it is not proceeding with the project and announced it is settling its contractual legal obligations on the project,” the budget papers read.

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“Therefore, the Commonwealth Government has had to revise the forward estimates, including the return of $1.5 billion of unspent funding from the Victorian Government.”

The budget has the Federal Government clawing back the money in the next 14 months, despite the funding being accounted for in Victoria’s budget.

Mr Andrews said he would not be repaying the $1.5 billion in federal funding for the abandoned toll road project.

“Well we’re not giving back any money, to be very clear about this, and I don’t know that the Federal Government are even asking us for that,” he said

“Mr Hockey on Melbourne radio today is talking about – well we might give it with one hand and take it back with another, or take it with one hand and give it back – they are confused.”

Tony Abbott considered funding alternative project

Last week, Mr Abbott told Macquarie Radio that he would consider reallocating East West Link funding to a new Western Distributor proposal, if the project “stacked up”.

“If that’s how it turns out then fine,” Mr Abbott said on May 7.

“But what the Victorian Government can’t do is keep the money and not build anything.”When questioned today on the Prime Minister’s commitment that the money could go towards the Western Distributor, Federal Treasurer Joe Hockey did not rule it out.

“It may well do. But in the interim under the agreement with the Victorian Government, if they’re not building the East West Link they need to give us the money back,” he said.

Mr Hockey agreed that he essentially wanted to get the money back and then return it again to the Victorian Government.

“I have to – these are the books. The purpose of giving the Victorian Government $1.5 billion was to build the East West Link, and they’re not building it so yes technically they have to give it back to us.”

The $1.5 billion represents the third biggest saving in the federal budget, ranked by total dollar change over the forward estimates.

The dispute comes after a meeting between Mr Andrews and Mr Abbott in March this year in which the Prime Minister committed to consider using the funding for another road project.

Western Distributor overview map.

Mr Andrews said the Prime Minister looked him in the eye and said Victoria could keep the money for other major projects, and the State Government had committed it to the Western Distributor project, proposed by infrastructure giant Transurban.

The proposal includes a five-kilometre tolled tunnel under Yarraville, linking the West Gate Freeway to CityLink, to ease pressure on the West Gate Bridge.

“I do think that the Treasurer perhaps needs to have a chat to the PM because what the Treasurer stands up and says publicly and the agreements that I have reached in good faith with the Prime Minister seem to be very different things,” he said.

“I’ve written to [Tony Abbott] saying I’m not interested in having a childish argument.

“I’ve made it clear to him that Victorians are sick and tired of that and we want to work together and I stand ready and my government stands ready to work with his Government to honour the commitments he’s made to me and to the people of our state.”

Victoria’s Opposition Leader Matthew Guy said while the State Government should not have abandoned the project, he would work to lobby the Federal Government to let Victoria keep the money.

“If the State Government can’t have a sensible dialogue with the Commonwealth Government about why money should remain in Victoria then I’m prepared to do that myself when I see the Prime Minister in the next few days,” he said.

Federal Government ‘inconsistent and shambolic’: Vic Treasurer

Federal Finance Minister Mathais Cormann told 774 ABC Melbourne that the State Government had not come up with a project worth supporting.

“The Victorian Government has not come forward with any credible projects, what the Victorian Government has done so far, is spend $1 billion worth of taxpayers’ money not to build a road,” Mr Cormann said.

“They’ve told us that they’re not supportive of an East West Link, and in recent weeks they’ve come out and said they want to build the West East Link instead.”

Victorian Treasurer Tim Pallas said the message coming from Canberra was “inconsistent and shambolic”.

“The Government has given commitments, the Prime Minister has given commitments to the Premier, the Federal Treasurer has given commitments to me and they don’t appear to have honoured those commitments,” he said.

“They prefer to take the opportunity to effectively milk what they see as being a matter of political opportunity to not only continue the uncertainly in terms of what happens to funds that are the right of all Victorians to receive and more importantly put at risk a sensible, stable and professional working relationship.”