Grade separation, where a level crossing is replaced with a bridge or tunnel, is a significant improvement to safety. However, almost all the benefit goes to motorists and pedestrians rather than train travellers. Therefore it is fair to fund them via VicRoads rather than the Public Transport Division.
There are knock-on benefits to passengers - level crossing accidents disrupt train services, and traffic jams can hold up trams and buses. But these are minor compared with the benefit to motorists.
In terms of project management, the perfect example is the January 2007 works at Middleborough Road Box Hill. The benefits for train travellers were:
The simplest (and therefore usually most cost-effective) method of grade separation is to either lower or raise the railway. This eliminates all problems of access to side streets and residences, and allows for the redesign of the railway station for better interchange with buses and better access to local shops.