Infrastructure: do politicians care about the cost?

Crikey

I’ve noted before that honesty in public discourse is an immeasurably important civic virtue, yet it increasingly seems like its value is being trashed.

Regrettably, there were two more examples last week that illustrate the disregard with which politicians treat the truth.

High speed rail and jobs

The first is the Green’s South-East Australia Stimulus Package announced last Wednesday. The package proposes to axe $12 billion of corporate welfare spending in the fossil fuel sector and redirect it to boost jobs in clean industries.

The money will be applied to a range of actions, including building 77,500 new houses, putting $3.5 billion into urban public transport, and constructing an east coast High Speed Rail line.

Just how The Greens think they could do all this with just $12.5 billion when HSR alone has an estimate capital cost of $114 billion isn’t explained.

However, the aspect that disappoints me is the outrageous claim that HSR would provide:

That’s a preposterous number of jobs to claim against one project. Nearly 230,000 jobs sustained over the circa 20 years it would take to construct a Melbourne-Sydney-Brisbane HSR line? (I’m taking “lifetime of the project” to mean the construction period, not the economic life of the rail line.)

Of course 99.9 per cent of readers won’t delve into how The Greens arrived at this figure but if they went to the supporting information they’d find The Greens claim “a general rule of thumb is that around 20,000 jobs are created from each $1 billion of investment”.

Since the capital cost of HSR was estimated in the former federal government’s feasibility study to be $114 billion, The Greens somehow arrive at a figure of 228,000 jobs for the “life time of the High Speed Rail project”. (The $114 billion is an awfully convenient because The Greens have previously claimed that East Coast HSR would only cost $80 billion to construct; see What are the economic benefits of east coast High Speed Rail?. And I don’t know how The Greens arrive at the specific figure of 228,000. 114 x 20,000 = 2,280,000. Yet they’ve divided the product by 10?)

Yet even after spending $20 million on an in-depth feasibility study, former federal transport minister, Anthony Albanese, only claimed HSR would provide 10,000 jobs over the construction period.

Applying The Green’s ‘20,000 jobs per $1 billion’ rule of thumb to the Victorian Government's $8 billion East-West Link indicates it should create 160,000 jobs for the four years it’ll take to build it. Yet even the Victorian Government, which is no stranger to spin (see below), claims it will only create 3200 jobs.

Apart from the outlandishly over-cooked figures, The Greens also don’t recognise that if the $114 billion or so of public money were not spent on HSR, it would be invested in something else that would also create jobs.

East-West Link net economic benefits

The other example of how politicians regard the truth as dispensable also comes courtesy of The Greens, although this time they’re exposing the lies rather than telling them.

Thanks to persistent questioning in Senate Estimates by the Green’s Lee Rhiannon, clear evidence emerged last week that the Victorian Government has played fast and loose with the truth about the benefits of the proposed East-West Link Motorway in Melbourne.

In answer to a question from Senator Rhiannon, the chief executive of Infrastructure Australia, Michael Deegan, confirmed what many observers had long suspected; the business case for the motorway is suspect (see example, Is there actually a sensible case for the East-West Link?).

Dr Deegan provided the following answer on notice:

That’s enlightening because Victorian Premier Denis Napthine has consistently refused to say what the benefit cost ratio is without so-called 'wider economic benefits'. Now we know it’s just 0.8.

The crucial point is that Infrastructure Australia assesses requests for funding from the states and territories without WEBs. It insists on comparing projects that compete for federal funding on the basis of familiar benefits like travel time savings, accident reductions, and lower pollution.

On Infrastructure Australia’s preferred metric, the BCR for the East-West Link is only 0.8. In other words, it will actually cost the community considerably more to provide the motorway than it will return in benefits over its lifetime.

Moreover it’s a great deal less attractive than the proposed Melbourne Metro rail line which it competes against for funding. The Metro has a Benefit Cost Ratio of 1.2 without WEBs – i.e. the benefits are higher than the costs.

WEBS are mostly about agglomeration economies. These are a real benefit of high density concentrations of employment. They’re why firms choose to locate in the dense CBD even though rents are an order of magnitude higher than they’d pay even a few kilometres away.

Such high density concentrations can only be supported by mass transit. According to this study, agglomeration economies would increase the benefits from the Melbourne Metro by around $1.7 billion. Based on an estimated lower bound construction cost of $9 billion, that would lift the BCR from 1.2 to around 1.4.

That’s a great deal less than the claim made by the Victorian Government that WEBs would raise the BCR for the East-West Link from 0.8 to 1.4 – i.e. that they’d increase benefits by a massive 75 per cent.

Yet the motorway is a much less plausible driver of agglomeration economies than the Metro because it will function as a bypass of the CBD and is located 5km away. Frankly, the claimed contribution of WEBs to the benefits of the East-West Link look ludicrous; Dr Napthine should release the full business plan publicly so we can all see how the numbers were constructed.

The facts matter

I’ve noted before that there’s a seemingly forgotten tradition in public debate that the truth – being honest about the facts – really matters. It’s especially regrettable though when even the 'good guys', whose appeal is ostensibly built on a commitment to principle, are heedless of the facts.

Originally published on Crikey on February 17. Reproduced with permission.