Earlier this month the Grattan Institute made its first major report into transport, producing Roads to Riches: better transport spending[i].
The 70-page report is replete with interesting-enough statistics, but it misses the mark on the major problems and where solutions might most reliably be found. Its core conclusions could perpetuate expensive mistakes (more of that in a moment).
The Grattan is one of our brightest and most respected think-tanks; its CEO is talented and speaks truth to power. So if even Grattan can miss the mark in transport, it bodes ill indeed for the national debate. Transport matters: at current spending levels, just two years of national road funds would pay for Australia’s entire $50 billion dollar submarine program. A 15% per cent efficiency gain in road spending would yield almost $4 billion to almost meet the Gonski education funding reform shortfalls.
Grattan’s report points out transport spending reached astronomical proportions even before former PM Abbott’s ‘I want to be remembered as a road builder’ speech. Grattan is also right to conclude that too many such projects have been wastes of money (some appalling examples are cited) But the report then walks into a dead-end by looking for solutions in new and improved bureaucratic and parliamentary process -such as more project cost-benefit analysis – as the saviour.
More rigorous project selection and stronger powers to compel politicians to be transparent about choices will, it is argued, create superior outcomes. Fine, but a particularly big failing of cost-benefit in transport is that when applied to travel savings, the methodology does not distinguish between leisure time savings and more assuredly economic benefits, like getting to work quicker. The former doesn’t deliver a healthier economy. Witness the recent Pacific Highway upgrades which cost billions: the vaunted travel time savings which underpin much of the project’s positive benefit-cost case appear made up in part of the fact that people can simply get to their central coast fishing spot from Western Sydney quicker than previously.
Or was the Pacific all about safety dividends? If so, why is the Grafton leg – the site of the most horrific bus crash in Australian history – still not fully upgraded? This business case was scrutinised and approved by Infrastructure Australia. So much for paper.
Will more transparency make it much better? The irrational political power of big and sexy transport projects should not be underestimated – even when the facts are in plain sight: last year Victoria’s government published the full East-West Link business case revealing that the multi-billion dollar road would return only 45 cents in the dollar, yet many Victorians still swear the project should have been built. More paperwork doesn’t prevent such waste – common sense and an experienced grasp of practical transport operations does. Transport agencies appear increasingly denuded of this talent: how else to explain a project like North-West Rail in Sydney, which appears to break a cardinal rule of rail building: whatever new piece you add, make certain it is fully interoperable with the existing network. Billions of dollars can depend on simple, informed choices at early stages in a project.
Beyond this, what are the really big problems and solutions confronting transport? First and foremost, the lack of pricing reform. Unlike all the other economic utilities, transport continues to resist it. But without seeing prices, users can’t influence a more rational pattern of infrastructure provision and we must all instead place our faith in bureaucratic paperwork and process to deliver ‘value’. Where is the evidence that road pricing works? Look at every failed or under-performing commercial toll road project over the last 15 years[ii]. Australian motorists will soon tell you their view on which roads they don’t want – they do it by not using them and avoiding their tolls. Prices are already proving they can shape the network.
Grattan argues transport assets are mostly planned and funded by governments because they represent a public good – a market failure. This view is overstated. The advent of cheap GPS tracking and the explosion of deft smartphone apps mean that major roads are now ‘excludable at point of use’: in theory, we can indeed give people a say in what roads they want at a given price, so that they don’t have to pay if they don’t want to use.
If you spice this with the prospect of large fuel tax and registration rebates being paid back to motorists who enter commercial road arrangements on, for instance, major highways (so they aren’t paying twice for the road), debate might start to turn in favour of the hip pocket.
The national rail network is equally a government asset with no market failure in sight. The United States reformed its hidebound government rail nearly 40 years ago. It has gone from strength to strength since that decision[iii].
The Grattan mentions it will turn attention to pricing in a subsequent report. But pricing is the main game. Pricing will not work for every road in Australia. Nor does it need to. The policy priority should be to implement pricing reforms to staunch the biggest and most wasteful politicised road spends first. This means major highways and motorways, and this appears to be in prospect, given some smart and patient effort.
The elephant in the room is the role of the Commonwealth – specifically, whether it’s useful, or even constitutionally legitimate. Grattan’s report rightly points out that the Commonwealth plays a significant role in transport. Since Whitlam, Canberra has assumed all planning and funding responsibility for the major highways and other ‘nationally-significant’ infrastructure, but it has left the building and maintenance (and most of the opprobrium) to the States, in a textbook case of fracture between control and accountability. We see the results regardless of which party is in power – Canberra lecturing States over what transport project must be built with ‘Federal’ money. This practice only dilutes accountability to voters and scares potential market investors away.
Under current arrangements, transport is one of the biggest and least certain commitments of Australian tax revenue. But there is hope to do better. One first step would see the Prime Minister commit to placing transport squarely on the agendum for Federation reform. It has been left off it to date.
A final matter: in Williams v Commonwealth and Williams v Commonwealth 2 (the National School Chaplaincy cases), Australia’s High Court held that Commonwealth payments to State schools were invalid, in that they were beyond the authority of the Commonwealth to make. This has potential ramifications for many of Canberra’s payments to States, including roads and possibly some other transport projects[iv].
Williams therefore signals not only the possibility of reform but perhaps the need for it. Williams might also hint to students of Commonwealth governments past that when it has most displayed leadership, Canberra has not been about spending money and shaming and lecturing the States: at its best, it assists the sovereign members of the Australian Federation to reform into something better.
Luke Fraser is the founder and principal of a transport policy and investment advisory. In 2012 he was appointed to the board of the Prime Minister and Premiers Road Reform Project. Prior to this he was a national freight industry chief executive. Most recently he oversaw a new approach to heavy vehicle pricing and fuel rebates for the South Australian transport minister – a reform project which is partnered by the Commonwealth government. The views expressed here are his own.