Pearls and Irritations

Sydney and Melbourne’s ‘big infrastructure build’ will soon prove Australia’s ‘big bust’. Our Prime Minister must not aid and abet this madness.

In Pearls and Irritations over several years we have carried numerous articles about the waste and lack of rigour in deciding which infrastructure projects should proceed. It has also been clear that the powerful infrastructure lobby has a very dangerous influence on all governments. Conflict of interest and corruption are widespread. The interest of the community and taxpayers are ignored.

Because of my concern about the infrastructure imbroglio I decided with the help of very well informed colleagues to write about the problem. I was horrified by what I learned.

Following is Part 1 of the matte today and Part 2 publishing tomorrow, both tell an alarming story.

For over 15 years, a cocktail of ever-cheaper debt, the unchecked influence of our transport infrastructure lobby and a seduced senior bureaucracy underpinned a drunken feast of road and rail megaprojects.

Analysis suggests in the last decade, Australia has spent or committed over $530 billion on highly dubious Sydney and Melbourne transport megaprojects.

With interest rates now rising, this recklessness ensures little money is left for much needed climate adaption or new energy infrastructure priorities along with many other more worthy investments.

This article sheds some light on this drunken scandal. In a follow-up post I suggest steps our Prime Minister can take to help place Australia on a better course.

Sydney and Melbourne’s ‘big infrastructure build’ will soon prove Australia’s ‘big bust’.

‘Over $530 billion committed in under a decade’ is not a sentence you will see published anywhere else yet, because the media is not monitoring closely the real cost of our big city infrastructure addiction.

Complicit senior State bureaucracies are obscuring project accounts as far as they dare, to save themselves and their political masters from accountability for this mess.

The nation’s infrastructure lobby is cheering it all on. Shockingly, this includes senior government bureaucrats. Government and industry have become one large lobby, overseeing a highly inflationary construction sector bubble.

New South Wales and Victoria’s governments have led this orgy of Sydney and Melbourne mega road and rail project for over a decade now – all in the name of jobs and economic growth.

Yet the vaunted economic benefit of these projects is nowhere discernible in our recent National Accounts. After fifteen years, the scoreboard doesn’t lie: these projects are not making a material difference to our economy.

How did we get here?

This boom began under Prime Minister Rudd, as a stimulus response to the 2008 Global Financial Crisis: filling a major gap in market economic activity.

At the time, this was thought a better policy response than tax cuts: projects eventually finish; their costs can be retired. This is harder to achieve with tax breaks.

But over the following 15 years, a cocktail of ever-cheaper debt, the unchecked influence of Australia’s junk transport infrastructure lobby and a seduced senior bureaucracy have given license to a drunken feast of big city road and rail projects.

Even COVID was dragooned as a justification for more spending – ignoring that the underlying economic needs of our post-GFC and post-COVID economies were different.

The spending was aided and abetted by bankers, toll road proponents and consultants.

In an ongoing scandal which Pearls and Irritations first flagged nearly five years ago, senior Commonwealth and State transport bureaucrats continue to sit on the board of Infrastructure Partnerships Australia – a body which even five years ago major Australian newspapers were labelling an industry lobby group.

For its part, Infrastructure Australia – the statutory authority our now-Prime Minister founded to keep things honest – has become a rubber stamp for big city megaprojects.

In 2017, Infrastructure Australia (IA) waved through the Sydney Metro South-West project in a 6-page assessment – setting in train well over $12 billion in taxpayer spending – and a dubious shift in Sydney rail strategy – even though the Berejiklian government refused to present full costs in the business case for the project – as required by IA’s own rules. Conveniently, the project’s Sydney Harbour rail tunnelling contracts were awarded less than a week later: as the saying goes, ‘never get between a politician and a bag of money’.

2022 NSW Budget papers reveal this project has blown its budget by a further $5.1 billion since then – completely extinguishing its tabled economic benefits.

Like so many others, Metro South-West sees billions of taxpayer revenue and borrowings from all Australians employed to create a short-term, vote-winning Sydney construction boom, for no demonstrable long-term economic gain.

Victoria fares no better: the Victorian Auditor-General laments that not all major projects have business cases, but even those that do exist do not provide sufficient quality information to support major capital investment decisions.

This transport cargo cult has left Australia with no funding for the real infrastructure challenges facing our immediate future: ensuring our cities and towns will be climate resilient to floods, fires and rising seas; driving our clean energy transition.

How deep is this mess?

Pearls and Irritations spent a little time interrogating, as best we could, New South Wales and Victorian budget and infrastructure papers. It is almost impossible to follow major projects in these publications.

In 2014, both these States received new Premiers: Daniel Andrews in Victoria and Mike Baird in New South Wales.

From that year, Victoria and New South Wales appear to have committed over $530 billion on Melbourne and Sydney major road and rail megaprojects.

An endnote documents the basis of our analysis. We welcome others delving deeper – and of course we would be happily corrected by the State governments themselves.

As of May 2022, Victoria had committed to investing $184 billion in capital projects (part a of endnote v). This is a net increase of $40 billion from the same time last year. After adjusting for announced but omitted major projects (part b of endnote v), the total estimate climbs to over $307 billion, of which some $252 billion (82%) are represented by road and rail projects.

Regrettably New South Wales does not provide an equivalent “total estimated investment” (TEI) for current projects. However Infrastructure NSW in their 2020/21 annual report (part c of endnote v) state that the infrastructure program has 905 projects with a value of $352 billion, a 10.6% increase ($34 billion) from the same time last year. And this is now a year out of date. Interestingly, the INSW 2019/20 annual report quotes a vast 38% increase ($87 billion) from its previous year. That is an increase of $121 billion over 2 years.

If we assume 80% (part d of endnote v) by value is road and rail projects (same as Victoria), this represents $280 billion.

Thus, for Vic & NSW combined, we estimate a current $532 billion total estimated investment is underway in existing and committed road and rail projects.

The frustrating and clearly deliberate obscurity of this reporting is not just our view: it is echoed in a damning 2021 report by the Victorian Auditor-General on Major Project Performance. This person has a dedicated professional staff engaged to decipher such matters. Even they struggle. Their counsel appears to have been ignored.

Pity the average State Opposition shadow minister, armed with one or two non-expert staffers only. Pity even more the woman or man in the street, who has a vague sense of unease over all this transport spending. Nobody is ever allowed to see the full story.

Healthy democracy is not served by these arrangements.

In 2022, this spending is accelerating rapidly, not slowing, even as rising interest rates have crashed the party. A foul hangover awaits.

This addiction is growing in scale at an alarming rate.

Our Prime Minister and our Federal Treasurer cannot afford to ignore the problem.

Mounting cumulative interest repayments on hundreds of billions of more junk transport infrastructure will fall due as new State Treasury bonds are required to cover the funding shortfall and old bonds are refinanced at higher interest rates over the coming few years.

Refinancing these bonds will constitute a debt tsunami which Canberra, on behalf of all Australian taxpayers, will be forced to either manage or forgive.

In a follow-up post Part 2  Pearls and Irritations will look at the Prime Minister’s mixed record on this front to date. We offer five practical steps to rescue the situation and thus ensure Australia can confront tomorrow’s real infrastructure challenges.

Endnote and Sources

As of May 2022, Victoria had committed to investing $184 billion in capital projects (1). This is a net increase of $40 billion from the same time last year. After adjusting for announced but omitted major projects (2), the total estimate climbs to over $307 billion, of which some $252 billion (82%) are represented by road and rail projects.

Regrettably, New South Wales does not provide an equivalent “total estimated investment” (TEI) for current projects. However Infrastructure NSW in their 2020/21 annual report (3) state that the infrastructure program has 905 projects with a value of $352 billion, a 10.6% increase ($34 billion) from the same time last year. And this is now a year out of date. The Infrastructure NSW 2019/20 Annual Report quotes a vast 38% increase ($87 billion) from its previous year. That is an increase of $121 billion over 2 years.

If we assume 80% (4) by value is road and rail projects (same as Victoria), this represents $280 billion.

For Vic & NSW combined, we estimate a current $532 billion total estimated investment is underway in existing and committed road and rail projects.

Sources:

1. Victorian Budget 2022/23, State Capital Program, Budget Paper No.4 published May2022
2. Above adjusted by authors for missing amounts using published sources or own estimates:
   • $14b for North-East Link primary package and $3b for the North-East Link State and Freeway packages.
   • $13b for Melbourne Airport Rail
   • $4b for Geelong Fast Rail
   • $34.5b for Suburban Rail Loop (SRL) East, $55b for SRL North, $60b for SRL West (total $150b; compared to a Victorian Parliamentary Budget Office estimate of $200b). The total SRL is required for assumed benefits to materialise.
3. Infrastructure New South Wales, Annual Report 2020-21, page 8 (figure 1 and text).
4. We have requested from Infrastructure NSW a further breakdown of the $352 billion project value.

Major Projects Performance dashboard

Watch for Part 2 which will be published tomorrow.