Pearls and Irritations

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

Yesterday in Part 1, I outlined a tsunami of infrastructure debt mounting from over fifteen years of reckless spending on junk big city transport projects. The scale of this spending is increasing even as interest rates rise.

In this follow up piece, five simple steps are advanced by which the Prime Minister can arrest this runaway problem.

In the past decade, over $530 billion appears to have been committed to these lemons in Sydney and Melbourne alone, leaving energy transition and climate resilience infrastructure works (amongst other deserving economic priorities) much harder to deliver at any scale.

Early signs from Prime Minister Albanese are mixed

First, a good and smart Prime Ministerial priority: of any major road or rail project, fast regional rail like Albanese’s Newcastle-Sydney Fast Rail has the most economic promise if done well – we have written on this potential previously in Pearls and Irritations.

Yet faster regional rail is just about the only major and valuable road and rail project that isn’t being delivered by these States: Victoria has put off fast regional rail as unaffordable (the irony!) and New South Wales has been ‘planning’ to deliver it since before the last State election, without result.

Provided our Prime Minister doesn’t get sucked in by lobbyists into an economically devastating High Speed East Coast Bullet Train, his Newcastle-Sydney regional fast rail can establish a great economic legacy – reshaping our national economy for growth, fairness and opportunity.

Similarly, Albanese’s decision to review the profligate $15 billion Inland Rail project of Barnaby Joyce is sensible. Many inland communities could use serious flood mitigation works now.

Far less encouraging was Albanese’s terrible budget decision to contribute billions to the Victorian Premier’s gargantuan underground Suburban Rail Loop.

This Loop is a heavy, expensive underground rail service akin to London Underground’s Circle Line. Unlike London’s excellent CBD Circle Line, Melbourne’s Loop will be built in its middle to outer suburbia, linking nothing much with nothing much, for almost no economic benefit at all.

Journalists have reported how this Loop was conceived and pursued without scrutiny, by non-experts. It still has no full published business case. It has been slammed by leading transport economists and urban planners, who have all been ignored. Victoria’s Auditor-General says the business case does not support informed investment decisions, only analysed part of the program, and does not fully meet guidance requirements.

At a potential cost of over $200 billion, the Suburban Loop is Australia’s largest transport boondoggle yet: bigger than our AUKUS nuclear submarine deal.

The Loop is even larger than the USA’s troubled California High Speed Rail project.

This implies enormous future debt levels. Construction is kicking off even as inflation is rising.

Such projects are dinosaurs from a vanished era of record cheap debt, temporary hard-hat jobs as an end in themselves and no-questions-asked infrastructure policies.

Canberra has no business using scarce national taxpayer dollars to fund this madness.

Bigger challenges lie ahead: take sea level rise as an example: online calculators abound to show what different plausible temperature rises are likely to do to our coastal cities and towns.

A rise of 2.5 degrees is expected to see Sydney’s Mascot airport go underwater, along with most of Surfers Paradise and the entire Port of Melbourne precinct.

How would Australia find the funds to refine these estimates, commission contingency plans and design major flood mitigation programs, when hundreds of billions continue unchallenged to junk big city transport projects?

It is true that having created this infrastructure bubble, we need to transition its dependant workforce, but there are many classes of infrastructure where hard hat jobs now would be accompanied by better long-term economic and environmental impact tomorrow.

Cleaning the stables: five immediate steps for our Prime minister

The States, not Canberra are the biggest junk spending culprit, but the Prime Minister has the ‘EFTPOS machine’ which helps fund State projects. He also has the bully pulpit.

Under the cheap debt scenario, in political terms our Prime Minister could probably afford to take or leave real action on this scandal.

But with inflation abroad and high interest rates , Albanese has no choice. The buck will stop with him.

The Prime Minister does not need legislation, or a referendum to rescue this situation.

Here are five things Prime Minister Albanese can do immediately:

1. Stop handing over Federal money for dud State projects. All State projects should be forced to produce full business cases and these must be published. If the benefits are not sufficient at representative discount levels, Canberra should refuse to fund them. States are sovereign and to a degree can fund what they think they can get away with to their voters, but Canberra wraps State credit risk; it must now demand far better value.
2. Set fresh national infrastructure priorities Australians can agree with. New South Wales and Victoria’s governments can be likened to drug addicts who won’t react well to a family intervention on the consequences of their habit.

In this setting, Albanese needs public awareness and community support for pivoting to more sensible new Canberra infrastructure priorities.

He can strengthen his bully pulpit by commissioning a fresh, independent and plain English infrastructure needs assessment – with little involvement from the transport infrastructure lobby or his discredited federal transport agency.

Such a review would almost certainly show climate resilience infrastructure programs, new energy investment transition and the like offer more lasting benefit than more tollways in our big cities.

3. Harden the approach to project assessment: Albanese himself set up Infrastructure Australia in 2008. It has had 15 years to do something positive. Apart from some early wins it has mostly rubber-stamped megaprojects.

Whoever occupies this assessment role in future must tighten its reviews of big city transport projects. To date, such projects are helped by the notion that travel time savings can be fully attributed as a productive economic benefit. This is not the case: a substantial portion of most travel time savings relate to amenity or welfare. For example, it is nice to arrive home from work ten minutes earlier on the tollway, but at least some of this benefit is welfare, not productivity which would drive up our national accounts. If a more realistic assessment were applied, many big city megaproject business cases might collapse.

The Prime Minister must also instruct all senior public servants to resign immediately from boards of infrastructure lobby groups as a conflict of interest.

4. Prioritise regional faster rail to the capitals – and do it right: in his Newcastle-Sydney rail priority, Albanese is the first PM in memory to prioritise the right transport infrastructure and economic reform answer for the Federation. Albanese should push the NSW Government and his own to deliver a smart Newcastle-Sydney network with one hour travel time- and others like it – to reshape the Federation and unlock regional growth. This link could be the first link in a rail spine linking Brisbane, Sydney and Melbourne by Very Fast Train perhaps by the 2040s. But not before.

This is even more prospective post-COVID, with many more people moving or wanting to move to regions while still spending some time working in capitals.

5. Rein in rampant overspending in roads: as Pearls has pointed out repeatedly, Australia, spends far more on roads than it collects in road taxes and charges – this is now costing Canberra budgets around $9 billion each year in additional consolidated revenue to top-up road budgets. Most of this inflated spending is flowing straight to Sydney and Melbourne mega projects, leaving local, regional and rural roads to suffer chronic underfunding.

Applying a handbrake to such megaprojects will afford Canberra far more fiscal headroom for debt retirement, social programs and smarter infrastructure choices. Federal Treasury must oversee this effort, not the wastrel Commonwealth Infrastructure agency.

Prime Ministers always look for legacies. Defusing Australia’s junk infrastructure debt bomb would be a fine one for Prime Minister Anthony Albanese.

Conversely, if he hands out tens of billions more dollars to these zombie State transport projects – even as interest rates soar – then history will condemn Anthony Albanese as the Prime Minister who knew the risks – and chose to break the bank anyway.