The roads club is having a great spend.

Feb 13, 2018

Overspending on roads may be already damaging national productivity as well as adding to debt burdens of future generations. 

My recent post demonstrated a road fiscal deficit – assiduously ignored by so-called experts, advisers, ‘independent’ infrastructure organisations and lobby groups.,  These people have harped on for years about universal ‘road reform’ and moaned about politicians lacking the courage to install their nirvana.  They apparently can’t see the road deficit kills their version of ‘reform’.  Why do they complain when politicians feel misled and are being offered a dog of a policy?

The evidence also shows spending quality to be worsening despite allegedly rigorous project assessment processes.

Some more points are worth considering – using official data up to 2015-16.  First, some forecasts used to support further road spending seem more scaremongering than responsible informing of the debate.  For example:

  • the forecast for road freight to double 2000 and 2020 has been miles off track from the start. It will not be met unless future growth accelerates to six times the current rate;
  • growth in car use is even lower than freight, averaging less than 1% pa in the past decade;
  • despite claims capital cities are booming, the rate of growth in use of their roads has not changed in the last five years – it decelerated over the last two decades.

In each of these cases, and in each city, the deceleration in road use occurred after the global financial crisis.  It has not recovered.  So infrastructure club members who said the road-use slowdown was merely a GFC induced ‘blip’ to be followed by resurgent growth are wrong.

Second, looking at aggregates, road spending has far outstripped inflation, population growth and road use since the turn of the century.   Since 2000 the real – inflation adjusted – increase in road spending was 61%:

  • Australia’s population increased by less than half this rate, 26%; and
  • road use increased by 26% also less than half the rate of real spending.

For completeness, since 2000 road spending increased in real terms by:

  • 29% per capita;
  • 28% per unit of road use (vehicle kilometres travelled).

Road spending really took off after the GFC. This was at the time road use started slowing!

Third, the cause of the increasing deficit is road spending.  It is not a decline in revenues:

  • a decline in excise real revenues of $2.9 billion since the turn of the century was more than offset by an increase in registration charges of $3.3bn;
  • total real revenues increased by $0.6bn.

True, real revenues per capita and per unit of road use (proxies for ‘prices’) declined over this period.  However, such a decline might be expected were roads subject to regulation – which, having monopoly characteristics, they should be:

  • the decline since 2000 was around 7%;
  • this result would be achieved with ‘CPI-x’ price regulation, with ‘x’ at a (modest) 0.5% to account for productivity/efficiency improvements;
  • 0.5% is much less than other public service ‘efficiency dividends’ of 1% to 2% pa.

Excessive road spending has converted a significant – yet probably inadequate – surplus in 2000 to an ongoing enormous annual deficit.  Given the expectation that there should be some efficiency improvements in road construction – for reasons like scale and mechanisation (due to spending size) – the aggregate evidence points to Australia having a big problem – too much road building.

A possible consequence is a decline in transport productivity – Australian transport becoming less efficient because of over-the-top road spending.  Productivity Commission data suggests this may be already occurring.

Everyone can point to a pothole or traffic jam which they think should be fixed.  Such anecdotes are not evidence of inadequate spending – if they show anything at all it is spending has been very badly directed.

In this environment, it is unforgivable for Government agencies – especially ‘independent’ ones – to publicly present lax assessments of major road projects.  They have much re-work to do to deserve public – and political – trust.

John Austen is a happily retired former official. He was Director of Economic Policy for Infrastructure Australia from its inception in 2008 until his retirement in 2014.  Further background is at: 


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