Key government infrastructure investments are ending up as super-expensive white elephants

The problem was that favourable cost/benefit results depended on using a very low discount rate to apply to future benefits from the project. Its initial cost/benefit study discounted future costs and benefits at a rate of 4 per cent a year. Using this low discount rate, the benefit-to-cost ratio was estimated to be just 1.1 to 1. That is, it was judged barely worthwhile.

Infrastructure Australia commonly requires a much higher rate for large projects seeking Commonwealth funding. According to accountancy firm KPMG"Infrastructure Australia, as well as Australia's state and territories' treasury and finance departments, advise the use of a discount rate of seven per cent for most public infrastructure projects. This rate has been in place since (at least) 1989".

The VFT also got a run during the Howard government, when Tim Fisher pushed for some of the proceeds of the sale of Sydney Airport to be devoted to fast rail. According to journalist Phillip Coorey, the newly elected Rudd government also listed a very fast train from Brisbane to Melbourne as a signature infrastructure priority. A high-speed rail advisory group was established and given $20 million to examine options. Tony Abbott won the 2013 election and abolished the group as part of his government efficiency drive. Later, the Turnbull/Morrison government devoted $20 million to exploring high-speed rail options between Melbourne and Shepparton, and between Sydney and Newcastle, and Brisbane to the Sunshine Coast. These explorations also went nowhere.

Anthony Albanese has always been a fan of the VFT, and, in the lead-up to his initial election victory in 2022, promised that, if elected, his government would start work on a route running from Brisbane to Melbourne via Sydney and Canberra. Transport and Infrastructure Minister, Catherine King, estimates that construction on the part between Gosford and Newcastle, could begin as early as 2029. The $230 million allocated for detailed planning work is supposed to be just the start.

The widespread perception is that the VFT will never be built and that the proposal merely gets revived on a regular basis when an election is becoming due. The investment returns are just not there, and private equity will never fund it. Consequently, spending another $230 million on more planning work is just a waste of public money.

On a broader note, Australia has been notorious for wasting money on dud railway projects. Two of our biggest "nation-building" rail projects have ended up being financial disasters.

One such project was the Alice Springs to Darwin Railway, opened in 2004 at a cost of $1.3 billion. The Commonwealth, SA and NT governments put up a total $560 million towards the cost with a private consortium committing $740 million. The project failed to make a profit because of insufficient demand and ended up in voluntary administration. In May 2008 it was sold off to US railroad company Genesee & Wyoming Inc, which purchased it for a mere A$334 million.

The Inland Rail project is a more recent unmitigated disaster, which went ahead despite equivocal cost-benefit assessments. The project is widely regarded as a huge pork-barrel to the National Party and as a pet project of former National, Barnaby Joyce. The cost of delivering the 1,700-kilometre project has now blown out from $16.4 bn to more than $31 bn. A reviewwarns the price tag may climb even higher because it is still unclear where the line "will start or finish". (The Queensland end of the line is still in Limbo.) If it is ever finished, large operating losses due to high capital costs and insufficient traffic are a certainty. It would have been far cheaper and more sensible to have instead fully duplicated the Newell Highway.

Melbourne's Suburban Rail Loopis another disaster in the making. The Albanese and Allan governments are facing mounting pressure to release updated costings before billions more are committed. There are warnings its true price tag may have doubled. The cost of the first stage of the project was estimated at $30bn to $34.5bn in a 2021 business case, but those figures would equate to about $42.3bn today. The returns from the project are problematic and there are doubts about the ability of the Victorian government to fund it.

Canberra's light rail is also blowing out in both price and scope, though it has a deal of public support amongst naïve taxpayers. The biggest issue is that the initial project keeps being added to, when it is questionable whether light rail can be economic in Australia's most decentralised city (by far). There are competing pro-railand opposingcommentaries on the cost efficiencies of the light rail, which contain radically different assessments. The latter suggests that "It can be shown from published sources that, to date, some $3.27bn has been committed (much of it spent) on Stage1 ($1.78bn) and on Stage 2 Planning and Build contracts ($1.496bn). One thing is certain and that is the cost is exploding because of commitments to ever-more branch lines extending the original Gungahlin to Civic line". The ACT recently experienced a net deficit just short of a billion dollarsand ACT's credit rating has been downgradedfrom AA+ to AA by S&P Global Ratings.

Apart from rail, one can point to many other white elephantine public investment projects embarked on by Australian governments (of both sides of politics). These include most of Australia's (rarely used) desalination plants, "green hydrogen" and other experimental energy systems (now mostly gone bust), the (now aborted) French diesel-electric submarine acquisition, the Murray-Darling Plan that sends valuable irrigation water to evaporate in shallow SA lakes, NSW Government purchases of productive Western pastoral lands to turn them into barely visited national parks, the M6 Motorway project now plagued by sinkholes etc etc.

This all raises the issue of how and why all this waste comes about.