Discussion Paper     Defined Terms and Documents     Annexure A    Annexure B    

'Written Question With Notice' for Question Time for the attention of the Federal Treasurer, Jim Chalmers 

Will the Federal Treasurer champion new Commonwealth legislation that will initially save approx $3 billion Australian dollars annually that have been wasted over recent years from amongst the $125 billion circa monies funded by the Commonwealth to the States annually, by relying upon SECT 96,  SECT 97 Audit and SECT 98 of the Australian Constitution, for the Commonwealth Parliament to enact new laws to -

1.       compel Australia's State and Territory Governments to submit a Conforming Cost-Benefit Analysis to the Productivity Commission at least six months prior to Financial Close for each proposed new rail infrastructure project with a forecast Capex that exceeds $20,000,000; and

2.       obligate the Productivity Commission to -

          (a)    audit each submitted Conforming Cost-Benefit Analysis for each State or Territory Government's proposed new rail infrastructure project;

          (b)    allocate a score out of 100 points for each proposed rail infrastructure project with forecast Capex that exceeds $100,000,000; and

          (c)    provide that score and the supporting calculations (for each proposed rail infrastructure project with forecast Capex that exceeds $100,000,000) to the relevant State or Territory Government at least three months prior to the proposed Financial Close; and

3.       require the pertinent State or Territory Government to publish (within two weeks' of receipt of) the Productivity Commission's score out of 100 and supporting analysis and its Conforming Cost-Benefit Analysis on its State or Territory 'Transport' website to inter alia facilitate Community Consultation?

Reason for the above 'Written Question With Notice' for the Federal Treasurer

Annexure A provides a welter of evidence ostensibly from investigative journalists, but also from the NSW State Auditor-General the Grattan Institute and other Government investigations, that some of Australia's States have embarked upon major rail infrastructure projects in recent years, resulting in many billions of dollars of Public Purse cost blowouts because the States no longer possess the Cost-Benefit Analysis engineering and financial analyst resources to appraise what is a cost-effective infrastructure project.  

Seemingly most of these recent rail infrastructure projects were predicated upon Keynesian economic theory to expend on infrastructure projects to stimulate a flagging economy.  Former NSW Transport Minister Andrew Constance's enthusiasm for rail infrastructure projects, specifically “We’re building an entire network ........ It’ll drive us out of recession” ignored the First Rule of Keynesian Economics namely that Government initiated public works programs/projects (to stimulate a flagging economy) must have a Cost-Benefit Analysis with a robust positive NPV.  In laymen's language, if you expend $10,000,000,000 in Construction Costs over say three years to build a new rail network, and Operating/Administration costs over say 30 years are $6,000,000,000, then the NPV of future fare revenues, based on at least 20 years of projected cashflows, needs to well exceed $16,000,000,000. 

Patently the NSW Govt's "Central Business District and South East Light Rail" (CSELR) project expenditure of $3.147 billion (double the original cost forecast - completed a year late) to 'tear out' Sydney's historic George Street and build a juxtaposed tram line between Circular Quay and Central, when electric or diesel buses (with rubber tyres) could have catered to forecast passenger patronage demands between both Randwick and Kingsford to/from Central Railway station at 10% circa of CSELR's Capex and Admin costs over the next 50 years, did not meet that rudimentary Keynesian requirement to have a Cost-Benefit Analysis that includes a Base Case Financial Model of at least 20 years of projected cashflows in a large Excel spreadsheet that calcs that –

·         the IRR is higher than the hurdle rate (required yield) that might be negative; and

·         ideally evidences a positive NPV that shouldn’t be negative.     .

Annexure A evidences that -
a)       constructions costs estimates have too often been too too low with scant regard of the cost to relocate utilities (electricity, gas, water, sewer), existing roads and vehicle parking services;
b)       completion dates have been much later than forecast/projected; and
c)       patronage/usage/passenger forecasts relied upon involved too much unscientific blue sky guestimates, with an over reliance upon build it and they will come and turn up and go.
          But passengers did not come in the numbers forecast.

In 2009 a landmark Productivity Commission's 6. Evaluating major infrastructure projects: how robust are our processes? - published on the Productivity Commission website -

A.     identified concerns about Australia's six State Governments' incapacity to undertake robust Cost-Benefit Analysis for prospective transport and communications infrastructure projects; and

B.     offered for the Productivity Commission "to be a centre of excellence for cost–benefit analysis within the Australian Government"

In July 2014 the Productivity Commission published Productivity Commission Inquiry Report into Public Infrastructure with recommendations to bring down costs of infrastructure projects and minimise delays.  The report highlighted that whilst efficient infrastructure provides services which both improve productivity and quality of life; poorly chosen infrastructure can reduce productivity and financially burden the community for decades. A key message of this Productivity Commission report was that there is a need for a complete overhaul of poor processes currently used in the development and assessment of infrastructure investments. Reviewing a wide range of economic public infrastructure projects found many examples of where inadequate processes and project governance have led to costly outcomes to users and taxpayers.

Below are Four Sections in the Australian Constitution that support this 'Written Question' to the Federal Treasurer:

Chapter IV. Finance And Trade of the Constitution of Australia, in particular SECT 96 'Financial assistance to States', authorises Australia's Commonwealth Parliament to "...grant financial assistance to any State on such terms and conditions as the Parliament thinks fit."

 

The many billions of dollars of cost blow outs of fiscal grants from the Federal Government in recent years evident in Annexure A (funded under SECT 96 'Financial assistance to States' together with obligations under SECT 51(i), SECT 51(xxxiv), SECT 97 Audit and SECT 98 of the Australian Constitution, behoove the Commonwealth Govt to enact new laws to 'Centralise' an arm's length responsibility to the most skilled Commonwealth Govt. department/agency at evaluating what is and what is not a cost effective infrastructure project, by legislating that Australia's six States and two Territories must submit a Conforming Cost-Benefit Analysis (to the Productivity Commission) for each future rail infrastructure project with projected Capex to exceed $20,000,000 at least six months prior to the proposed  Financial Close that will -

a)      save the Commonwealth's Public Purse at least $3,000,000,000 in agg. annually in the initial years following enactment until -
(i)     public servants become accustomed to completing Nine Steps of a Conforming Cost-Benefit Analysis; and
(ii)    government ministers acquaint with a quantified  Conforming Cost-Benefit Analysis whereupon the annual cost savings will be of a greater magnitude and scope, and

b)      materially reduce embarrassment that falls upon State Premiers, Deputy Premiers and Transport Ministers when significant cost blowouts and project delays (Annexure A) are exposed in Australia's free press by courageous investigative journalists.

Commonwealth Parliament legislation to ensure responsibilities noted in steps 2. and 3. of the above listed 'Question with Notice' will further reduce the enormous wastage due to inadequately identified and quantified costs during planning evidenced in Annexure A.

A few ponderables

The afore-mentioned is expanded upon in the Writer's  Discussion Paper.


Below are extracts from "Report highlights cost overruns on major infrastructure projects" - Lauren Jones - :

"A report released by the Grattan Institute has found over the past two decades, Australian governments spent $34 billion more on transport infrastructure than first Stated.

The report has found of the nine transport infrastructure projects over $5 billion dollars in Australia, six have suffered cost blow outs adding up to $24 billion.

In a press release the institute Stated some examples. Inland Rail from Melbourne to Brisbane was costed at $4.4 billion in 2010; it’s now estimated to cost $9.9 billion.  The Sydney Metro City & Southwest Rail was costed at $11 billion in 2015; this year the NSW Government announced the latest cost estimate is $15.5 billion.

An analysis, in the report, of all projects valued at over $20 million or more built in the last 20 years shows that the actual costs exceeded promised costs by 21 per cent."

In April 2016, the Victorian Government signed an in-principle agreement with Transurban to build the West Gate Rail Tunnel, at an expected cost of $5.5 billion. The expected benefit cost ratio was 1 to 1.25 .  The expected cost then increased to $6.7 billion.  On 9 Aug 2021 Transurban CEO, Scott Charlton, announced that the cost had blown out to $10 billion.  Ipso facto, the Cost-Benefit has to now be materially negative, meaning the 'monetary costs' far exceed the 'monetary benefits'.

Below is an extract from The rise of megaprojects: counting the costs  - Grattan Institute  -  Marion Terrill, Owain Emslie and Greg Moran  -  8 Nov 2020:

        "Megaprojects are already breaking records for cost overruns. There’s an overrun so far of $24 billion on just six current projects. Inland Rail was costed at $4.4 billion in 2010; it’s now estimated to cost

$9.9 billion. Melbourne’s North East Link was costed at $6 billion in 2008; it’s now expected to cost $15.8 billion, even though the Victorian Government selected the cheapest route.
The Sydney Metro City & Southwest was costed at $11 billion in 2015; this year the NSW Government announced the latest estimate was $15.5 billion."