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Defined Terms and Documents Discussion Paper Written Question With Notice Annexure A

11 July 2021

Ms. Marion Terrill marion.terrill@grattan.edu.au 03 9035 9881

Transport and Cities Program Director

Grattan Institute

Dear Ms. Terrill,

In 2009, a landmark Commonwealth Productivity Commission paper written by eminent economists, Henry Ergas and Alex Robson, titled 6. Evaluating major infrastructure projects: how robust are our processes? -

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

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

Since that offer, Annexure A (includes Taxpayers lose out when governments rush transport projects) evidences that a billion circa of taxpayer funded dollars have been squandered annually on poorly planned and inadequately appraised State 'rail infrastructure projects' across Australia, resulting in cost blowouts, completion delays and usage/patronage paucity.

* SECT 51(i) and SECT 98 of the Australian Constitution behoove the Commonwealth Govt to enact legislation to 'Centralise' responsibility upon the most skilled Commonwealth Govt agency at evaluating 'what are and what are not cost-effective rail infrastructure projects', by legislating that the six States must submit (to the Productivity Commission in ample time prior to Financial Close) a Conforming Cost-Benefit Analysis for each proposed rail infrastructure project with forecast Capex that exceeds $20,000,000.

* For those rail infrastructure projects over $100,000,000 Capex, the Commonwealth Productivity Commission should at arm's length appraise and publish a score out of 100 points on each pertinent Conforming Cost-Benefit Analysis (provided on Department of the Prime Minister and Cabinet - Office of Best Practice) by quantifying the Nine Steps.

To rectify this long running highly costly Public Purse conflicted wastage, one has to not bite-off more than one can chew when a phased-in transitional change is available, especially when the Australian Constitution provides for a Commonwealth Govt. Measurement Stick to be applied to future proposed State infrastructure projects, starting with rail.

The Writer's letter (sent on CD, USB Stick and A4) to the Shadow Treasurer, Jim Chalmers, dated 31 Mar '21 drafted a 'Written Question With Notice' in Question Time directed to the Federal Treasurer for the Shadow Treasurer to place in the House Despatch Box. The Writer sent Two follow-up emails to the Shadow Treasurer. The Writer did not receive a response from Federal Labor to his letter dated 31 March '21 or his two emails.

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

Ipso facto, because of the many billions of dollars of cost blowouts upon rail infrastructure funded partially from fiscal grants from the Federal Government (to Aust. States) in recent years under SECT 96 'Financial assistance to States', obligations under the below SECT 51(i) and in particular SECT 98 of the Australian Constitution compel the Commonwealth Govt to enact new laws to 'Centralise' an arm's length responsibility to the most skilled Commonwealth Govt dept/agency at evaluating what are and what are not cost-effective infrastructure projects. Starting by legislating that the six States must submit a Conforming Cost-Benefit Analysis by observing the Nine Steps (to the Productivity Commission at least six weeks prior to Financial Close) for each future transport infrastructure project with projected Capex that exceeds $20,000,000, initially limiting to rail infrastructure projects.

Enacting new laws to 'Centralise' an arm's length responsibility to a Gatekeeper, namely the Commonwealth Productivity Commission will -

a) save the various States' Public Purse at least $1,000,000,000 annually in the initial years following implementation, and

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

Earlier this year, the Writer expended over 100 hours preparing a Discussion Paper seeking the aforementioned two bullet points be legislated by the Commonwealth Govt. His Discussion Paper commenced by -

a) informing that the Writer, worked for CBA for 37 years; the latter half in infrastructure finance; and

b) listing a welter of 'critical reports' and 'fault finding newspaper articles' that chronicle that billions of taxpayer funded dollars have been squandered annually on poorly planned and inadequately appraised 'rail infrastructure projects' resulting in cost blowouts, completion delays and usage/patronage paucity - in Annexure A.

The Writer's Discussion Paper -

A) informs that Australian Government financial payments effectively support about 46 percent of Australia's six States' annual fiscal revenue expenditure. "In aggregate, the States were estimated to receive Australian Government payments of $127.4 billion in 2019–20";

B) contends that, pursuant to SECT 51(i) and SECT 98 of the Australian Constitution, the Commonwealth Govt is obligated to enact legislation to 'Centralise' responsibility upon the most skilled Commonwealth Govt agency at evaluating/quantifying 'what are and what are not cost-effective rail infrastructure projects', by legislating that the six States must submit (to the Productivity Commission in ample time prior to Financial Close) a Conforming Cost-Benefit Analysis that addresses inter alia the Nine Steps of Cost-Benefit Analysis for all proposed rail infrastructure projects with forecast Capex that exceeds $20,000,000; and

C) seeks the Productivity Commission to inter alia 'score/rank/publish' all Conforming Cost-Benefit Analysis for all proposed rail infrastructure projects with forecast Capex that exceeds $100,000,000, relying upon SECT 98 of the Australian Constitution.

The Discussion Paper finishes by asking the below two Questions:

1. How much of the $120 billion p.a. circa that the Commonwealth Govt has more recently funded to the States annually would have been better expended, had the Commonwealth Govt. accepted back in 2009 the Productivity Commission's offer to be "a centre of excellence for cost–benefit analysis within the Australian Government"?

2. Had the Productivity Commission been so appointed, would it have -

i) challenged the rationale/economics/logic of providing a juxtaposed second rail system between Circular Quay, Wynyard, Town Hall and Central Railway that ended up costing $1 billion dollars and negating Govt. bus transport usage;

ii) recommended that George Street be restricted to Govt buses only by diverting all cars etc to nearby roads, seemingly at about 10% of the cost of the CSELR light rail provision and operating costs over the next 50 years; and

iii) sought TfNSW to provide the annual patronage forecasts (at least over 20 years of Operations) that calc'd that CSELR would achieve almost $4 billion worth of benefits?

The Writer's Annexure A evidence that the below forecasts that Henry Ergas and Alex Robson made back in 2009 in the Productivity Commission paper "6. Evaluating major infrastructure projects: how robust are our processes? at 6.4 Conclusions have eventuated:

"Overall, our review suggests the following conclusions:

i) Insufficient attention is paid in the evaluation process to options that would avoid investment, or, more broadly, that would focus on securing greater efficiency from the existing capital stock. Simply put, infrastructure investment appears to be viewed as a benefit, rather than a cost.

ii) The distortions arising from this undesirable narrowing of the range of options considered are then compounded by evaluations that are too vulnerable to ‘fudge factors’. In a Gresham’s law of evaluation, bad evaluations (often by consultants) can drive out good, given that they trade at equal values.

In our view, these outcomes are driven by governments that see little real value in major project evaluation. They may see merit in evaluation of essentially routine decisions (such as the decision to place a new roundabout or improve a road surface) or in cost-effectiveness analysis of the options available for meeting predetermined goals (such as improving bus transit in a congested area), but not in the full analysis of objectives and options (including the option of not spending taxpayers’ money). This, we argue, reflects the impact of a perception (initially due to strong economic growth, and then to a belief that the global financial crisis justifies greatly increased outlays) that public funds have a negligible opportunity cost. This perception has been accentuated by the growing blurring of accountability in the Australian federation, which reduces the budget disciplines on the States, and the blurring also of responsibility for financing infrastructure as between the public and private sectors (which, whatever its other merits, increases the return to rent-seeking deals between governments and private infrastructure developers). Together, these trends risk making cost–benefit analysis merely a box to be ticked, rather than an exercise that has real value, not least to government itself."

Conclusion

The Australian Constitution, specifically SECT 98, obligate the Commonwealth Govt to enshrine in legislation B) and C) above. Critical reports and fault-finding newspaper articles (Annexure A), in particular The Social Losses from Inefficient Infrastructure Projects: Recent Australian Experience, chronicle that Australia's States do not possess the specialist skills to appraise Cost-Benefit Analysis which includes a robust Base Case Financial Model that forecasts future costs/revenues to calculate inter alia the Net Present Value and an Internal Rate of Return. In 2009 the Productivity Commission offered to be "a centre of excellence for cost–benefit analysis within the Australian Government".

Request

To avoid $1,000,000,000 circa of the Commonwealth Public Purse being further wasted annually by the States, the Writer welcomes your thoughts on his afore-mentioned proposal for the Commonwealth Govt to legislate, pursuant to SECT 98 and obligated under SECT 96 'Financial assistance to the States' of the Australian Constitution, specifically "...on such terms and conditions as the Parliament thinks fit....", that the -

I.) Australian States submit a Conforming Cost-Benefit Analysis for each proposed rail infrastructure project with forecast Capex that exceeds $20,000,000 to in independent Gatekeeper, namely the Productivity Commission that acts at arm's length; and

II.) Commonwealth Productivity Commission publishes on its website a detailed analysis for all proposed rail infrastructure projects with forecast Capex beyond $100,000,000.

Seemingly pursuant to Infosheet 1 and Question Time - Chapter 15, this could start by the Shadow Treasurer placing in the House Despatch Box a 'Written Question With Notice' directed to the Federal Treasurer.

This should have the support of inter alios former top NSW rail executive Dick Day, and Greens MP, Mehreen Faruqi, who has a doctorate in engineering who first alerted to the prospect for costs claims by Acciona and also former director of Professionals Australia, Paul Davies, as well as Ron Christie, former Director General of NSW Rail.

Postscript

Avoiding future costly conflicts of interest by entrusting evaluation and dollar quantification of proposed large rail infrastructure projects, before the cash register gets wasted yet again, to Australia's productivity expert (that put its hand up back in 2009) seems logical.

Yours sincerely

Philip James Johnston

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