May 13, 2014

A budget road paved with gold? Dodgy maths and infrastructure wins

Who'll be the big winners under Tony "Infrastructure PM" Abbott? The federal budget could deliver billions to infrastructure contractors, but Labor reckons the maths is dodgy.

Paddy Manning

Crikey business editor

At first glance major contractors Leighton and Lend Lease, and toll road operators like Transurban, look to be winners from the extra billions in road funding to be announced tonight. Treasurer Joe Hockey confirmed on Sunday that the federal budget would lay out "the biggest increase in road expenditure in Australian history", with $82 billion over six years comprised of $40 billion from the Commonwealth and another $42 billion from the states and private investors. Put aside finicky question about since when the Commonwealth claimed credit for state spending and how much of the new road funding is budgeted for years five and six -- what the Treasurer in opposition liked to call the "never-never". Ahead of the last election the Coalition promised to spend $11.5 billion on roads over the four years from the 2013-14 financial year, some $5.4 billion more than Labor had allocated. Key extra commitments included a fresh $1.5 billion for Melbourne's East-West Link, "accelerated" funding of $1.5 billion for Sydney's WestConnex, and $1 billion for the Gateway Motorway in Brisbane. Now it seems the extra spending has been lifted to some $10 billion, but opposition infrastructure spokesman Anthony Albanese questions how much of this is fresh money, claiming that Labor had already approved projects worth up to $35 billion over six years. Albanese this morning released a briefing document showing $5 billion of the fresh funding would come from axing projects -- mostly from $4.2 billion in public transport projects, almost all of them rail. Deutsche Bank construction analyst Craig Wong-Pan told Crikey official figures showed past spending on roads and bridges had been running at roughly $18 billion a year, while $82 billion over six years would result in expenditure of $14 billion a year, which "doesn’t suggest any significant increases … It’s quite difficult to see what the changes are from the previous government." And of course the major contractors like Leighton build both road and rail projects, so a mere switch from road to rail funding does nothing to increase their work in hand. At a press conference this morning, Albanese said the Commonwealth reduction of funding for public transport would also result in less state funding for public transport. Given the government is also expected to announce re-indexation of the fuel excise, hiking petrol prices by some 1-3 centres per litre and raising $2 billion to $3 billion over four years, Albanese said working families would be "hit twice" -- at the bowser, and because they would have fewer public transport options. There is industry concern that extra reliance on government funding for toll roads ignores the potential for new forms of public-private partnerships. There has been a reassessment of PPPs in the wake of the GFC and the failure of Sydney’s Cross City Tunnel and Brisbane’s Brisconnections, which went into receivership after traffic failed dismally to reach heroic projections designed to reward the investment banks behind them. But Transurban’s $3 billion NorthConnex project in Sydney will be the first toll road PPP since those debacles, and the company has recently shown there remains strong appetite among institutional investors for proven infrastructure opportunities, raising more than $2 billion to fund its bid for Queensland Motorways.

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One thought on “A budget road paved with gold? Dodgy maths and infrastructure wins

  1. Graeski

    I don’t get it. Talk about spending $40 billion on an infrastructure project called the NBN and everyone screams blue murder. Talk about spending $40 billion on an infrstructure project called new roads and no-one bats an eye. In fact, it’s even announced with pride: “the biggest increase in road expenditure in Australian history”, according to Phony Joe, even as he battles bare-handed and alone with a budget emergency. And if the ‘age of entitlement’ is coming to an end, why are road users entitled to such a huge taxpayer hand-out?

    In an increasingly service-oriented business world, one project takes people to services and the other takes services to people. One project increases environmental impact while the other decreases it. One project is devoted to technology of the past, one project to the technology of the future.

    I’m not saying there isn’t a business case for either or both projects, nor that there’s no need for an improvement to our road network. It’s the inconsistency I don’t understand.

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