As Crikey anticipated yesterday, not merely did the government go big on the Train to Nowhere in the budget — $8.4 billion over seven years — but treated it as an equity injection, which means it is in the capital budget and doesn’t affect the budget deficit.
That’s $8.4 billion that could be spent on any number of both regional and urban infrastructure projects with higher — in some cases much higher — benefit:cost ratios than the lousy 1.1 that the government claims. When even the proponents of a project admit they can only dodgy up the numbers to get to just over breakeven, you know a project is a dud. Especially rail.
One can only imagine the annoyance of Treasury staff in having to pretend that spending on the Train to Nowhere will actually produce any return — which is the only basis on which the government’s allocation can possibly be considered an equity investment rather than a simple grant that would add to the budget deficit. Even the government’s hand-picked “implementation group” headed by former Nationals Leader John Anderson concluded that the line would never pay for itself. This is what Anderson and co told the government in 2015:
“the expected operating revenue over 50 years will not cover the initial capital investment required to build the railway — hence, a substantial public funding contribution is required to deliver Inland Rail.”
The group did conclude it would produce enough revenue to pay for its operational costs — but that’s a statement of the bleeding obvious for rail, because rail is primarily about fixed costs, with maintenance costs forming a relatively small proportion of the overall costs of any rail line. But — those costs will mean that any return to the government even after the fixed cost is written off will be trivial or non-existent (take a tip from someone who once worked in rail policy for the Commonwealth — this sucker will never make a cent for the government).
So the government has been told the line will never go close to making its money back — yet it still went ahead and pretended it would earn a return on equity. So in the Statement of Risks section of the budget, where Treasury gets to flag concerns about the numbers throughout the document, this is what they said about the project:
“Project costs will not be finalised until procurements, alignment and reference designs are completed. The project is sensitive to increases in project cost and lower revenues from users, and these risks could decrease the returns on the Government’s investment in the project.”
And there’s another thing tucked away in Anderson’s report. It says the project will create “an annual average of 800 jobs during construction and 600 operational jobs each year.” Let’s round that up to 800 jobs ongoing. That means the taxpayer is spending $10.5 million per job — or about 128 times average annual earnings.
Still, the Nationals are happy, right?
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