Despite an extensive 2015 study concluding that the inland rail line would never make its money back, the department responsible now says the line will make back its cost, therefore justifying its funding being treated as an investment.
The government committed more than $8 billion in equity funding to the construction (by the Australian Rail Track Corporation, which owns or leases all interstate or regional rail lines) of a freight line from Melbourne through inland New South Wales to Toowoomba and then onward to south of Brisbane, where it will connect to the existing Brisbane line. In addition, more than $1 billion has been spent via grants by this and the previous Labor government on the line and the Australian Rail Track Corporation will spend an unspecified, borrowed sum to build it, bringing the total cost to more than $10 billion — although Treasury has flagged that the project is at risk of a cost blowout.
Treating the money as equity funding allows the government to claim it is capital and therefore does not contribute to the budget deficit.
A 2015 study headed by former Nationals leader (and transport minister) John Anderson concluded: “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.” In the view of Anderson’s review team, “the business case demonstrates that operating revenues would cover operating costs (including maintenance), meaning that once delivered, Inland Rail would not require on-going taxpayer support”.
However, the government has rejected the “public funding” suggested by Anderson in favour of treating its contribution as an investment, which requires an assumption that a return will be made.
At an estimates hearing earlier this week, the Infrastructure Department’s long-serving Secretary Mike Mrdak told senators that the project would earn a Return On Equity (ROE) comparable to the long-term bond rate, allowing it to be classed as an investment.
Quizzed by Crikey on what that ROE applied to, a spokesperson for the Infrastructure Department provided the following, remarkable statement:
The comments made by the Secretary of the Department of Infrastructure and Regional Development at Senate Estimates were indicative of the returns on equity for ARTC as a whole rather than for the Inland Rail project. The Government’s $8.4 billion investment in Inland Rail has been classified as equity, as the Government expects to recover its investment in real terms. The classification as equity accords within the Charter of Budget Honesty and is fully compliant with the Australian Accounting Standards and Government Finance Statistics.
There’s two different things here: Mrdak’s comment applied to the ARTC, which the government expects to generate a return on equity. That’s an entirely fair assumption — that’s exactly what the ARTC is intended to do. And the ARTC will presumably generate an ROE because it does not have to borrow the $8.4 billion itself — it will only have to borrow funds for a much smaller section of the project (and the most expensive section, between Toowoomba and south of Brisbane, which requires extensive tunnelling and a viaduct, will be done as public-private partnership).
But the government also expects to get its $8.4 billion back, plus inflation — seemingly contradicting the Anderson review conclusion that “expected operating revenue over 50 years will not cover the initial capital investment.”
Perhaps the Department knows something that Anderson and co didn’t — otherwise it’s difficult to reconcile the two statements. It would be an arcane issue, normally — except the sums we’re talking about here are colossal, and there is no independent expert who seriously thinks a rail line to nowhere is a viable proposition. Perhaps Victorians and Queenslanders are going to massively expand their appetite for each others’ products. Or perhaps freight companies thinking of using the route are in for a rude shock when they see the usage charges.
If it got a whole lot of trucks off the Hume, New England and Pacific Highways this thing could be a boon for the eastern states, but not pay its way in an economic sense.
But I suspect that is not the point of the rail line, and will be fought by the truckers while there is breath in their lungs.
There’s an awful lot of pork riding on this deal.
Remember that side-show of Jethro, Cash and Turbott for the benefit of truck owners just over 12 months ago – to abolish the Road Safety Remuneration Tribunal that set (employee) truck drivers’ minimum pay rates – now they want to do this?
“What a friend we have in Malcolm ….”
It has nothing to do with the Hume, Pacific and New England. It duplicates the Newell Highway, which has plenty of capacity and would still be a faster route than inland rail.
A better investment would be upgrading the Newell Highway with bypasses of major towns like Shepparton, Forbes, Parkes, Dubbo, Narrabri and Moree (Toowoomba is already getting a bypass); as well as improvements to the alignment around Coonabarabran and general safety upgrades. Fraction of the cost. More benefits than inland rail. Probably more pork than rail because it gets trucks out of residential areas of the towns, too.
Despite the Rudd NBN demonstrating it would return its INVESTED billions the LNP didn’t warm to it. In fact Turnbull eviscerated a project which would have been worth something – as opposed to the current NBN which needs to be re-done to allow Oz to participate in the 21st century.
Historically, have our governments ever got rail right?
Good question Zut. Rail has been a debacle since the first tracks were laid in Australia. How many different gauges do we have???
Possibly we can count them on two hands, Dogs.
The simplest, most equitable and poll topingly popular way for the Inland rail to be a success is to charge every truck carrying a container the real cost of road destruction shunted onto all other road users.
And no, current charges don’t come within a B-Double airhorn blast of meeting a fraction of the costs, in blood & treasure inflicted on the community.
Simples.
Fortunately, I looked at the other comments and see DB & Klewi made the same point.
I’ll assume, to be charitable, that Gloria has trucking interests in the family.
Is it a ever a good idea to treat some infrastructure projects as a loss-leading exercise like the supermarkets do with bread and milk to drive other activity? Or would that be like shooting pork in a barrel?
Perhaps the best way to get this built, on time and budget, is to get the Chinese and Japanese to build it. Certainly no “mates”. That would be another debacle to add to the mountain of debacles that is grubbiment business writ large.