Rudd commits to high speed pie-in-the-sky

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By Leith van Onselen

Prime Minister Kevin Rudd has attempted to reinvigorate his election campaign by reaffirming Labor’s commitment to a high speed rail line connecting Melbourne, Canberra, Sydney and Brisbane. From the Australian:

KEVIN Rudd will seek to re-energise his election campaign today by announcing a fresh Labor commitment to a high-speed rail line along Australia’s east coast.

The move follows the completion of a $20 million feasibility study, promised by Labor at the last election, which found a high-speed rail link between Brisbane, Sydney, Canberra and Melbourne would cost $114 billion and take 45 years to complete…

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While Labor has offered equivocal support for fast rail to date, the Greens are strong supporters of the proposed development.

The rail link would decrease pressure on the nation’s air network, taking up to 40 per cent of patronage from the airlines on major routes…

A team of seven consultants predicted the line could be completed by 2058 at the earliest, with an estimated patronage of 83.6 million passengers a year.

Leaving aside the fact that this project is planned decades into the future, and could therefore be considered “pie in the sky”, it also represents a huge waste of taxpayer funds.

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Let’s look at some of the issues.

First, the $114 billion price tag (presumably in today’s value) represents a cost of nearly $5,000 per person or nearly $9,800 per employed person – a huge burden. While Australia’s population will continue to grow over time, it will unlikely be anywhere near big enough to make such a huge investment viable.

Second, for that kind of price tag, Australia could probably fix-up most (if not all) of the infrastructure in Australia’s cities and major towns, providing a much bigger productivity pay-off in the process, whilst also improving living standards for a wider range of people.

Third, even allowing of the balances of fiscal transfer, a price tag of this magnitude for only a small portion of the country is highly inequitable. Why should residents in Adelaide, Northern Queensland, Darwin, Alice Springs, Hobart, Perth, or a range of other places be called upon to fund (via their taxes) a project that provides no benefit to them and minimal (if any) productivity benefit to the nation?

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While detailed modelling might show different, this smells like another of those dubious big ticket pet projects that politicians love, but leaves taxpayers and the economy significantly worse-off.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.