Coalition to blame for East-West Link [Updated]

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By Leith van Onselen

Following complaints from French and Spanish ambassadors, the Victorian leader of the Liberal Party, Matthew Guy, and Federal Assistant Minister for Infrastructure, Jamie Briggs, have slammed the Victorian Labor Government for abandoning the East-West Link Project, claiming that it has raised Australia’s sovereign risk. From The ABC:

“I think this is the first time in modern Australian history that we have seen ambassadors coming to approach Australian authorities, in this case the Victorian Government, to protest at the financial practices of an Australian government,” Mr [Guy] said.

“Usually Australia leads the world in the way that governments manage their financial practices, here we’re at the bottom of the rung.

“We’re no better off than Zimbabwe, no better than Venezuela at dealing with international companies”…

Federal Assistant Minister for Infrastructure Jamie Briggs said countries were becoming worried about Australia’s stability as an investment destination as a result of the decision.

“We’re hearing this right across the globe, particularly my colleague Andrew Robb the Trade Minister is hearing this, everywhere he goes across the globe, people asking ‘is this what Australia’s now like?'”…

“We don’t want Australia to be like this, we want Australia to be a place where we build infrastructure, and we follow through on contracts”.

“The Andrews Government is risking investment, it’s going to cost Australians jobs”…

“We want a more productive Melbourne, we want more jobs created, they should just build the East West Link, they should not put Australia’s sovereign risk at risk.”

The Coalition has some nerve. If any party should hang its head in shame over the East-West Link Project, it is the former Liberal Government.

It is them who failed to disclose the facts from the full business case to the public and then rushed to sign the construction contracts before the November 2014 State Election.

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Had the Liberals released the full business case to the public before signing the contracts, Victorians would have discovered that the East West Link project was estimated to deliver a benefit to cost ratio of just 0.45, and would have taken an estimated 56 years to pay-off. So far from delivering a “more productive Melbourne”, the project would have delivered negative economic outcomes to Victorians.

To make matters worse, the former Liberal Government then signed a side letter with the consortium partners agreeing to pay both their bid costs and “opportunity costs” even if the contracts were declared illegal, invalid or unenforceable. In turn, Victorian taxpayers have been left with two painful alternatives:

  1. Proceeding with the project at great cost and receiving negative returns; or
  2. Abandoning the project but paying massive compensation to the construction consortium.
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The Coalition must recognise that sound infrastructure investment requires following due process, including transparent cost-benefit analysis, the weighing-up of alternative investment proposals, and choosing projects that provide the greatest net benefits to taxpayers.

The former Victorian Liberal Government (helped along by the Abbott Government, which provided some funding) failed on all counts with East-West Link, and they were rightly held to account by the electorate.

Sovereign risk would not have been an issue if it wasn’t for their incompetence.

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***Updated***

Just in via the Herald-Sun:

TAXPAYERS will fork out at least $420 million to cancel the East West Link toll road, with Premier Daniel Andrews saying it’s “the best possible result” the State Government could achieve…

The Government says it will effectively purchase the East West Link project company for $1, and take over its assets…

Mr Pallas said the potential payout to the consortium could have been as high as $1.2 billion.

He described the potential for such a payout as a “poison pill” placed by the Napthine government in the contract.

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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.