Political war erupts over Melbourne’s pork tunnel

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ScreenHunter_4191 Sep. 12 13.05

By Leith van Onselen

A major political battle is building in Victoria after the Labor Opposition vowed to tear-up the contract for the $18 billion East-West link project if it takes office following the November State Election. From The Age:

The Napthine government’s pledge to begin work on the East West Link by the end of the year is in disarray…

It comes as the Abbott government considers withdrawing $3 billion of federal funding earmarked for the project if Labor wins the state election.

Victoria is also facing a potential compensation bill worth hundreds of millions of dollars if the project is scrapped…

On Thursday The Age exclusively revealed that a Labor state government would use a court battle initiated by two inner-city councils to render contracts for the eastern section of the multibillion-dollar toll road invalid…

Treasurer Michael O’Brien said Labor’s position was “economically insane”, would cost Victoria $3 billion and 6200 jobs, and was a stunt designed to fend off the Greens in inner-city seats…

Opposition leader Daniel Andrews said the government should delay signing the contract until after the November 29 poll.

Let me state from the outset that I share Labor’s opposition to the East-West Link Project.

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As noted previously, it is one of the most expensive transport projects in history costing an estimated $1 billion per kilometre ($1 million per metre) to construct.

To add insult to injury, the project has been approved without passing a rigorous cost-benefit analysis, with The Age earlier this year revealing that the project could deliver a net loss to Victoria:

Infrastructure Australia head Michael Deegan told a Senate committee that the government’s unpublished business case also provided an alternative estimate, showing a benefit-cost ratio of 0.8 when ”wider economic benefits are not included”.

Under this scenario the project would return just 80¢ for every $1 spent, suggesting an economic loss if the ”stock-standard” analysis preferred by Infrastructure Australia is used…

In a submission to a federal infrastructure inquiry, Infrastructure Australia targeted Victoria for failing to submit a ”robust” business case for the east-west link, singling the project out as an example of why the public are cynical about ”big ticket” infrastructure announcements.

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Labor is right to demand a full debate over the merits of East-West link prior to the November State Election. Similarly, the Liberal Government is way out of bounds in trying to push through the project before the public has had a chance to vote. There is no urgency in signing the contracts now, no matter what the government says. Surely it can wait a few months for the election result, and in the process avoid potentially huge legal bills for the Victorian taxpayer.

For its part, the Abbott Government is also behaving poorly in threatening to pull funding from Victoria just because Labor has threatened one of its pet road projects. Why not instead base funding decisions on objective cost-benefit criteria, regardless of mode (road or rail)? The answer boils down to two words: pork barreling.

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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.