Experts line up against fast rail

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By Leith van Onselen

Transport experts have lined up against the Consolidated Land and Rail Australia (CLARA) Pty Ltd’s plan to build a high speed rail network linking Melbourne and Sydney (explained yesterday), arguing that the land deals underpinning the project are likely to be a “financial trainwreck”. From The AFR:

“It appears that this latest fast train proposal is driven by funding opportunities from higher land prices which can be highly speculative and unreliable,” said Garry Bowditch, head of the Better Infrastructure Initiative at Sydney University…

“The airlines will protect their market share aggressively and exercise their ability to price a fair proportion of seats at their marginal costs,” Professor Bowditch said.

“This could make a Melbourne-Sydney fast train look more like a financial train wreck very quickly”…

Transport experts are sceptical of the plan. “You’d have to say it doesn’t look like anything more than a property development idea,” one expert said.

“It’s very hard to see it being at no cost to the government. They [fast rail proposals] have required massive public subsidies and even if they don’t, someone has to buy the property.”

These concerns are similar to the ones raised by me previously (e.g. see here and here), namely:

  • The exorbitant cost associated with building and operating the rail line;
  • Lack of population density to support the project;
  • Lack of competitiveness against air travel unless there are massive ongoing operational subsidies from taxpayers; and
  • Equity issues if taxpayer funding is used: why should residents of WA, SA, NT, TAS or anywhere else not located along the route fork-out huge taxpayer subsidies for what will in all likelihood be an infrastructure white elephant?
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The obvious solution to these concerns is for the Government to categorically rule-out funding the project with taxpayer dollars. If CLARA wants to build the train line and develop the sites – fine. But it should be under no illusions that the Government would bail it out if the project becomes a loss-maker financially and an infrastructure white elephant.

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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.