I have argued repeatedly that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing.
Basic math (and commonsense) suggests that if you double the nation’s population, you need to at least double the stock of infrastructure to ensure that living standards are not eroded (other things equal).
And if you don’t build-out the infrastructure efficiently to match the population influx, then productivity and ergo living standards will be reduced, as explained previously by Ross Gittins:
What economists know but try not to think about – and never ever mention in front of the children – is that immigration carries a huge threat to our productivity.
The unthinkable truth is that unless we invest in enough additional housing, business equipment and public infrastructure to accommodate the extra workers and their families, this lack of “capital widening” reduces our physical capital per person and so reduces our productivity.
Think of it: the very report announcing that our population is projected to grow by 16 million to 40 million over the next 40 years doesn’t say a word about the huge increase in infrastructure spending this will require if our productivity isn’t to fall, nor discuss how its cost should be shared between present and future taxpayers.
In practice, however, the solution is not that simple. In already built-out cities like Sydney and Melbourne, which also happen to be the major magnets for new migrants, the cost of retrofitting new infrastructure to accommodate greater population densities can become prohibitively expensive because of the need for land buy-backs, tunneling, as well as disruptions to existing infrastructure – basic ‘dis-economies of scale’.
Indeed, the PC’s Shifting the Dial: 5 year productivity review, released in October, explicitly noted that infrastructure costs will inevitably balloon due to our cities’ rapidly growing populations:
Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels).
The $5.5 billion West Gate Tunnel project is a textbook example of the dis-economies of scale so often attached to modern Australian infrastructure ‘solutions’.
Back in August, it was revealed that an expert was cut for voicing concerns about the efficacy of the project to Victorian Treasurer, Tim (“Ponzi”) Pallas.
Then in September it was revealed that the Andrews Labor Government was trying to keep Victorians in the dark about the West Gate Tunnel Project by keeping an expert’s report critical of the modelling confidential.
And last month, despite the major misgivings mentioned above, the Andrews Labor Government approved the West Gate Tunnel project.
Yesterday, it was revealed that the cost of the West Gate Tunnel project has blown out by more than $1 billion to $6.7 billion. From The ABC:
The Victorian Government has signed the contract for the road linking the West Gate Freeway to CityLink, despite the State Opposition’s bid to block the tolling deal with infrastructure giant Transurban in the Parliament.
Under the funding arrangements, Transurban will contribute $4 billion to the project, in exchange for motorists paying tolls on CityLink until 2045.
The toll road was initially estimated to cost $5.5 billion, but will cost $1.2 billion more because the tunnels are now twice as long as originally planned.
Premier Daniel Andrews said taxpayers would foot the bill for the whole project if the Liberals and the Greens united to block the extension of tolls.
“This road will be paid for by motorists or it will be paid for by every single Victorian taxpayer,” he said.
“Either way, work starts in a couple of weeks’ time.”
And today, The Australian reveals that Transurban has scooped a $15 billion toll jackpot to build the West Gate Tunnel:
Toll road operator Transurban will reap an estimated $15 billion in additional tolls until 2045 in return for coughing up $4.4bn to help fund the Andrews government’s $6.7bn West Gate Tunnel project.
The government unveiled the project yesterday and foreshadowed a deal handing Transurban a 10-year toll road extension on its existing CityLink toll road, in addition to above-inflation toll hikes until 2045.
Under the plan, Transurban is expected to net an additional $15bn in toll revenue on CityLink, according to opposition estimates, while also profiting from variable peak-hour pricing and city access taxes on the West Gate Tunnel.
Former premier Jeff Kennett criticised the deal as “absurd” and slammed the government for forging ahead with Transurban despite never putting the $6.7bn deal to tender.
“Transurban is a very good company and very, very clever, but they’ve clearly got the government in their pocket,” Mr Kennett said…
Anybody with half a brain can see that running a turbo-charged immigration program requires massive investment and costs a lot, and that these costs are made worse by the dis-economies of scale and political incompetence discussed above.
Clearly, the most obvious and least cost policy solution to mitigate the big cities’ infrastructure woes is to significantly dial back Australia’s immigration program and forestall the need for costly new infrastructure projects in the first place. Because under current mass immigration settings, expensive solutions like the West Gate Tunnel will be required over and over again as rapid population growth continually outstrips the supply of transport infrastructure. And these costs will be borne by incumbent residents either through higher taxes or tolls.