Ponzi Pallas’ West Gate Tunnel to cost $1 billion more

By Leith van Onselen

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.

[email protected]

 

Comments

    • ONE BILLION DOLLARSSSSS!!
      Hardly a lot of money in the scheme of things.
      Relative to Australian Economic Wizardly that amounts to a thousand broken down tacky tacky homes way out west.
      Sell to foreigners – problem solved.

  1. Has anyone noticed how bumpy the railway tracks are in Melbourne? While other nations have railway tracks smooth enough to allow 350 km/h speeds.

    So not only do we need additional railway tracks due to the ponzi – the existing railway tracks are 3rd class and need to be improved.

    I wonder how much the states can cut immigration by putting massive taxes on foreigners.

    • The railway lines in Melbourne are not even fit enough for a branch line. I have counted numerous places where mud is coming through the ballast between the City Loop and Caulfield. It is an absolute disgrace the network. However, I don’t really see it changing unless there is an absolute disaster on the network (a crash with many fatalities). Even the tourist trains (Puffing Billy and Cockle Train – SA) have slightly worse track infrastructure.
      Even some areas of the network have speed restrictions due to the poor state of the rail network. Aren’t we in a major city in the OECD?

      One of the major infrastructure projects is the level crossing removals. It is a popular project with a return less than one. Imagine what would happen if we instead invested this money into bringing the rail infrastructure into the 20th century. Trains would be more reliable due to less wear and tear on rollingstock and less network issues. I can’t see an track upgrades to the 20th century any time soon.

  2. There are two related issues here. The population growth, and WHERE the “infrastructure growth” is expected to happen.

    The model that has been working well all along in southern USA and many heartland states as well, is that most of the added infrastructure is on low-cost greenfields land. So there is a lot of “bang for the buck” in terms of capacity, and housing affordability is systematically preserved.

    In Texas at least, there is a beneficial form of “central planning” in the form of corridor protections ahead of greenfields growth, so that in future decades it is not necessary to acquire grossly price-inflated strips of land.

    One constantly suspects that malign vested interests are behind the toxic mix of policies that prevails in most of the rest of the Anglo first world.

  3. There is excellent advocacy work coming from the NYU Stern Urbanization Project (including distinguished experts like Alain Bertaud, Solly Angel, and Paul Romer) advising developing nations to do corridor protections and infrastructure planning to “make room for growth” and not repeat western nations mistakes where it is left so late that it is always too expensive.

    Another interesting academic is Alex Anas, whose work analyses and endorses the net benefit of focusing infrastructure spending on greenfields when it is too expensive in existing congested cities, and deliberately enabling relief for the existing city in the form of somewhere else cheaper and with attractive amenities, for its people and businesses to go – this being “as well as” somewhere for the immigrants! His go-to paper is provocatively entitled “Discovering the Efficiency of Urban Sprawl”.

  4. What’s another $1 billion to a Government happy to pay more than $1 billion not to build a road. A $billion here, a $billion there. Meh.

  5. It smacks of corruption.

    it began life as a secret deal between Transurban and Labor. In 2015, two months after Mr Andrews won office, two former Labor advisers began work with Transurban. One was Treasurer Tim Pallas’ chief of staff; the other headed John Brumby’s media unit.

    http://www.theage.com.au/victoria/a-great-deal-for-transurban-but-this-is-no-way-to-plan-a-great-city-20171212-h03f7u.html

    No wonder the Greens won Northcote.

    Build railways and cycleways! And tax them foreigners.

  6. Transurban can’t be very very clever as Kennett states. $15b made of a $4b investment. If they were really clever they could make more money buying property.

    I despise paying tolls on citylink. However if I do have to pay tolls I’d rather it be to the government to build more stuff than Transurban. I said the same thing years ago when they first built citylink. Why aren’t the government spending the whole amount and then collecting the tolls themselves. Oh that’s right ‘game of mates’

    • “in ­addition to above-­inflation toll hikes until 2045”

      “Above inflation” is the key. Over the long term this will become a bigger money spinner for the operator and more of a drag on Victoria’s economy, In the past large infrastructure costs would be inflated away over time. This ensures that can never happen.

      In NSW, they have further refined the practice of increasing the toll expiry times to eternity to pay for unrelated (pr barely related) pieces of infrastructure. Privatized taxation.

  7. +1000. An alternative to Westgate bridge is essential. Transurban’s business model seems to need higher than CPI increases annually for their toll management to work. Pretty poor. More privatised taxation for politician’s mates.

    It is a very poor look that very senior ALP advisers went to Transurban and would have “facilitated” the negotiation process. The Game of Mates continues

    When will governments learn that when one organisation comes in the door with a “bright” idea – Westgate tunnel, Barangaroo, etc, the stock answer should be we look forward to your submission in the open tender that will follow.

    Interestingly, Transurban ran a very high level competitive bidding contest for building the Westgate tunnel (3 bidders), where Transurban may have taken the liberty of cherry-picking the bidders’ best ideas to use against them. EastLink again.

    What is good for the goose should be good for the gander!

  8. Follow the money
    Some poor girl somewhere is having to do some dancing in a dimly lit bordello for someone in govt to make this happen as that slimy individual fingers a suitcase full of cash

    Figuratively speaking, of course

    Jesus, glad I left the joint

    What a corrupt cesspool
    “Dannyboy” Andrews is making that sycophantic little Matthew Guy look like an angel

    PLEASE ENJOY

  9. Daniel Andrews: It’s outrageous the Liberal Party signed the EW Link contract before the election with no business case and no transparency, he has no mandate!

    Also Daniel Andrews: We’ve signed the West Gate Tunnel contract already well before the election and I won’t release the business case

    Hypocrite

  10. The biggest problem with the West Gate Tunnel is not the Tunnel itself… but the fact it funnels traffic onto the existing West Gate Freeway corridor.

    What it should have been is an extension of the Western Freeway to Ballarat, Melton, Bacchus Marsh… Running a sky-freeway (like City Link through Kensington) above the rail line from Sunshine/Maidstone through to the city.

    This would leave the West Gate Bridge for Geelong and South West Traffic.. while creating a new solution for all other western traffic to access the CBD..

    The solution proposed will feed more traffic into the bottle neck around Brooklyn and doesn’t serve to open up the region.

  11. And it’ll be ready in 2028, just in time for another 1,000,000 vehicles to be added to the network. Wilson Parking should have been give the rights to operate it because nothing will move on it from day one.

    • Well I’ll call this early – the Metro Train tunnel project in the 2030’s will be huge.

      A tunnel linking Newport to Port Melbourne.. then under the city, and out to Doncaster….. Connecting Werribee and a new Point Cook branch line, Altona all the way through. A project like this would remove thousands of cars a day from the bridge.

      Most people over west drive because they have no choice.