Commentary: Where the budget stands on road vs rail

Posted: May 23, 2014 in Transport

The Prime Minister Tony Abbott is often quoted as wishing to be remembered as ‘the infrastructure prime minister’. However, he has also been criticised for redirecting infrastructure funding away from rail and towards roads.

“The Commonwealth government has a long history of funding roads. We have no history of funding urban rail and I think it’s important that we stick to our knitting, and the Commonwealth’s knitting when it comes to funding infrastructure is roads.”Tony Abbott, then Federal Opposition Leader (4 April 2013)

Transport solutions should come after transport problems are identified and the best remedy to that problem is worked out. In many cases, such as for outer suburban areas with dispersed trips, it is indeed better for road based traffic solutions. In other cases, such as in compact inner city areas or into dense urban cores, it makes a lot more sense to use rail based public transport as a solution. It’s also important to remember that good road construction can also lead to bus, pedestrian, and bicycle access which rail cannot provide on its own.

This means that opposing all roads projects on the basis that they are a road project is actually just as bad as opposing all rail or public transport projects on the basis that they aren’t roads. When it comes to road vs rail, ‘it shouldn’t be an either/or proposition’ as former Tourism & Transport Forum head Christopher Brown would say. That puts a big question mark against the government’s desire to fund roads exclusively.

Mr Abbott, would argue that the Federal Government is merely providing certainty on road infrastructure funding, thus allowing the state governments to fund urban rail projects. Though he also claims to want to provide the infrastructure which will provide the greatest economic value to the nation’s cities, and in many cases that is rail.

2014-05-22 Infrastructure Funding in the Budget

Source: Australian Government, Budget Paper 1

But how tilted towards road funding is the budget? The forward estimates over the next 4 years show a total of $26,846m for road projects, with $2,712m for rail projects. This is not quite 100% for roads, though it’s about as close as you can get. Melbourne public transport advocate Daniel Bowen once explained that ‘if you want more people on public transport, provide more public transport. If you want more people on the roads, build more roads’, and the latter is clearly where the Federal Government is heading.

Even with situations where an exception might have been made, the Government has stood firm. For example, the future airport at Badgerys Creek will receive $2.9bn of Federal funding for roads, but not a dollar for a future rail line, despite the fact that the airport is being pushed by the Federal Government.

The one area where the government remains open to rail funding is with its “asset recycling fund”, where it will top up any funding state Governments commit from the sale of existing assets. The Assistant Infrastructure Minister Jamie Briggs recently confirmed that these funds will not be restricted to road projects. The fund will contain about $5bn.

But even if every dollar of this goes towards rail projects, the federal government will still be allocating almost 80% of its infrastructure budget for land transport towards roads. It would seem that this government is one that wants more people on the roads, rather than more people on public transport.

The Government would be wise to reconsider this strategy.

  1. Tandem Train Rider says:

    My understanding is (can’t remember who I heard quote this) that Lib research showed that Maxine Macque lost Benalong *because* of the Gillard Gvt’s annoucement of funding for the PRL. After the history of promisses and non-delivery of rail projects by the Carr government, it simply highlighted that the ALP (rightly) couldn’t be trusted/believed on that issue.

    The current LNP policy is so absurd in terms of transport funding, I’m convinved the goal is to manouver the ALP into adopting a more public transport oriented funding mix policy so the LNP can attack them over it. Obviously a very sound reason for major public funding allocations.

    If anyone can suggest a more logical alternative reason (one that belongs in ICAC perhaps?) I’d be happy to hear it.

  2. shiggyshiggy says:

    TTR: Maxine lost Bennalong for many reasons, but in the main it was the replacement of a first term PM viewed as popular in that electorate.

    I think you are giving the LNP too much credit in RE: roads policy. I think they actually believe that roads are best for many many reasons….mostly to do with their own ideology. If you can stomach it read Abbotts “Battlelines”, he goes into quite some detail about roads and driving.

    Also consider the aim of this government: The shrinking of government and the ceasing of the Feds as service providers. Increasing PT is the exact opposite of this ideology…..even though urban rail is probably the best bang for your buck when it comes to infrastructure spending and its economic effects.

    I think the LNP will be wedged big time by this. The states will be clamouring for more money for PT(because voters want it). The ALP will use it to make Abbott look backward and out of touch, no hard task.

  3. Tandem Train Rider says:

    > If you can stomach it read Abbotts “Battlelines”, he goes into quite some detail
    > about roads and driving.
    No. I definitely can’t stomach it.

    But even if I could, I think I’d find it very hard to take seriously. I’m having a great deal of difficulty in understanding what is driving the Federal LNP government, and not just because of the dichotomy between what they do and what they say. ‘Tactical Ideology’ is about the best I can come up with to describe it.

    > I think the LNP will be wedged big time by this.
    Personally I doubt this. I think it will be hard for Labor to make any commitments to public transport that will not appear either disingenuous or wasteful, or both. Ongoing road funding is harder to criticise. However cutting federal funding for roads is the sort of thing a first term government does in it’s first budget, and it’s unusual the LNP is heading the opposite way.

    What I think is more interesting in this budget is what they plan to do with ARTC. ARTC has been losing $500mil a year since it’s inception (mostly on the east coast), but it’s all off budget: the cost of it being bal;ance sheet. The Commission of Audit report recommended “selling” it, but (bar the Hunter Coal network) it would be very hard to give away. That said, I’m reluctantly comming to the opinion that the ARTC model has failed and we’re probably better off allowing vertical integration. Probably a bit off topic, but I’d be keen to hear @bambul’s thoughts on this.

  4. @TTR –

    The thing I found interesting about the ATRC is why it is making losses. It is due to asset impairments. In other words, existing assets are written down due to lower than expected future profits from that asset. It’s purely an accounting expense, and you can see this by looking at operating cash flow, which only looks at cash revenue and sales. Here the ATRC is making a fair chunk of money each year.

    The strange thing is that these asset impairments happen year in, year out. As a former accountant, I can tell you that this is very unusual, as they are designed to be one off events to recognise extraordinary occurrences. But if they are happening each year then they go from being extraordinary, to merely ordinary. If I get time, I hope to investigate further and do an actual full blog post on it.

    But I guess it does mean that the government could actually make some money by selling it off, as it does actually make money. The only problem is working out exactly how much money it makes, which is quite a tricky thing to do given the bizarre accounting treatment you have here.

  5. Tandem Train Rider says:

    @bambul I’ll have to do a complete workup on all the ARTC financial statements at some stage. But the trend I spot is in net capital. In 1999 it’s $100mil (not a lot for a trans contitnental railway even 15 years ago). By 2009 it’s $1.6bil. By 2013 it’s $3.4bil. And not a lot of that is retained earnings.

    My take on this is a rail network is very capital intensive *and* the assets involved are very long lived. So “properly” accounting for these is problematic. But I think the upshot of it is that a great deal of spending by ARTC should be expensed, but instead is capitalised. In other words, replace a life expired wooden sleeper with a new concrete one, instead of expensing it as maintenance it gets capitalised as new plant. This allows the regular government contributions to remain off budget.

    I don’t think there is any great conspiracy here. The intention was always to make ARTC a self sustaining business with adherance to accounting standards to match. But the fact is ARTC has needed ongoing funding to keep the network operational, and it’s going to be a hard mess to untangle.

  6. Alexsg says:

    Returning to the issue of the role of the federal government in transport funding, we have a long-standing pattern of Labor governments providing funding for public transport, particularly rail projects, only to have this policy reversed when Liberal governments come in.

    I think this is a marriage of ideology and convenience on the part of the Libs – ideology, in terms of the whole ” private transport is better” mantra that Abbot goes on with, plus the Libs’ dislike of the traditional unionised public transport sector – and convenience, in that they can push the costs and responsibility for PT onto the states.

    The fact that it is irrational and that in most other Federal systems, including the US government even under Bush administration, have funded rail and other public transport projects

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