Choosing China: Andrews' first trade mission complete
Sunday Age state political editor Farrah Tomazin spent a busy week following the Victorian premier around the economic powerhouse that is China.
PT2M38S 620 349Premier Daniel Andrews and his Treasurer, Tim Pallas, have both made speeches recently saying that the government should take advantage of its triple-A credit rating to raise public debt to finance infrastructure, where the benefit to the state is likely to exceed the cost of borrowing. It is a pity they haven't followed their own advice when it comes to the financing of the removal of suburban level crossings around Melbourne.
Greater Melbourne has more than 100 level crossings, compared to two in outer Sydney. A program to remove them, to increase the flow of traffic and frequency of trains was stopped in Melbourne to finance construction of the Eastern Freeway.
Now the lease of arguably Melbourne's greatest strategic asset, the Port of Melbourne, has been advanced as the best way to finance the removal of 50 level crossings – rather than going into debt.
The infrastructure investment with the most benefits is the port-rail terminal at Swanson Dock, foreground, which has been delayed. Photo: Craig Abraham
Leave aside the fact that the world's greatest container ports, such as Singapore and Rotterdam, remain in public ownership for the simple reason that they have to serve conflicting objectives. They need to generate profits from stevedoring charges to shippers, while keeping costs down and promoting the growth of their hinterland. The inherent conflicts can best be resolved in-house by a government-owned port authority.
Why should the money for level-crossing removals be raised via a complex privatisation transaction at an effective rate of interest of 7 per cent (the minimum yield which private owners of the port would expect on their 50-year lease), compared to half the cost to taxpayers if the government exploited Victoria's triple-A credit rating to raise the money?
Who benefits? Who pays? It is a modern version of the old pea and thimble trick.
In its modern version, the hucksters are financial engineers and the thimbles they construct are elaborate schemes – usually variants of public private partnerships – purporting to relieve the state of debt and deficit and improve the quality of services previously provided by government.
The latest variant of this game is asset recycling, by leasing the port (out of sight, out of mind and hence ripe for the plucking), then using the money to finance the removal of level crossings (in sight and very much on the minds of voters).
By now most people know these games (replacing cheap public debt with expensive private debt and engineering a structure that allows the main players scope for multimillion-dollar rent seeking) are on the nose, so it is important that they receive some sort of blessing from a respectable authority such as the Productivity Commission.
Hence the commission produced a report (Public Infrastructure, 2014) which appeared to provide the imprimatur for deals that sugar-coat unpopular privatisations with popular investments such as level-crossing removals. The report said: "While the linking of the two decisions may be a useful mechanism to alleviate community resistance to privatisation, this should not replace the need to undertake these sets of analysis separately. Ideally, both sets of decisions would be made within a transparent decision-making environment, where a robust cost-benefit analysis is undertaken and there is scope for independent review."
None of the commission's caveats has been met. To do so would violate techniques for success of the pea and thimble trick.
Cost-benefit analysis, if undertaken, would be likely show that about 10 to 12 level-crossing removals would achieve a positive economic result.
At an estimated cost of $90 million per removal, the total cost would be $1.1 billion, which could easily be financed by public borrowings at 3.5 per cent without affecting Victoria's triple-A rating. The savings in terms of reduced vehicle congestion, more frequent trains, less local pollution, fewer deaths and improved health would be more than the cost of public borrowing and easily captured by the state.
But the remaining level-crossing removals on the RACV list are probably marginal.
The supreme irony is that the infrastructure investment with by far the most benefits involves the spending of $58 million on the planned Swanson Dock port-rail terminal. This would facilitate the recently completed $350 million Footscray Road overpass to allow up to 28 rail-freight train movements in and out of the port each day. This in turn would displace 3500 truck movements each day throughout Melbourne, deferring the need for the $6.6 billion public-private partnership investment proposed by Transurban for toll roads to distribute containers through the Western suburbs.
The delay in building the Swanson Dock terminal, even though the money has been allocated, means Port of Melbourne-related rail-freight traffic has declined from 14 per cent three years ago to an estimated 8 per cent now.
Unnecessary deaths and respiratory diseases, let alone the destruction of urban amenity caused by the Swanson Dock delay, is potentially an avoidable public health scandal rivalling the failure of successive government to close the Hazelwood power station – or the latest Treasury thought bubble, to widen Punt Road to a six-lane highway.
Kenneth Davidson is a senior columnist with The Age. kdavidson@dissent.com.au
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