The East-West Link was a dud anyway

by on 7 December, 2014

 

1609697_10152650821929989_322121146_nThe East West Link, the Liberal government’s key election promise, was a shameful white elephant. The estimated cost of the first stage ran at $6.8 billion dollars, of which $2 billion would come from Victorian tax payers, and $1.5 billion from Australian tax payers generally. That’s $3.5 billion dollars in public funding. The overall long term cost to the taxpayer would run at an estimated $17.8 billion dollars. These are government figures so they are probably optimistic estimates; indeed academics believe the costs will be higher. The Liberals framed the 2014 Victorian election as a referendum on this this road. Thankfully, the electorate knocked it back. It was a dud.

Imagine that you work for a commercial lender being approached by a developer for a loan for a multibillion dollar project. The developer says there is a cost benefit analysis and that the project will be profitable, but doesn’t give you the analysis or the details. However, you and the developer go a long way back; you trust the developer. This is despite the developer’s shonky history and reputation for dishonest dealings. You give the developer the loan anyway. At this point, if your employer becomes aware of your actions, you will probably be fired for incompetence.

Now suppose that you are a voter being asked to vote for the Liberals because they support the East-West Link. The Napthine government did not disclose its cost-benefit analysis to the public for the East-West Link highway project. It simply asked the public to trust the government. It claimed that you could because of its “economic credentials.” This is no different to a developer asking the bank for a loan, and saying “trust me” rather than handing over the information. How are you, as a voter, able to assess whether the project is worthwhile? You can’t.

Regardless, several of the former government’s own MPs have acknowledged that the Liberals are not to be trusted. The Napthine government spent its term in office subsidising profitable companies like SPC. It raised taxes and charges. It increased government spending. It even promised to spend more on renewable energy schemes than Labor. It had no economic credentials to so much as to presume to bargain with in the first place.

I am not opposed to road projects. Quite the opposite: I want as many roads built as the public demands. The difference is that I don’t pretend to know how many roads the public wants; what their size might be; or where they should be directed to. I am not an engineer and nor am I financier. I do not have the knowledge or expertise to make judgments about whether a road project is worth it. Nor do politicians. I recognize that engineers and investors already invest private money in roads when it is profitable to do so. That’s why toll roads exist: to ensure that roads can profit investors much as supermarkets, banks or other private companies do.

The private sector may have invested some funds in the East West Link, but they have also refused to do so without billions of dollars of public funding. That means the project, as it is currently designed, simply isn’t worth the money, trouble or effort for the private sector. If that’s the case, we must ask ourselves why politicians are willing to spend taxpayer’s money on it. Public choice economics has the answer. The father of public choice theory, James Buchanan, describes it as the study of “politics without romance.” As economist Adam Thierer puts it:

“When one begins to ponder infrastructure management problems through the prism of public choice theory, the resulting failures we witness become far less surprising. The sheer scale of many infrastructure projects opens the door to logrolling, rent-seeking, bureaucratic mismanagement, and even outright graft.”

Politicians are willing to engage in infrastructure projects as long as they look good to the public and appeal to key special interest groups, like major construction companies. The government calculates that other constituencies, like pensioners whose properties are compulsorily acquired, will be insignificant electorally.

As voters, we are regularly being asked to vote on mammoth infrastructure projects costing tens of billions of dollars. The National Broadband Network is a good example. Its initial estimated cost was $40 billion dollars. Malcolm Turnbull and Tony Abbott slammed the Federal ALP for refusing to release its business plan to the public. Denis Napthine adopted the same cavalier approach as Kevin Rudd and Julia Gillard. Releasing a business case for the East West Link would only leave it susceptible to criticism that would undermine his electoral prospects.

The best way to stimulate infrastructure spending and economic growth is to cut public funding to infrastructure projects—and cut the taxes that fund them in the first place. Tax cuts will return money to the people that earned it. It will let taxpayers vote with their wallets on the infrastructure they want. Private developers will then fund that infrastructure appropriately if we let them.

The public needs to make up its mind on infrastructure projects. Do we really want election campaigns that take months and years to be centred on infrastructure projects that politicians are not equipped to assess or properly deliver? Do we want the incredible cost and uncertainty that comes with politicians announcing and then cancelling infrastructure projects for political gain? Or do we just want the job done properly, in a timely manner, at the least expense for all involved? If so, the private sector is the way to go.

It will be interesting to see whether it will cost less taxpayer money to simply cancel the East-West Link. If so, I for one hope the ALP does, and quickly.

Vladimir “Zeev” Vinokurov is a solicitor and an associate editor at Menzies House. The views expressed here are his own.

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