Australia should shift from megaprojects to maintenance - Grattan Institute

Scenes of protesters wearing hi-viz jackets and shouting angry slogans in Melbourne last month have focused attention on an industry that up until now has been relatively unscathed by the pandemic.

Two-week shutdowns of commercial construction in Sydney and Melbourne have proven very disruptive, and it’s understandable that the focus is on getting back on track as quickly as possible.

But there’s a bigger issue than the immediate COVID-related risks and disruptions, and that’s the very recent, very pronounced shift in Australia to megaprojects. Gigantic projects may be captivating, but in reality we should only be reaching for massive infrastructure projects as a last, not a first resort.

In recent years, there has been a boom in public infrastructure work in Australia. In March 2020, the value of the road and rail projects being built across the country exceeded $120 billion for the first time. And the projects being built were bigger than ever. It is no longer true that only a couple of very large projects are being built at any one time; now, most of the work being done is on ‘megaprojects’ – projects costing $1 billion or more. Over the past five years, the value of an average road or rail project being built more than doubled, from $430 million to $1.1 billion.

In fact, Australia has entered an era of mega megaprojects, with most work being done on projects with an expected cost of more than $5 billion. Ten years ago, Australia had just one mega megaproject under construction: the Airport Link M7 and Northern Busway in Brisbane. At the time, it was considered ‘the most complex road and tunnel engineering feat in Queensland’s history’, and it made use of Australia’s two largest tunnel-boring machines as well as 17 road header machines – the most on any Australian project to that time. Today, there are nine projects of this size or larger under construction.

Even for billion-dollar-plus projects, there has been a major jump, from just two in 2001 to 18 today. While the trend to megaprojects is evident overseas as well, in Australia it has coincided with a push to greater national integration of, and more active Commonwealth involvement in, transport infrastructure. Bodies such as the Australian Rail Track Corporation, the National Transport Commission, and Infrastructure Australia, have been created to deal with this greater focus on national planning and coordination.

Megaprojects have often been justified on the grounds of strong population growth – at least, before the pandemic led to closed borders. What’s less often noted but just as important are exceptionally low interest rates since the Global Financial Crisis, which have resulted in very strong land price increases. Land acquisition has become more important because planning authorities no longer assume large cities will keep expanding outwards.

The pressures are real, but governments have choices in how they respond.

Megaprojects come with significant risk of cost overruns. Grattan Institute research has found that billion-dollar projects in Australia exceed their initial cost estimate almost half the time – more often than smaller projects. Not only are cost overruns more frequent, but they are also a larger fraction of the project. For projects worth less than $350 million, the average cost overrun is 19 per cent; for projects worth $350 to $1 billion, the average is 26 per cent; and for billion-dollar projects, the average cost overrun is 30 per cent.

Megaprojects are also particularly risky if they are announced prematurely. When a project is announced early, before a formal commitment such as a funding allocation, this usually means its cost estimate is a preliminary one, and does not incorporate a detailed engineering design or feasibility assessment. There would be no problem with such early announcements if governments had a robust process for cancelling those projects that, on closer examination, turned out not to be worth building, or not the best option available. But we don’t have such a process; once a project is announced, it usually ends up being built. More than 80 per cent of projects worth $20 million or more and announced since 2001 were seen through to completion.

Some say we need these megaprojects because we’ve got to overcome a legacy of underinvestment in roads and rail, and that megaprojects are the way to solve congestion and unlock productivity. But it’s far from clear that there has been underinvestment; there’s no simple formula for how many kilometres of road or kilometres of rail are needed per person. Even a very large new road or railway line forms only a tiny increase to the stock; for example, Sydney’s WestConnex, Australia’s largest-ever freeway project, will add around 0.3 per cent to Sydney’s lane kilometres of road, and Melbourne Metro will add 1.9 per cent to the track kilometres of Melbourne’s rail network. Bigger cities have fewer lane kilometres or track kilometres per person, yet people spend barely any longer on their daily commutes.

What’s more important than how much physical infrastructure a city or a state has is whether it gets efficient usage out of what it has. If there is excessive road congestion in peak periods, the most efficient remedy is congestion pricing, and public transport fares that encourage off-peak travel by people who can be flexible. Efficient use of infrastructure also means dealing with the mounting maintenance backlog – where there has been an historical underspend. And it also means modest upgrades to existing infrastructure, such as widening or upgrading key arterial roads, improving surfaces, upgrading railway stations, and improving key road intersections and bridges. These kinds of measures can be much more effective than billion-dollar or even five-billion-dollar-plus megaprojects.

Rather than reaching for heroic and iconic megaprojects, our governments should focus on upgrading and improving the infrastructure we’ve already got.

Marion Terrill

Transport and Cities Program Director
Marion is a leading transport and cities expert with a long history in public policy. She has worked on tax policy for the federal Treasury, and led the design and development of the MyGov account. She has provided expert analysis and advice on labour market policy for the Federal Government, the Business Council of Australia, and at the Australian National University.

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