Cost overruns in transport infrastructure
Australian governments spent $28 billion more on transport infrastructure over the past 15 years than they told taxpayers they would spend.
An analysis of all 836 projects valued at $20 million or more and planned or built since 2001 finds that cost blow outs account for nearly a quarter of the total budgets of these projects.
Both Western Australia’s Forrest Highway between Perth and Bunbury and New South Wales’ Hunter Expressway cost over five times the amounts politicians initially promised they would cost.
Premature announcements – when a politician promises to build a road, bridge or rail line without a funding commitment, often in the run up to an election – are the biggest culprits.
While only 32 per cent of projects were announced early, these projects accounted for 74 per cent of the value of cost overruns over the past 15 years.
Cost overruns are rarely analysed from the first funding promise, yet once politicians announce a project, they and the public treat the announcement as a commitment, and two thirds of these projects end up being built.
All main political parties have committed to sound planning of infrastructure, and to making decisions with broad social benefit, yet in practice they continue to promise projects that Infrastructure Australia has not evaluated or has already found to be not worth building.
Governments should not commit money to transport infrastructure before tabling proper evaluation and the underlying business case in Parliament. And once a project is completed, governments should report to the public on how it performed against the cost-benefit estimates behind the original decision.
Governments can also improve project assessment methodologies, collect and publish data that would enable cost estimators to learn from past experience, and not spend contingency funds on add-ons that are poor value for money.
At a time of declining private investment and historically low interest rates, when many politicians and commentators are calling for more transport infrastructure spending, cost overruns are a vital public policy issue. Transport infrastructure has great potential to ease traffic congestion and lift productivity, but without a curb on politicians’ premature promises, it will remain the bluntest of economic instruments.