Infrastructure

Richard Webb
Economics Section

Interstate distribution of local road grants

Introduction

In conjunction with the Budget, the Government released a report by the Commonwealth Grants Commission (CGC) on the distribution among the states of Commonwealth identified road grants to local government. The recommendations of the report titled Review of the Interstate Distribution of Local Road Grants would, if adopted, change the amount each of the states receive. The following examines the Report and some of its implications.

Historical perspective

Commonwealth financial assistance grants to local governments take two forms, general purpose grants and grants for roads known as ‘identified local road grants’. Until 1990–91, the Commonwealth provided specific purpose grants to local governments for local roads under the Australian Land Transport Development Act 1988. The grants were distributed on the basis of criteria in this Act. The October 1990 Special Premiers’ Conference agreed that road funds would be ‘untied’ with effect from 1 July 1991, that is, the conditions applying to road grants would be abolished and local governments could spend the funds for any purpose.

In June 1991, the Local Government (Financial Assistance) Act 1986 was amended to allow road funding to be added to general purpose grants from 1995–96 and hence distributed on a per capita basis. But this would have been to the detriment of Western Australia, Tasmania, the ACT, the Northern Territory and Queensland. The 1995 Premiers’ Conference therefore decided that local road funds would continue to be distributed on the basis of the criteria in the Australian Land Transport Development Act 1988. The effect of this decision has been to freeze the interstate distribution of identified local road grants at the historical shares that applied in 1991–92 when grants were untied.

New Methodology

It has long been recognised that the historical shares may not reflect the relative financial needs of local government for local roads. In 2005, the Government asked the CGC to recommend a new methodology. The CGC recommended that:

… as an interim measure, until reliable and comparable data on road characteristics are available for all States, the local roads grants be distributed among the States on the basis of average expenditure per person in urban, rural and remote areas and the population of each State resident in those areas.

The assessed s6tate shares of local road maintenance expenditure, based on the CGC’s approach using data for 2002–03 to 2004–05 are shown in Table 1.

Table 1: Assessed state shares of local road maintenance expenditure based on data for 2002–03 to 2004–05 and recommended distribution for 2006–07 (per cent)

 

NSW

Vic

Qld

WA

SA

Tas

ACT

NT

Aust

Current shares (including supplementary funds for South Australia)

28.3

20.1

18.3

14.9

7.8

5.2

3.1

2.3

100.0

Recommended shares from CGC report (based on data 2002–03 to 2004–05)

31.3

22.0

20.2

11.3

8.9

3.3

1.2

1.8

100.0

Adjusted shares from CGC report for 2006–07#

31.1

22.0

20.5

11.3

8.8

3.3

1.2

1.8

100.0

Source: CGC, Report on the review of the interstate distribution of local road grants, p. ix.

#: the CGC shares have been adjusted for movements in population shares to December 2005.

For 2006–07, the estimated identified local road grant is $1168 million.[1] Applying the current shares and the CGC’s recommended shares for 2006–07 to this amount results in the following distribution among the states.

Table2: Estimated state amounts of local road funding for 2006–07: current shares and CGC recommended shares ($ million)

 

NSW

Vic

Qld

WA

SA

Tas

ACT

NT

Aust

Current shares

477

338

309

251

132

88

52

39

1686

CGC recommended shares for 2006–07

524

371

346

191

148

56

20

30

1686

Gain(+)/loss(-)

+47

+33

+37

-60

+16

-32

-32

-9

0

Source: Based on CGC, Report on the review of the interstate distribution of local road grants, p. ix

and Budget Paper No. 3  2007–08, p. 23.

Table 2 shows that if the CGC’s recommendations for 2006–07 were adopted, NSW, Victoria, Queensland and South Australia would gain while Western Australia, Tasmania, the ACT and the Northern Territory would lose.

Conclusions

The CGC’s recommendations will be controversial because they would entail substantial redistributions of grants among the states. Western Australia, in particular, can be expected to oppose adoption of the recommendations.

Key reference

Commonwealth Grants Commission, Report on the review of the interstate distribution of local road grants, 2006.

North-south railway

Introduction

Factored into the AusLink 2 transport program is a provision for further study of a possible inland north-south railway line between Brisbane and Melbourne. Details are yet to be announced. The following contains background to this concept.

Domestic freight projections

Australia faces a formidable freight transport task. The Bureau of Transport and Regional Economics (BTRE) has projected the total domestic freight task—measured in billions of tonne-kilometres—to grow at an annual rate of 2.8 per cent between 2003 and 2020, that is, by almost 60 per cent. Interstate freight is expected to grow even faster at 3.8 per cent annually. Based on past trends, the BTRE projects rail’s share of non-bulk freight to fall from 21 to 17 per cent but to remain the largest mode in the transport of bulk freight (coal, minerals and grains).

These projections do not, however, take account of the ‘potential for rejuvenation’ in north-south routes similar to that which has taken place on east-west rail routes. While rail’s share of the land transport market on the east-west corridor between Perth and the eastern states is around 80 per cent, rail’s share of the Melbourne-Brisbane market is about 30 per cent, 9 per cent on the Melbourne-Sydney leg, and 11 per cent between Sydney and Brisbane where the track follows the coast. Reasons for rail’s low share on the existing Melbourne-Sydney-Brisbane corridor are the poor state of the track, and congestion in the Sydney metropolitan area; the latter is the single most important barrier to better service reliability. These factors increase rail’s costs reducing its ability to compete with road freight.     

The Government has allocated $1.8 billion over the five years to 30 June 2009 for investment in the existing corridor. This investment is projected to double rail’s market share between Melbourne and Brisbane. The Australian Rail Track Corporation (ARTC) will undertake $1.3 billion of the investment; the balance will be funded through Auslink. The ARTC is a wholly-owned Commonwealth company established to provide a ‘one-stop shop’ for train operators seeking access to the interstate track between Brisbane and Perth. The ARTC is also responsible for capital investment in train corridors, and manages the interstate network and infrastructure maintenance. Projects in the ARTC’s investment program can be found here.

Future Directions?

Even with this investment, it is projected that the existing corridor will reach capacity around 2019. This raises the question of where future investment in capacity should be made. The concept of an inland route between Melbourne and Brisbane which bypasses but is linked to Sydney, has a long history. Most recently, the concept has been associated with Mr Everald Compton and Australian Transport and Energy Corridor Limited (ATEC).

The Commonwealth’s involvement in the proposal has taken several forms including the financing of pre-feasibility studies. The most recent such study—the North-South Rail Corridor Study—was released in September 2006. The study examined four route options but was instructed not to determine the preferred route. Key conclusions of this study include that government would have to contribute funds for the project to proceed because the cost of investment would not allow commercial rates of return. The construction costs and transit times of the options are shown in the table.

Table: Construction costs and transit times of the optional routes

 Route

Far west via Shepparton

Far west via Albury

Central inland via Shepparton

Central inland via Albury

Coastal via Shepparton

Coastal via Albury

Hybrid via Shepparton

Hybrid via Albury

Cost ($ bn)

3.6

3.1

8.5

8.0

10.7

10.2

6.8

6.3

Transit time Melbourne -Brisbane (hours)

21.3

20.6

24.5

23.7

22.4

21.6

26.4

25.7

Source: Department of Transport and Regional Services, North-South Rail Corridor Study, Background Briefing, p.10.

Key references

Bureau of Transport and Regional Economics, Freight Measurement and Modelling in Australia, Report 112, Bureau of Transport and Regional Economics, Canberra, 2006.

Department of Transport and Regional Services, North-South Rail Corridor Study, report prepared by Ernst & Young, Hyder Consulting Pty Limited, and ACIL Tasman Pty Limited, Department of Transport and Regional Services, Canberra, 2006.

Endnotes



 

[1].     Budget Paper No. 3 2007–08, p. 23.

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