Budget Review 1996-97

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Detailed Portfolio Reviews

August 1996

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15 TRANSPORT AND REGIONAL DEVELOPMENT

15.1.1 Aviation Policy
15.1.2 Aviation Operations
15.2.1 Road and Rail Policy Development
15.2.2 Federal Office of Road Safety
15.2.3 Australian National Railways Commission
15.3.1 Maritime
15.4.1 Regional Development

General

The very significant change in outlays identified above reflect the fact that the 1995-96 outlays figure includes some $1460 million in proceeds from the sale of Qantas. For the 1996-97 year, the comparable 'negative outlays' atttributable to proceeds from the sale of Qantas shares amounts to only $2.7 million.

A number of significant aviation policy initiatives have been foreshadowed in the Budget context. Some of these are of an important policy development nature but do not involve significant outlays; the proposed Commonwealth contribution to the cost of runway extensions at Adelaide Airport is the major outlay item identified against this Sub-program.

Key areas of proposed policy activity over the Budget year include the development of an regulatory regime to apply to major airports following their leasing under the Government's airport privatisation program; the intention of the regulatory regime will be to protect public interest aspects of airport operations.

A related concern is the issue of airport pricing; up until now, major airports have always operated under a uniform charging regime. In other words, airlines and other commercial businesses have been charged under the same aeronautical charging structure at each major airport irrespective of the actual costs of the facilities and services provided to users at each location. Such charging arrangements are generally regarded as being inefficient from an economic point of view to the extent that by not confronting users with the true costs of resources provided, there will be a tendency for facilities to be over-utilised or under-utilised from one location to another, depending on the degree of overcharging or under-charging involved. With the prospective move towards the privatisation of major airport management, it is anticipated that airport-specific charging regimes will be introduced in lieu of the present network charging regime.

Other major policy developments foreshadowed for 1996-97 include the move towards a single aviation market with New Zealand, the formation of possible APEC aviation reform options and issues surrounding the ownership and control of Australian designated international carriers.

At present due to the relatively short runway length, there are operational restrictions on large international aircraft using Adelaide Airport; these adversely affect the commercial viability of international air service links to this city.

Adelaide Airport has recently been included among the first group of airports to be leased out to private operators under the Commonwealth's airport privatisation program. Preparatory to this initiative, the Government is contributing to the cost of extending the main runway and to associated works. The funding will be provided in two parts. $28 million will be provided in 1996-97 with up to $20 million being reimbursed to the SA Government from the proceeds of the lease sale to cover the State Government's contribution to associated works. These works will enable large (Boeing 747) international jet aircraft to use the airport without the signifiucant operational restrictions which currently apply.

Through this sub-program, the Commonwealth provides a policy and operational framework for implementing the Sydney Airport Noise Amelioration Program, the development of a second major airport for Sydney, the provision of an effective aviation security regulatory regime and for the achievement of environmentally sensitive operation of aircraft and airports. These activities reflect the Commonwealth's longstanding responsibility for aviation operational activities which stems from its external affairs responsibilities and international treaty obligations.

The Government has decided not to proceed with construction of the Second Sydney Airport during 1996-97 resulting in significant savings on previous forward estimates for this Budget year. However, the Badgerys Creek site remains the Commonwealth's preferred site and the Budget provides $21 million to cover environmental and other studies and also for site management at Badgerys Creek. The environmental studies will address not only the Badgerys Creek site but also the Holsworthy Military Area, which is regarded as an alternative site to Badgerys Creek.

An Environmental Impact Assessment process is now in progress and a draft EIS will be issued for public comment in early 1997. The Government will make a decision on the site for the new airport as soon as practicable thereafter.

The Budget provides additional funding of $2.2 million in this Budget year to meet the Government's election commitment to continue the existing noise amelioration program and to extend it to commence coverage of areas affected by east-west runway operations. In total, $83 million will be provided in 1996-97 for the noise amelioration program. The full extent of the additional areas affected by noise will not be precisely defined until after the long term operating plan for the airport has been determined following a review by Airservices Australia. The expansion of the program to cover additional areas will extend its duration from 3 to 5 years.

General

There has been a reduction of $99.4 million in outlays under this program between 1995-96 and 1996-97. However, part of this decline simply reflects the transfer of funding (worth $29 million in 1995-96) under the Interstate Road Transport Act 1985 from program 2.1 to program 2.2 (Federal Office of Road Safety). A further $16.4 million reduction relates to the completion, in 1995-96, of the transport infrastructure (capital works) program, while scheduled equity contributions to the National Rail Corporation have fallen from $22.3 million in 1995-96 to $6.1 million in 1996-97. Nevertheless, as a result of Budget decisions, funding for the National Highway System has been cut by $113 million, while Pacific Highway funding has been increased by $75 million (of which $10 million will be financed from the NHS program), leaving a net $48 million reduction in road funding. Road funding, in 1996-97, will total $803.5 million (excluding 'Black Spot' funding of $36 million which appears in program 2.2).

Since 1974-75, the Commonwealth has accepted full financial responsibility for the construction and maintenance of the National Highway System (NHS). The NHS comprises 18 000km of highways, declared by the Minister to be National Highways, linking the capital cities as well as highways linking Brisbane with Cairns and Hobart with Burnie. No new roads were included in the NHS between 1974 and 1994 but, in January 1994, the Newell Highway linking Melbourne and Brisbane and the Sturt Highway linking Sydney and Adelaide were added to the network.

Funding for the NHS in 1995-96 was $836.5 million. Decisions taken during the 1996-97 Budget process have reduced this to $728.5 million (net of the $10 million transferred to the Pacific Highway). This is a real reduction in NHS funding of 15.2 per cent. The Minister for Transport and Regional Development has announced that a Parliamentary Inquiry, chaired by Mr Mark Vaile, M.P., will look into the desired level of road funding to meet Australia's economic needs. This inquiry will report in November 1997 and its findings could well impact upon the forward estimates of NHS funding from 1998-99 onwards.

In 1974, on the advice of the Commonwealth Bureau of Roads, the Commonwealth selected the New England Highway, rather than the Pacific Highway, to be included in the NHS. It was argued at the time that the New England Highway would be cheaper to upgrade, had more of an interstate character and did not carry the volume of local traffic found on the Pacific Highway. Prior to 1994, the Pacific Highway was eligible for Commonwealth funding under the arterial roads category of Commonwealth roads programs. However, when the Commonwealth and the States agreed to untie Federal funding for all but the NHS as from January 1994, the Pacific Highway became ineligible for direct Commonwealth assistance.

However, the 1994 Report of the National Transport Planning Task Force identified the Pacific Highway as warranting urgent upgrading.⁽¹⁾ In December 1995, the Minister for Transport, Mr Brereton, announced that the Commonwealth would provide $750 million to Queensland and NSW over the next 10 years to enable the fast tracking of carriageway duplication. This offer was matched by the Coalition in its 1996 election policy.

Funding for the Pacific Highway will total $75 million per year (in 1996-97 dollars) for each of the next ten years. Of this amount, $10 million will be diverted from monies allocated to the NHS.

General

Outlays under this program have increased by $52.2 million between 1995-96 and 1996-97. However, part of this increase is explained by the transfer of payments (worth $12.3 million in 1996-97) made under the Interstate Road Transport Act 1985 from Program 2.1 to Program 2.2. A further major contribution to the growth in outlays has been the re-establishment of the Black Spot funding program at a cost of $36 million in 1996-97.

The Black Spot Program, operating from 1990-91 to 1992-93, was designed to provide targeted funding aimed at the rectification of notorious accident sites. Not only was this program designed to improve road safety, it was also seen as an ideal way of quickly generating employment possibilities. When introduced in 1990-91, payments under the Black Spot program were made conditional upon the States implementing a 10 point uniform program of road safety measures. However the program also received a substantial boost in funding in the One Nation statement of February 1992. Over the three year life of the program, $265.6 million was provided for Black Spot projects.

In 1995, the Bureau of Transport and Communications Economics, in an evaluation of the Black Spot program, found quite high benefit/cost ratios associated with this form of funding.⁽¹⁾ On the basis of the significant benefits perceived, the States and others had frequently called upon the Commonwealth to reinstate Black Spot funding. The Labor Government declined to do so, arguing that having demonstrated the efficacy of such funding, it was up to the States to continue the program using their own resources. The Coalition pledged to reinstate the program if elected.

The program involves annual payments of $36 million (in 1996 dollars), beginning in 1996-97, for an indeterminate period.

The Australian National Railways Commission, trading as Australian National (AN), operates freight services in Tasmania while, on the mainland, it performs interstate passenger services, some intrastate freight services and contract linehaul services. It also owns and maintains substantial rail infrastructure. The establishment of the National Rail Corporation in 1991 deprived AN of much of its interstate freight functions and, as a result, put enormous pressure on its financial position.

The Government is currently faced with a number of interrelated rail issues, including AN's role and financial performance, future directions for the National Rail Corporation and the establishment of a national rail authority to oversee access to the interstate rail network. Upon receiving the Brew Report into AN, the Government had been expected to announce a decision on AN's future prior to the Budget, but the matter was deferred in Cabinet. In mid-August, the Minister for Transport and Regional Development, John Sharp, announced that a committee of Government Members and Senators had been appointed to examine the Commonwealth's involvement in the rail industry. In the meantime, the Government has deferred the establishment of the national rail track access authority (known as the National Rail Infrastructure Authority).

For many years, the Commonwealth has provided a revenue supplement to AN to assist with the financing of its operations. The pre-Budget forward estimates indicated that this supplement would decline from $74.3 million in 1995-96 to $30.1 million in 1996-97. Since no decision has been taken in relation to AN, these estimates have been allowed to stand in the current Budget. However, the actual outcome for 1996-97 will no doubt depend upon the eventual action taken in respect of AN.

Ships Capital Grants

The Ships (Capital Grants) Act 1987 was enacted by the previous Government to provide a 7% taxable grant to the operators of new and modified Australian registered ships on condition that such ships were operated at or below certain specified crewing levels. The scheme was originally intended to operate for five years, but subsequent amendments to the Act extended its provisions until June 1997. The Labor Government announced a further extension of the scheme beyond 1997, but had not introduced legislation to this effect prior to losing office. However, the pre-Budget forward estimates did reflect this decision.

The Departmental Annual Report for 1992-93 states that a review of the scheme found it had been a substantial factor in influencing ship investment behaviour directly (through providing financial assistance) and indirectly (as the catalyst for reductions in crew levels and operating costs). The evaluation also found replacement ships introduced under the scheme had delivered cost savings and increased efficiencies compared with ships replaced.

The Coalition, in its 1996 election policy, pledged to abolish the scheme and introduced legislation in May 1996 to this effect, arguing in the second reading speech that since 'Australian shipping is no nearer to being internationally competitive than it was nine years ago ... the Australian taxpayer cannot be expected to continue pouring capital grants into shipping'. The Shipping Grants Legislation Bill 1996 has passed the House of Representatives but is still before the Senate. The effect of the legislation, as it stands, would abolish the grant as from 1996-97, but the Government has indicated that it will move an amendment to allow the grant to be paid to ships contracted prior to 1 May 1996 and delivered by 30 June 1997. As a result, $10 million would still be paid under the scheme in 1996-97.

In September 1994, the Maritime Union of Australia (MUA) took strike action over the proposed sale of ANL to foreign interests and the sale of ANL's shareholding in Australian Stevedores. The strike ended upon the negotiation of the Maritime Industry Restructuring Agreement between the Government, the MUA and the ACTU. This agreement reflected several of the recommendations in the Taylor Report, including a recommendation to give PAYE tax relief in respect of wages paid to Australian seamen engaged in the international trades. This was seen as providing an offset to the higher wage costs of Australian seafarers. The International Shipping (Australian Resident Seafarers) Grants Act 1995 gives effect to this measure, although it provides assistance in the form of a grant to the employers of international seamen, based on the notional tax liabilities of such crews.

In its 1996 election policy, the Coalition pledged to abolish this legislation, citing an alleged failure of the MUA to generate the benefits (reduced crew levels and industrial peace) associated with the package. Legislation to repeal these grants has passed the House of Representatives but is still before the Senate. The grants relate to wages paid in the previous year so this measure, if passed, would not have any effect on outlays until 1997-98.

Tasmanians have frequently argued that they have been disadvantaged in respect of interstate transport in that they have not been able to benefit from Commonwealth funding of interstate highways. In February 1996, the previous Government pledged a $44 million grant for the purchase of a fast passenger ferry across Bass Strait. For its part, the Coalition pledged to lower the cost of Bass Strait travel by introducing a rebate on the cost of transporting passenger vehicles across the Strait. The rebate will be worth up to $150 for a one-way ($300 return) trip across Bass Strait. The anticipated cost of the scheme over the next 3 financial years is $24.5 million.

The Tasmanian Freight Equalisation Scheme (TFES) was introduced in the late 1970s as a means of lowering the cost of shipping non-bulk freight across Bass Strait. The TFES subsidies are paid to the consignors of freight rather than to the shipping lines. TFES rates have not been reviewed since the Inter-State Commission undertook its examination of the scheme in 1985. However, over the past decade there have been changes in both shipping competition and freight rates in the Bass Strait trades.

The Government has proposed a review of rates of assistance under the TFES in the light of of these changed conditions. The review will also address perceived anomalies associated with the scheme. The review is expect to lead to net savings in outlays. It should be noted that any savings made as a result of the review will be offset by an estimated $0.5 million per year due to increased payments made through the TFES arrangements for the carriage of wheat across Bass Strait. It is anticipated that more wheat and wheat products will be shipped in non-bulk form following the further reduction, in this Budget, of the Tasmanian Wheat Freight Subsidy administered by the Department of Primary Industries and Energy.

The bulk of the reduction in outlays in this sub-program is accounted for by scheduled completion of the Better Cities Mark I program. In fact this program was originally due to finish in 1995-96 but there was a rollover of some funds from 1994-95 to 1995-96 and from 1995-96 to 1996-97. Consequently, outlays of $50 million have been budgeted for this year compared with expenditure of $120 million last year and $224 million in 1994-95.

Reduced outlays for Better Cities Mark II is the other significant contributor to the overall reduction in outlays for the sub-program. In 1995-96 outlays for the two components of this scheme, capital assistance and urban design, were $24.7 million and this is budgeted to fall to $2.6 million in 1996-97 with all of this allocated for capital assistance.

The most significant spending initiative in this sub-program in the 1996-97 Budget was an additional $5 million for Indigenous Health Related Infrastructure. This will provide water and sewerage facilities for indigenous communities in the Northern Territory and is part of a three year $15 million scheme. Also announced in the Budget was three years funding totalling $7 million for redevelopment works at Inveresk rail yards in Tasmania. $3 million of this has been budgeted for 1996-97.

On 17 July 1996 the Government announced that the regional development and urban programs within the Department of Transport and Regional Development would be terminated to eliminate duplication of State and local government activities in this area. It is the Government's view that:

As a consequence of these decisions the Government expects to make total budgetary savings of $218.3 million over the next three years from Better Cities Mark II and $182.2 million over four years from abolition of the Regional Development Program. It has also identified savings of $40 million from residual Building Better Cities funds. Notwithstanding these savings the Commonwealth has still budgeted for spending of $85.2 million to meet existing contracts and selected other projects.

Better Cities Mark II was announced in the 1995-96 Budget (May 1995) with funding of $254 million over four years. Most of the funding-$200.6 million-was for capital works. Additional funding of $80 million was announced in Community and Nation. The Regional Development program was announced by the former Government in Working Nation (May 1994) with funding of $150 million. $70 million of this was allocated to regional strategic infrastructure and the remainder for regional economic structure, strategy and projects.

Initial spending under the Regional Development program fell well short of target. In 1994-95 $24 million was appropriated but only $4 million spent. Of the $37 million appropriated in 1995-96 $28 million was spent. $35 million has been budgeted for 1996-97.

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