We support the very thorough and insightful report and the
recommendations. We have the following additional comments.
The need for objective and
transparent transport planning
We believe that it is critical that any proposals for Commonwealth
contribution to toll road projects need to be assessed in the context of an
integrated transport plan which has been developed through a transparent and
In particular we reiterate the important observation made in the report
that only governments have an incentive to think in terms of the network.
We believe that it is critical that all details of transport modelling
and any reviews of this modelling for toll road projects are publicly
available. There is no case for ‘commercial in confidence’ and ‘cabinet in
confidence’ provisions being brought to bear to preclude this information being
made available to the community and indeed to Infrastructure Australia. This is
the case for the Westgate Tunnel project currently planned for Melbourne, where
independent peer reviews of the transport modelling have not been publicly
released, nor made available to Infrastructure Australia.
The Greens agree with the submission from the Grattan Institute that:
A lack of transparency gives rise to suspicion that the deal
may not be in the best interests of the public. The strongest argument for
secrecy – that secrecy leads to lower costs to the public – has not been made.
On the contrary, there are indications that the secret deal may not offer the
best value deal to the public.
We accept that in the case of economic modelling there is an argument
that some of this information may be legitimately ‘commercial in confidence’.
However we believe that all information related to the economic modelling
should be made available to Infrastructure Australia and the default should be
for it to be publicly available.
Market led proposals
Market led proposals pose particular difficulties with regard to open,
objective and transparent planning
The adoption of a major proposal by the government without its inviting
tenders or expressions of interest, or even announcing a timeframe for an
infrastructure outcome, suggests that the private sector, and not the
government, is setting priorities; and these priorities will be set with
profitability rather than the public interest in mind. In the case of the
Westgate Tunnel, the Grattan Institute observes:
The government only made the case for a much smaller road
project, the $500 million West Gate Distributor; it did not identify the
underlying problem warranting a $5.5 [billion] mega-project linking a number of
freeways and arterial roads.
Further, the consideration in isolation of a proposal means that there
is no comparison with competitors. Since competition is generally supposed to
be one of the major drivers of superior efficiency in the private sector, this
way of operating seems perverse.
That Infrastructure Australia require projects to be assessed as part of
integrated transparent and objective transport planning processes which have
strong community involvement.
Assessment processes should include assessing how individual projects
contribute to the meeting of overall objectives for the transport system in the
That there be a moratorium on Commonwealth funding of toll road projects
until such planning processes have been undertaken for particular regions.
That the Commonwealth not make any financial contributions to any
projects worth over $100 million unless all details of the transport modelling
underpinning these projects is public, and all information related to the
business case and economic modelling is made available to Infrastructure
The distinction between
infrastructure funding and financing
As is noted in the report, regardless of the method of funding a road,
whether through direct funding from government or through private sector
financing the community will pay for the road. The question is whether it is to
be financed through taxes or tolls or some other method.
The Greens are not opposed per se to private sector financing in
infrastructure. Indeed, given the level of resources available in private
superannuation funds there is a strong case that this money should be invested
in productive infrastructure.
There are assumptions that the private sector is forced by competition
to be efficient in building infrastructure, and because it is directly involved
it will be more likely to deliver on time and on budget. However most major
projects are one-offs, and anyway the toll road industry in Australia is virtually
monopolistic, in that it is almost completely run by one company, Transurban.
Most of the actual building is outsourced to other firms. So is highly likely
that these assumptions do not hold.
We do not believe that acceptance of private sector funding means that
we should accept tollroad developments, financing arrangements, and setting of
tolls that have perverse consequences and are not aligned with agreed economic,
environmental and social outcomes
The initial logic of toll roads was that a company would be engaged to
build a toll road, and would be paid for it by way of a right to collect tolls
until the capital cost with interest and the maintenance costs for the period
The report outlines that there is no necessary connection between
building and paying for a road. In particular, Transurban, the dominant toll
road operator in Australia, operates a number of roads which it did not build,
and has negotiated extensions to existing contracts to pay for different roads.
Transurban has been a highly profitable company. This is partly due to
skilful bargaining; it is partly attributable to windfall gains from increased
population in the major cities where it operates; and it partly suggests that
tolling is, in fact, a profitable business. The former New South Wales
Auditor-General, Mr Tony Harris, suggests that 'super profits...are a common
outcome for Sydney toll road owners'.
The specificity of toll contracts frequently seems to operate only in
the interests of the tolling company. The contracts have often proved flexible
enough, or governments have been amenable to changing them, to allow for
extensions or further increases.
While Transurban proposes to fully fund NorthConnex in Sydney, according
to one submission:
...the contract for this also allows Transurban to be bailed
out, if NorthConnex fails to generate the expected level of traffic.
Clauses like this raise doubts about the logic of PPPs. It would make
sense for a government to negotiate all stages of a build-own-operate (and
charge tolls) contract before the beginning of a project if it was a way of
transferring the business risk to the private operator.
Tolls as taxes
Given that there is clearly a disconnection between the cost of building
and operating a road and the toll paid, the Greens support the observation made
by many submitters to the inquiry that is valuable to view tolls as taxes.
Viewing them as taxes also underlines that it is responsible and appropriate to
set and manage them with issues of equity uppermost, and from a holistic and
network wide perspective.
Viewing tolls as taxes also leads to the observation that agreeing to a
tolling arrangement is similar to handing a taxing power and future revenue
stream to a private operator - which has significant and ongoing repercussions.
We note the submission of the Alexandria Residents Action Group:
The way tolls are administered leads to a failure to properly
account for moneys collected on behalf of the State, and a failure to properly
account for money disbursed by the State.
Where the state grants a concession to collect a toll, the
money collected should be considered, for accounting purposes, to have been
collected by the State, and any money not handed over to the State should be
considered, for accounting purposes, to have been a payment by the State.
That tolls are effectively operating as taxes is also supported by the
actions of the New South Wales government which gives a rebate to residents for
tolls on the M5 motorway.
According to one report, the subsidy to motorists through the scheme is over $1
billion a year.
On the face of it a better scheme would involve a simple payment by the state
from general (tax based) revenue for maintenance of the road, and any residual
capital cost. It would be more transparent, cheaper to operate, and possibly
involve a smaller subsidy to the road operator.
There is no obvious reason why, if tolls are to be collected, the
tolling should not be done by government. On the face of it, it might seem to be
more efficient than to have a private operator involved. Tolls on Sydney
Harbour crossings are already administered by the New South Wales government.
Mr Jeff Kennett, the former Premier of Victoria who negotiated the CityLink
deal, is quoted as saying:
Money, instead of going to government, is going to the
private sector; that is a total waste.
It would make sense to hand over the tolling power if the private sector
were bearing considerable risk. But it has been argued above that most of the
risk is transferred to government.
The rebating of tolls on the M5 at the rate of $1 billion a year by the
New South Wales government suggests that the whole system has come full circle
and it might simply have been better for the government to pay for the road
from tax revenue.
A further concern about toll roads and the appropriateness of private
sector provision of these roads is the concern of monopoly.
Clearly, there is a constraint on supply. There is almost never a new
alternative route available in urban areas. By definition, a new motorway is a
monopoly. Monopolists will always charge more and supply less than the socially
efficient quantity of a service.
As several companies developing toll roads have failed, there has been
an increase in concentration of ownership. Today Transurban operates, and has
at least a majority ownership of, 13 of the 16 toll roads.
This level of concentration may reduce the usefulness of PPPs as a
future method of financing roads. Having few alternative private sector partners
would increase the risk to state governments. It may strengthen the case for
governments to finance and build under contract rather than engage in PPPs.
Inflexibility in government policy is introduced by the dominance of one
company in the toll roads business. Transurban have built such expertise, both
technical and tactical, that it would be difficult for other companies to
compete in bidding for new projects. In effect, it creates a barrier to entry
in the market for toll road projects.
That the issue of competition in the toll road operation and toll road
financing market be referred to the ACCC for review.
That the Government leverage record low interest rates for Commonwealth
debt to increase overall direct financial contributions to productivity
Senator Janet Rice
Greens spokesperson for Transport & Infrastructure
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