The process has taken two years, but Anthony Albanese eventually released the second and final report of the Commonwealth’s $20 million study on east coast High Speed Rail (HSR) yesterday.
It would take till 2040 to get started in the key Sydney-Melbourne corridor and capture half the air travel market. The headline finding however is the truly breathtaking cost of construction.
The study estimates it would cost $114 billion to build the east cost network, most of which (at least $98 billion) would have to be paid for by taxpayers with no hope of getting the money back.
That’s a phenomenal sum. It’s more than six times larger than the $17 billion the Rudd government spent on the Building the Education Revolution (BER) program. That was an emergency program to bolster the economy against the threat of the GFC.
It’s getting on towards three times the cost of Labor’s NBN scheme. There’s a crucial difference though – the NBN is designed to recoup the $37 billion outlay and to ultimately make a small profit.
In fact HSR might cost even more. The $114 billion figure is the P50 estimate. The P90 estimate is $127 billion i.e. “in 90 per cent of simulations, total construction costs are expected to be less than $127 billion”.
There would of course be the inevitable political pressure to widen the scope of the project. Canberra and the Gold Coast might not be satisfied with the envisaged spur lines. Larger regional centres would invariably push for services to stop nearby.
The study says HSR will at least earn enough revenue to pay its operating and asset renewal costs. If so, that would put it in rarefied company among public operators of scheduled public transport services in Australia.
The critical assumption is ticket prices are pitched at the same level as current air fares and can be maintained at that level. That’s got to be a big risk, especially for trips between regional centres and capital cities.
Still, while the up-front cost of building HSR would be massive, whether it would be worth it depends on the scale and nature of the benefits it would provide.
If it were to deliver the sort of transformative leap in productivity, living standards and social mobility provided by (say) the introduction of universal education more than a hundred years ago it would doubtless be money well spent.
But the study shows the benefits are modest relative to the cost. Even with hopeful assumptions about the share of patronage it could win away from aviation, the benefits would only equal the cost.
They increase to double the cost if a more optimistic 4% discount rate is assumed instead of 7%. That’s an arguable assumption but it’s the composition of the benefits that I think is most telling.
Many observers know HSR will cost a staggering amount but think lower emissions, pollution and congestion would more than justify the outlay.
What I think will surprise many readers is the net value of all externalities summed over the 50 year appraisal period at a 4% discount rate is just $2 billion. Externalities only account for 3% of total benefits.
Almost all the economic benefits come in the form of user benefits, especially savings in travel time. The largest group of beneficiaries would be leisure travellers who journey between regional centres and capital cities.
But the time savings that count most in the economic evaluation are those made by business travellers journeying between capital cities.
Although they would only comprise around a third of HSR users, their time is valued at a much higher rate than the more populous leisure travellers so their time savings make a big contribution to the overall benefits.
That’s surprising. In their recent study, the Greens (unabashed HSR boosters) argued HSR would offer no time savings over air for inter-capital business travellers.
The report doesn’t measure the regional development impacts of HSR, arguing they’re too uncertain. In some cases they might also be negative e.g. small towns might lose out to regional centres served by HSR.
What others call regional development I think should more properly be labelled regional sprawl. Give people faster transport and they’ll take the opportunity to live further away in bigger houses, especially if it’s heavily subsidised.
Some argue HSR would obviate the need for a second Sydney airport, but the Joint study on aviation capacity in the Sydney region contended another airport is still needed. It concluded that “HSR will not provide the services to fully address the growth of international and domestic peak business traffic and the limits on aviation capacity”.
Australia already has a pretty efficient and competitive aviation industry. Yet the proposition implicit in HSR is that we should spend an enormous amount of public money to replace airplane seats with train seats i.e. to substitute a subsidised form of public transport for a (mostly) privately funded one.
All the capital costs and around one third of operating costs of public transport in Australian cities is paid for by government. But that’s not the case with interstate and regional air travel – it’s largely profitable and priced at market rates.
There’s no good reason why we should spend huge sums of public money to change that in order to gift regional leisure travellers and capital city business travellers with faster trips. Not only is the warrant doubtful but even if taxpayers believe these groups warrant assistance, it would be an extraordinarily expensive way of providing it.
I wonder if there’d be anything like the same level of enthusiasm for public subsidy if Boeing (say) released a new plane that could cut 15 or even 30 minutes off the flying time from Sydney to Melbourne or Brisbane.
Would there be comparable pressure to provide $100 billion or more in public subsidies to update the nation’s fleet of planes? I think it would be taken for granted that not only would those who get the benefit be prepared to pay for it, but they should pay for it.
As I’ve said a number of times before, HSR is a boondoggle. There are far better and more transformative ways we could spend an extraordinary sum like $100 billion: for example on improving public transport in our major cities, or on replacing coal-fired power generation with renewable energy.
I’ve had a good look at the overview document (43 pages) but I’ve only skimmed the full report (516 pages). I’ll have a closer look at the details and no doubt revisit this fascinating issue again shortly, especially since Mr Albanese is inviting public comment until 30 June.