Annual subsidy from state budget for Australian Formula One Grand Prix (source data: AGPC annual report)

Thanks to Victorian taxpayers kicking in as much as South Australia’s entire annual tourism budget, Melburnians will once again get to host this years four-day Formula One Rolex Australian Grand Prix, starting on Thursday.

As the 2016 annual report of the Grand Prix Corporation reminds Victorians, they’re being asked to fund the Grand Prix because of the ostensible “economic benefits” it provides to the state:

Our mission is to provide Melbourne and Victoria with world-class international motorsport events that deliver increased promotional and economic benefits to the State of Victoria.

According to Premier Daniel Andrews, those economic benefits are worth about $40 million but, he adds, there’s also invaluable international exposure during the race broadcast.

Pull the other one! We know a couple of things about the Premier’s claim:

  • It cost $95.9 million to run last year’s event but revenue was only $34.9 million. The state government poured in $61.0 million to make ends meet.
  • When properly calculated, the economic benefits – including from media exposure during the race broadcast – only come to around $5 million. Once economic costs like disruption to Albert Park and noise are subtracted, the net economic benefit comes to a paltry $1 million (see Is the Grand Prix really worth $60 million?).

There’ll always be arguments around the calculation of economic benefits, but even on the most liberal estimation, they’re nowhere near the level claimed by Daniel Andrews, much less the $61 million subsidy paid from the state budget.

The subsidy is real money that isn’t available for other uses e.g. running schools and public transport. The state is locked into running the Grand Prix for a further six years, so it’s inevitable it’ll spend in the order of $360 million over 2018 – 2023 on subsidising the race.

The Chair of the Grand Prix Corporation, John Harnden, cites the standard economic claims in his report to shareholders, but gets closer to the true rationale when he goes on to say the benefits also include:

Strengthening Melbourne’s and Victoria’s liveability and civic pride, celebrating sporting achievement at the highest level, and providing aspiration and inspiration for Australian men, women and children.

Economic benefits have almost nothing to do with why successive governments have continued to fund the grand prix. They do it because it’s popular with voters, especially in recent years with Australian drivers Mark Webber and Daniel Ricciardo genuine contenders for race wins.

In part, it’s a gift from Victorian taxpayers to Australian Formula One fans so they can attend a home race; no different in principle, apart from the sheer scale of funding, to numerous government subsidies for other sectional interests e.g. the arts. It’s also in part expenditure on civic pride; as with the Olympic Games, we’re happy for governments to throw a lot of public money at projects we think enhance our national image.

But the $233 million subsidy provided by a single state government for the grand prix over the last four years looks profligate compared to the $340 million the Australian Sports Commission spent under its Winning Edge program on the 2016 Rio Olympics.

It’s difficult to argue against a subsidy for the Grand Prix but not other events that similarly can’t demonstrate significant economic benefits. What should be questioned though is selling the subsidy off the back of (illusory) economic benefits derived from suspect methodologies. However it’s defined, the value derived from spending so much on a single event – remembering this week’s race is one of twenty held in other world cities every year – also warrants review.

I think there’s a good argument that most of the “pride” benefit from the Australian Grand Prix accrues at the national level, not the state or city level. The federal government should be kicking in a substantial share of the subsidy; it shouldn’t all be carried by a single state government.

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