The Community Demands Doncaster Rail: Tunnel vision will cost all Victorians, big time and the only defence now is outraged public opinion


The cost of the east-west road tunnel is huge, greater than any previous Victorian project by far and even many national projects. It will cripple the state’s fiscal position for many years through massive payments to the public-private partnership consortium that will finance it.

The financial burden on the Victorian taxpayer will be so big that it will ”crowd out” the state’s core responsibilities for funding schools, hospitals, rail transport and even other roads for at least a generation.

And yet the Coalition state government has never completed a business case that would justify the project. It inherited a negative cost/benefit study from the Eddington committee of inquiry established by the previous Labor government. Eddington showed that for every dollar invested in the project, Victoria would be lucky to get a return of 50¢.

Officials working on the business case have tried and failed to fudge the figures to get a ratio closer to one-for-one. They have also failed to come up with an answer that might look halfway credible after superficial examination by the federal government’s Infrastructure Australia Authority. However, this hasn’t stopped Tony Abbott promising $1.5 billion for the project if he wins the September federal election.

A back-of-the-envelope calculation shows why. City Link cost $1.8 billion to construct. The end-to-end toll on City Link costs $7.65. To get a similar return for private investors on the $8 billion first stage of the east-west tunnel (from Hoddle Street to City Link) would require a $30 toll.

Even if it was financed by government debt paying 4.5 per cent interest, the toll would have to be more than $20 to cover interest and capital repayments – and that is after allowing for Abbott’s $1.5 billion gift.

Worse, both these estimates only add up if it is assumed that traffic volumes are as high as 80,000 vehicles a day – that is, maximum capacity for 10 hours a day. This is unlikely even if the toll was $3, given that the time saving from using the tunnel would only be 10 minutes, most of which would be lost at the Royal Park spaghetti junction as traffic backed up and faced additional congestion moving south into the CBD or north going to the airport.

No wonder the owners of the airport are now keen for a railway link even though they make a fortune out of airport parking.

It is no surprise that the full cost of the east-west project ($15 billion to $17 billion), involving the planned connection to the Western Ring Road, is hardly mentioned. Nor is the cost of rail alternatives.

The state government pretends that the federal government or the private sector will pay for this road. In fact, Victorians will pay, big time.

A toll sufficient to cover the return required by private investors, or even the cost of cheaper public debt, is pure fantasy and would be electoral suicide.

The government’s favoured solution is shadow tolls, which are paid out of tax revenue. The principle has been established with the Wonthaggi desalination plant ($650 million a year for 28 years irrespective of whether water is delivered or not) and the Peninsula Link road ($130 million a year for 25 years independent of the number of cars that use the bypass).

Effectively, this is a return of about 11.5 per cent on investment, which sure beats 4.5 per cent or less on government bonds.

Based on the same return to private investors from the $17 billion cost of the east-west tunnel, an ”availability” charge, which shifts all the risks of the project from the private investors back to the government, will cost in the vicinity of $2 billion.

That makes a total of $2.8 billion a year for the three projects. This shows no respect for Melbourne’s liveability or the taxpayers’ dollars.

If the state government goes ahead with the east-west tunnel, the state will lose more than its triple-A credit status. The financial burden will be the excuse for more savage cuts to public spending on health and education, and to postpone sensible infrastructure investment in public transport for at least a generation.

The contempt shown at every step of the way for due process suggests that the financial establishment which benefits from these projects – and the politicians who serve those interests – are well aware that these breathtaking examples of sophisticated financial engineering can’t stand the light of day.

The final abandonment of due process was the decision to avoid preparing a business case – which could have exposed to state cabinet (and Infrastructure Australia) the recklessness of the tunnel decision.

One of Melbourne’s most respected public intellectuals, transport planner Paul Mees, described the Victorian government process of prioritising freeways at the expense of public transport as ”corrupt” at an urban transport conference in 2008. He was forced to resign as a result from his academic post at Melbourne University. Mees died at the age of 52 last week, due to cancer. Poor fella, my city.

The only defence against bad government now is outraged public opinion.

Kenneth Davidson is a senior columnist for The Age.