State of decay

In response to my observation that “… the Labor government in NSW is cementing its reputation as the country’s worst fiscal manager.�

Ken Lovell ups the ante, pointing out

I don’t think you need be so narrow in your description of its incompetence. ‘Country’s worst government’ is fine.

Let me see him and raise him. It seems to me that, looking back as far as I can remember (to the late 60s), NSW has had consistently worse political leadership than any other state.

On the Liberal side, Askin was an old-style crook while Greiner pioneered the new style of doing cosy deals with big business and cashing in with highly paid sinecures after retirement. I almost forgot John Fahey, which is about all I need to say. Then there were a dozen or so unsuccessful opposition leaders, quite a few of whom managed to lose their own seats one way or another.

Labor produced one decent leader, Neville Wran, who succeeded the failed hack Pat Hills. Apart from that there was Barry Unsworth, another failed and forgettable hack, Bob Carr who followed in Greiner’s footsteps and now Iemma, who seems set to combine the worst of Unsworth and Carr, except that the Liberals are now so dire that they couldn’t lay a glove on this easy target.

Disasters like this don’t happen by accident, and it’s no accident that this crew has been put forward by the two most power-crazed and least policy-competent party machines in the country, both of which can be called the “NSW Right” (not that their permanently downtrodden factional oppositions have done much better).

The looming electricity fiasco is just the latest in a string of similar boondoggles of which the Cross-City Tunnel, Port Macquarie hospital, and Sydney Harbour Tunnel are emblematic examples. The successive governments of both parties have been lousy at running public services and even worse at privatising them. I’m no fan of Jeff Kennett but at least when he privatised something he did it properly – a trade sale to maximise the price, and little or nothing in the way of silly offsets and cosmetics. And while running public services is a difficult job, Labor has generally tried – I don’t see much evidence of this in NSW.

Perhaps karma is at work here. With the rise of global cities, of which Sydney would have to be among the top ten, a competently run NSW would have left the rest of the country in the dust. As it is, things are a bit more equitable.

33 thoughts on “State of decay

  1. Spiros, the tunnel itself is not a lemon. It is in fact a wonderful piece of engineering and a much needed roadway. The lemon is in the way it was funded, the way other roads were closed off and the fact that the tolls are so high that not enough people make use of it.

    It is no better that private investors took the hit. This will only mean that at the next investment opportunity they will add a premium to their risk and one way or another we will all pay for it.

    There was no logical reason why this project could not have been undertaken in a more traditional manner.

  2. John B, your objections to the cross city tunnel are that the processes in the deal were poor (well, it is New South Wales) and that the money would have been better be spent on public transport.

    Spiros, my objections aren’t only to the processes, but also to the outcomes. Which I think were poor for the community. Good processes don’t guarantee good outcomes, but bad processes almost guarantee bad outcomes. I certainly acknowledge that I would like to see much more money being spent on public transport infrastructure in NSW.

    For a jaw dropping example of bad process leading to a bad fiscal outcome, we have the Sydney Morning Herald reporting on the NSW Auditor General highlighting anomalies in the funding of the Sydney Harbour Tunnel . The opening ledes of the article:

    TOLLS from the Harbour Bridge are being used to prop up the privately owned Sydney Harbour Tunnel, it emerged yesterday as the NSW Auditor-General warned the tunnel was struggling financially because of rising costs and fewer cars using it.

    Motorists are abandoning the tunnel and instead using the bridge. At the same time the tunnel’s operating expenses are rising, prompting a warning that the Roads and Traffic Authority needed to reassess its interest-free loan to the tunnel company.

    The tunnel company’s expenses are more than $95 million a year while toll receipts have fallen to $43.7 million, a report from the Auditor-General said, leaving a shortfall of $52 million which is picked up by those use the Harbour Bridge.

    In the latest blow to public-private partnerships touted by the Iemma Government as a fix-all for funding the state’s infrastructure, the Auditor-General has found that the tunnel company could struggle to repay its loan to the RTA.

    The RTA lent the company $223 million in 1992 to be repaid in full in 2022, but the Auditor-General urged the RTA to reassess whether the company would be in a position to repay it in light of its losses.

    I know it’s tempting when you read this to just to roll your eyes and put it down to the debased ethical standards in NSW, but it shouldn’t be this way.

    But it was private money. They invested in the tunnel, and unfortunately for the investors, it was a bad investment. There was no public money that might otherwise have gone into public transport spent on the cross city tunnel.

    You’re correct in the narrow sense that it was nominally private money. But the implication behind the continual reference to private money that it was only a bunch of rich guys tossing in loose change they wouldn’t miss if things went south isn’t correct. There were millions of dollars of superannuation funds invested.

    There was also public money involved, because the RTA spent millions of dollars reconfiguring surrounding roads to feed traffic into the CCT.

    And taxpayers have also taken a hit because the funding arrangements for the CCT, and like projects, depend upon concessional taxation measures first introduced under the Keating government and extended by Peter Costello. This enables the projects to pay an attractive income stream despite extremely high debt loads, toll income that barely covers interest payments, and high upfront fees paid to financiers whose creative financial engineering kicked off the project in the first place.

    A logical conclusion to your argument is that the government should have alternatively done a deal with private investors to invest in public transport.

    Unfortunately, investing in public transport isn’t as attractive as investing in tollroads. There is less scope, and certainly less political will, for modifying the surrounding physical transport infrastructure to maximise the potential patronage for the project.

  3. “There was no logical reason why this project could not have been undertaken in a more traditional manner.”

    Suppose it had proceeded in a more traditional manner. The government would still have had to get some estimates of the number of vehicles that would use the tunnel. If they had received the same advice as the private owners, 90000 vehicles per day, then the government would have been stuck with the huge financial losses, because only 30000 vehicles use it.

    And it’s not the tolls that are to blame. During the toll free period there still only 50,000 vehicles per day using it, not nearly enough to make the tunnel financially viable.

    If the government had received the correct advice that only 30000 vehicles would use it, then the tunnel would never have been built.

    As it is, this “wonderful piece of engineering” did get built, and it got paid for by some Hong Kong investors. Thanks guys.

    Will this deter future investors or make them add a premium to their price? I doubt it. Private investors are still piling in to infrastructure projects including roads. The cross city tunnel was a financial dud because the traffic forecasts were wrong. But that’s not been the case with other private roads. You win some, you lose some.

  4. John B, the Harbour tunnel is indeed a terrible deal for the government and tax payers of NSW, for which we can thank Nick Greiner. As I understand it, he pushed his public servants to get the deal done, for the sake of getting a deal done, and being completely inexperienced with these things, got taken to the cleaners. The same was true of Port Macquarie Hospital.

    If superannanuants lost money in the CCT, then that is something they can take up with the trustees of their super funds. But if you put your super money into equities (which is a good thing to do over the long term) then some of those investments are not going to work out.

    I agree on the tax angle, which creates huge incentives to load up on tax deductible debt, and allows private investors to pay a premium to state governments for privatised assets. It’s effectively a transfer from the Commonwealth to the states. Wayne Swan might care to take a look at it, but he’ll be inviting the mother of all fights with the states if he does.

  5. John B, the Harbour tunnel is indeed a terrible deal for the government and tax payers of NSW, for which we can thank Nick Greiner. As I understand it, he pushed his public servants to get the deal done, for the sake of getting a deal done, and being completely inexperienced with these things, got taken to the cleaners. The same was true of Port Macquarie Hospital.

    Actually, we have Laurie Brereton to thank for the Sydney Harbour Tunnel. I may be misremembering this, but its my understanding that the Sydney Harbour Tunnel proposal actually failed the planning requirements under the NSW government’s cost-benefit analysis. However, Laurie Brereton determined to build the tunnel, rammed a special measure through Parliament to get the tunnel built. We can’t blame the bureaucrats for this mess.

  6. John B, you are right about the tunnel. Construction commenced in 1987, the year before Greiner became Premier.

  7. Is it too late to mention Perth where a Labour government is about to open the new electric Perth to Mandurah railway, the second new railway line to be built in the last 20 years. As well Perth has an extensive and well planned bike network, bus lanes on all freeways and major roads. All this despite WA Inc. suggests that some other factors beyond the usual suspect of corruption may be at work.
    In W.A. much of the progress in transport infrastructure can be attributed to one good man, Professor Peter Newman at Murdoch University.

  8. Wran the only decent Labor leader? Wran is the very reason why we have these stupid tunnels and a terrible freeway system.

    If he had kept the freeway road corridors that were resumed off the citizens of NSW in the 1950’s and 1960’s instead of selling them to his property developer mates at a steal (so much for him being anti-development!) then we would not have had to shunt billions into building tunnels that cannot be expanded and have to be closed every time there is a minor accident.

    Before anyone says that the money should be spent on public transport instead of roads, well think of how much would be saved if tunnels did not have to be built. Think of all that money being spent on public transport.

    For example, the Warringah Freeway would have cost Wran $66 million to complete. It was meant to be part of an integrated rail/road transport corridor, the Warringah Transport Corridor. If Wran was so green then why no train line to the Northern Beaches, which Justice Kirby recommended? Building a tunnel today would cost over $1 billion and this doesn’t include extensions to Wakehurst Parkway which the original plans included, or a dual rail/road bridge like the Sydney Harbour Bridge.

    Wran left Sydney with a terrible legacy. A crap road system that costs too much to fix. Money that should be spent on public transport is instead spent on trying to fix up roads where there is no room for expansion leaving only very expensive options available.

    Integrated transport solutions means mixing road, rail, bus and tram. We need them all, not one at the exclusion of all others as so many seem to be focused on. To pretend that there is a single cure all is to present a myopic view which is what has caused the terrible unsustainable transport system that we have in Sydney today.

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