Taxpayers spent $34 billion more on transport infrastructure projects between 2001 and 2020 than they had been first told they would spend.64 These additional costs amount to more than one fifth of the initially expected costs.
It would seem that nothing has been learnt in the past four years. In 2016, Grattan Institute found that taxpayers had paid $28 billion more on transport infrastructure over the previous 15 years than they had been told they would pay.65 Our 2016 report, Cost overruns in transport infrastructure, was the most comprehensive study of Australian projects ever conducted, covering every transport infrastructure project that governments had planned or built since 2001.66
In that report, and this one, we compared the cost of projects at first announcement to the cost at completion. Some people argue that cost overruns should only be measured from the point that a formal cost benefit analysis is completed or a funding commitment made.67 But we think that measuring from first cost announcement is necessary if we are to explore the realpolitik of infrastructure funding. Politicians often promise to build infrastructure without a cost benefit analysis or a funding commitment, and most of these projects go on to be built. Politicians and the public take these promises seriously, and so do we (see Box 1 for the example of Sydney Metro North West).
Box 1: Overs or unders? The case of Sydney Metro Northwest In February 2010, the NSW Labor Government released a Metropolitan Transport Plan which included a new rail connection to Rouse Hill from the existing network at Epping. It was then called the North West Rail Link,a and the stated expected cost was $6.7 billion.b The Coalition, on winning government in March 2011, called the project its 'first order of business'.c In June 2012 the Government announced that the line would form part of a new 'metro-style' system that would accommodate high-frequency trains, requiring additional upgrades between Epping and Chatswood.d The 2013 state Budget included an estimated cost of $8.3 billion.e The project - subsequently renamed Sydney Metro Northwest - was completed in 2019 for a total cost of $7.3 billion, and was lauded as having come in under budget, despite the fact that the eventual cost was $600 million higher than the initially publicised cost.f
a. NSW Government (2010, p. 34). b. West (2010); and Parliament of NSW General Purpose Standing Committee Number 4 (2010). c. ABC News (2011). d. Saulwick (2012); and Transport for NSW (2012). e. NSW Government (2013, section 5, p. 3). f. NSW Government (2019); Collins (2019); and A. Jones (2019). |
Section 2.2 shows that larger projects are more likely to have a cost overrun, and a larger one. Section 2.3 shows that a minority of larger projects cause much of the problem. But first, Section 2.1 explains what's wrong with promising to build infrastructure for less than it really costs.
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64. The 'aggregate cost overrun' of $34 billion is equal to 'total cost overruns' of $38 billion minus 'total cost underruns' of $4 billion.
65. In 2016 dollars: Terrill and Danks (2016).
66. The 2016 report and this one use data on project costs from the Deloitte Access Economics Investment Monitor. See Appendix A for details of the Investment Monitor, as well as our analysis methodology.
67. Love et al (2015, pp. 493-494): Love et al (2016, p. 185); and Seimiatycki (2009, pp. 144-145).