A ‘Big Australia’ means cripplingly expensive infrastructure projects

By Leith van Onselen

I have noted previously that one of the key reasons why Australia’s high population growth (immigration) is lowering the living standards of existing residents is because of the strain that it places on infrastructure, which inevitably leads to more congestion on roads, public transport, as well as more expensive housing.

Basic math (and commonsense) suggests that if you double the nation’s population, you need to at least double the stock of infrastructure to ensure that living standards are not eroded (other things equal).

In practice, however, the solution is not that simple. In already built-up cities like Sydney and Melbourne, which also happen to be the major magnets for new migrants, the cost of retrofitting new infrastructure to accommodate greater population densities can become prohibitively expensive because of the need for land buy-backs, tunnelling, as well as disruptions to existing infrastructure.

In the case of Sydney, we have already witnessed these diseconomies of scale with: 1) the North West Rail Link, which is expected to cost an astounding $8.3 billion, 2) the WestConnex road project – the $17 billion 33 kilometre motorway under construction that is more expensive per kilometre than the Chanel Tunnel; and 3) the F6 freeway extension in southern Sydney, which is estimated to cost an insane $14.5 billion.

Not only are these projects hideously expensive, but they often create major indigestion for Sydney residents during the construction phase. Moreover, in the case of WestConnex, existing free public roads like the state-owned M4 (that have already been paid off) will be tolled to help fund the project, raising costs for residents.

Yesterday, we received yet more evidence of the blow-out in costs of providing Sydney infrastructure with vocal mass immigration supporter, Peter Martin, revealing that the new underground tunnels linking Rozelle to the northern beaches will cost almost $14 billion to build, according to confidential New South Wales Cabinet documents. From The SMH:

The proposed 14-kilometre tunnel tollway between Rozelle and Allambie Heights will cost $14 billion to build, almost as much as the 33-kilometre WestConnex project.

The enormous price tag, in a costing for cabinet seen by Fairfax Media, excludes an extra $8 billion that would be spent on operation and maintenance of the tunnel over the first 35 years.

It will require the erection of six exhaust ventilation stacks for which sites have been identified, several within metres of schools.

The $14 billion price tag includes about $340 million for property acquisitions, $5 billion for the direct cost of construction, $2.3 billion for indirect costs and $5 billion for contingencies and cost escalation.

As many as 20 houses would need to be acquired and demolished to build the tunnel, as well as 30 multi-occupancy buildings and 20 commercial buildings, most of them near exhaust stacks…

The previously undisclosed total of $14 billion compares with $16.8 billion for WestConnex (up from $10 billion when it was first announced) and $14.5 billion plus operational and maintenance costs for the proposed F6 Extension to the Illawarra region.

It raises questions about the capacity of the state budget to sustain all three road projects.

And today, The SMH reveals that tolls will be charged in both directions on the Sydney Harbour Bridge/Tunnel to help pay for the Western Harbour Tunnel and Beaches Link:

The plans for the new tolls, detailed in cabinet-in-confidence documents, also reveal that motorists will be slugged about $8 (in today’s dollars) for a one-way journey by car on the entire length of the proposed Western Harbour Tunnel and Beaches Link.

The documents show the new tolls on the Harbour Bridge and Harbour Tunnel will help cross-subsidise the third harbour crossing and the Beaches Link, whose tolls will be insufficient to cover the full cost of building, maintaining and operating them.

Under the proposals contained in a “Final Business Case”, $3 tolls for cars will be placed on northbound trips on the Sydney Harbour Bridge and the Harbour Tunnel from 2022 to make them the same as those on the proposed Western Harbour Tunnel.

In November 2013, the Productivity Commission (PC) released its final report on An Ageing Australia: Preparing for the Future, which projected that Australia’s population would swell to 38 million people by 2060 (mostly via immigration) and warned that total private and public investment requirements over the 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century:

The likely population growth will place pressure on Australian cities. All of Australia’s major cities are projected to grow substantially. Sydney and Melbourne may grow by around 3 million each over the next 50 years (figure 2). In response to the significant increase in the size of Australian cities, significant investment in transport and other infrastructure is likely to be required. This is true both within the cities themselves and for the links between regional and major cities. Policies will be needed to reduce congestion problems, and to ensure adequate infrastructure funding and investment efficiency…

Total private and public investment requirements over this 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment…

In last year’s Migrant Intake into Australia report, the PC revised up its population estimate by 2 million to 40 million, with Sydney’s and Melbourne’s populations now projected to hit more than 8 million mid-century. The PC also stated that if immigration is maintained at the last decade’s average, then Australia’s population could hit 50 million mid-century. This obviously means that the infrastructure requirement would also be much higher than stated above, and the PC does not have much faith that Australia’s policy makers can deliver on such a requirement:

Assuming that net overseas migration (NOM) continues at the long-term historical annual average rate of 0.6 per cent of the population, the Australian population is projected to grow to 40 million by 2060 — some 13 million larger in 2060 compared to natural increase alone. Over the past decade, however, NOM has averaged around 1 per cent of the population annually. If NOM continued to grow at that higher rate, the population projection would reach close to 50 million by 2060, or an additional 23 million people…

Immigration, as a major source of population growth in Australia, contributes to congestion in the major cities, raising the importance of sound planning and infrastructure investment. While a larger population offers opportunities for more efficient use of, and investment in, infrastructure, governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation…

There are also impacts on the price of land and housing particularly in metropolitan areas. While this is beneficial to property owners, it increases costs and thereby reduces the living standards for those entering the property market…

In determining the migrant intake, the Australian Government should give greater consideration to the implications for planning and investment in infrastructure…

Let’s be honest for a moment: it is the federal government’s mass immigration program that is primarily responsible for the 87,000 people per year projected increase in Sydney’s population to 6.4 million over the next 20-years, which would effectively add another Perth to the city’s population:

Blind Freddy can see that running a high immigration program requires massive investment and costs a lot, and that these costs are made worse by the diseconomies of scale discussed above. The huge infrastructure costs also force unpopular asset sales, increased debt borrowings and austerity – none of which is a desirable outcome.

Clearly, the most obvious and least cost policy solution to mitigate Sydney’s infrastructure woes is to significantly dial back Australia’s immigration program and forestall the need for costly new infrastructure projects in the first place. Because under current mass immigration settings, expensive solutions like WestConnex, the F6 freeway extension, and The Western Harbour Tunnel and Beaches Link tollway will be required over and over again as rapid population growth continually outstrips the supply of transport infrastructure.

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