Senate reveals dodgy funding deal

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By Andrew Herington

On Monday 26 May, the Senate Estimates hearing extracted the highly unusual funding arrangements for the East-West Link. Victoria is scheduled to receive half the funding ($1,500 million dollars) before June 30th this year despite any work not proceeding until 2015. The full transcript of the sometimes farcical Senate Estimates hearing can be read here (starting at pg 19).

This means Victoria will get the funding before any business plan is disclosed to the Commonwealth Government or the public, before planning approval has been given, before any contracts are signed. $1 billion of this funding is for stage 2 which does not even have a business case yet and any commencement of construction is at least 18 months away.

The highly unusual cash flow looks like this:

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The early payment helps the political agenda for both Governments. The Commonwealth will increase its deficit for 2013/14 (which it blames on Labor) and reduce future deficits (which it takes credit for). It appears the State Budget booked the expected income in line with expenditure over 4 years. Just after it was delivered on May 6th Victoria asked for the money to be brought forward to 2013/14. This will more than double its projected surplus of $935 million for 2013/14 and earn it a handy $75 million a year in interest.

Mike Mdrak, the Secretary of the Department of Regional Development and Transport, assured the Senate that funding would be dependent on the Commonwealth receiving full business cases for both stages. However he then conceded that this was not going to happen before June 30th and lamely suggested that the Commonwealth would try to get a refund if they were subsequently unhappy with the documents provided.

He disclosed that Victoria had only written to the Commonwealth asking for the money a couple of days before the federal budget – which means it was shortly AFTER the State budget, which says that Commonwealth funding for the East-West Link – Western Section is still “subject to finalisation”. (See Victorian Budget Paper 5, pg 176).

This is contradicted by Victorian Budget Paper 2 which says the “surpluses incorporate Commonwealth grants of $1.5 billion for East-West Link – Eastern Section and a further $1.5 billion for East-West Link – Western Section.” (See Victorian Budget Paper 2, pg 48).   

This demonstrates the haste in which this deal was put together. The Shadow Treasurer has highlighted this contradiction, but the Napthine government has tried to cover its tracks by claiming the Budget papers have been misread. Nevertheless Victoria is still hoping to bank the full $1.5 billion in the next four weeks to benefit from the windfall.

Yet this flies in the face of the commitment by the Commonwealth that funds will not be paid until full business cases have been received for both sections. The Senate Estimates Committee managed to extract from Infrastructure Australia that they had only received a “short form” business case of 40 pages for Stage 1. This was not sufficient for them to revise their opinion that Stage 1 in still only in its third category of having “real potential” and is not currently ready to proceed.

Following detailed questioning about how the funds for Stage 1 could be released without seeing the “long form business case”, Mr Mrdak said he expected to receive it “imminently”. In relation to Stage 2 there was no business case at all with the only correspondence being something over "a couple of pages” and only containing “conceptual information”.

Normally each state puts in its annual submissions to Infrastructure Australia in June and infrastructure Australia release a revised priority list by December allocating each project to one of four categories. Currently there are 18 projects worth $33 billion which are assessed as “ready to proceed” or “threshold” projects. All of these should come in higher priority than the East-West Link which remains classified as only having “real promise”.

The Senate Estimates Committee also uncovered that $249 million has been stripped from the M80 Ring Road widening project despite this having a completed business case, a BCR of 2.2 and being assessed as a “threshold” project last June. This means residents of Melbourne's north are being denied a worthy project for the benefit of an unproven, lower priority project which will not be built for years. This is a disastrous way to go about setting priorities and spending huge amounts of public funds.

The politics are that the Napthine Government wants to be “seen to be doing something” and has panicked the Abbott Government into backing bad projects as a “vision for the future”. At a time they are cutting numerous programs they are actually throwing money away and handing a billion dollars over years before it is needed.

After the last election the Doncaster Rail Link, Rowville Rail Link, Avalon Rail Line and a new Flinders St Station all disappeared in a puff of smoke. Similarly there are huge promises being made with no economic justification, plans shrouded in secrecy and strongly criticised by external critics.

It is time to call a halt. Victoria needs a full public inquiry to examine the claims and inspect the consultants reports and business cases to ensure we get best value for money.

 

 

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