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How are we paying for light rail in Canberra?

By Damien Haas - 8 October 2016 126

light rail

Since 2012 we have seen almost every action and decision of the ACT Government linked to light rail by opponents of better public transport. They see light rail behind every government decision and spending announcement. It’s a deceptive, shallow and misleading campaign that the public is tired of.

My intention in stepping through the economic arguments in this article is to assure you that the big numbers are not scary numbers, that the Territory is in a position to afford light rail, that you are paying for light rail in the same way as you pay for any other public service provided by the government, and that your rates are not increasing to pay for light rail.

Neglecting road and public transport in Gungahlin 20 years ago has had negative impacts on Canberra today. Northbourne Avenue is still Canberra’s most congested road, despite Majura Parkway and the GDE being built.

Despite this overwhelmingly obvious need for improved public transport, the community has been subjected to increasingly shrill and unbalanced arguments from opponents of public transport. Many of the arguments against light rail are focussed on the economics.

The economic claims fall into several broad categories: that the costs don’t ‘stack up’, light rail is unaffordable, the money could be spent elsewhere (with health and education the key areas), and too much money is being spent in Gungahlin to benefit too few people. Then there is the claim that rates are rising to pay for light rail.

Let’s examine these various claims one by one.

The ACT Budget papers for 2016/2017 show that health, education and disability services are 56% of the total budget, and public transport only 4%. Light rail was allocated 0.4% of the budget, to pay for the Capital Metro Agency. A contract for the construction and operation of light rail stage one was signed in 2016. We now know that the cost of light rail will be $65 million a year for 20 years.

The $65 million a year cost for light rail does ‘stack up’. Public transport is a service delivered by the government in the same way as it delivers health services, educates our children and collects our rubbish. We pay for all these services, even if we don’t use them.

We don’t ask students to pay for their education (although their parents can choose private schools), we don’t ask those who can’t pay for money before medical treatment (although they can privately insure or use private medical facilities), and we don’t charge the blind or the elderly the full cost of a bus ride.

The reason we don’t do this is that there are public expectations that the money used by the government on our behalf will be expended equitably. In areas that may never benefit us directly. As Canberra expands and grows to half a million residents, we need to provide support for that growth and manage it so it doesn’t negatively impact us directly or indirectly. Public transport is no different, and light rail is no different.

Why is it important that the costs ‘stack up’? If we want public transport to be profitable, we need to insist the government charge the full cost of every trip to every bus passenger, and dramatically reduce the salaries the ACTION workforce enjoys. It is unlikely that either side of politics would adopt this view.

The real question is – what are the costs of not having public transport? The community accept that public transport needs to be provided as it benefits all sectors of society and the cost of not providing public transport would lead to massive road congestion. Those buses that take your children to school, or ferry you from Floriade and Raiders games, would still need to be provided for in some way.

Privatising ACTION would not bring about any budget joy as the public would still have expectations such as subsidised school fares, concessions for pensioners and health care card holders.

Political realities would dictate government subsidies to private operators to perform services in areas where the private operator would not be able to profitably operate a route.

Because we demand certain concessions for different sectors of society, public transport may never be profitable. Is this wrong? The cost of public transport is the same as any other service that we expect the government to deliver. This is the reality of all public transport services across Australia.

The main focus should be on delivering public transport in the most efficient way, in cost and service delivery.

The fare box of ACTION Buses provides only 20% of its funding, and that amount has been declining as patronage declines. If we want that revenue to increase, it needs to come from full fare paying adult passengers that commute every day. Light rail is a proven way to increase public transport patronage. This has been recently demonstrated by Gold Coast light rail.

Light rail is proven to attract and increase public transport patronage, and is cheaper to operate over the longer term than buses. When a truly integrated public transport system exists, public transport use rises and road congestion decreases. In Canberra, public transport use has decreased and road congestion increased. Buses alone cannot serve our current or future public transport needs.

The other claim of the anti public transport forces is that light rail is unaffordable. They quote the total project cost of $930 million and fulminate about this cost. They invent a fictional cost of $1.8 billion.

They don’t tell you that this will be paid over 20 years. That the actual cost to the ACT is $65 million a year, for twenty years. That this is how most infrastructure assets are paid for. They realise this figure is affordable, and pretend it doesn’t exist.

Paying for light rail over twenty years is the same way that we all pay for a home when we seek a mortgage. Few of us are in the position of paying for a home from the money we earn this year. It is the sensible way to acquire any asset.

Where is this money coming from then?

The majority of the money to pay for light rail will come from selling assets such as ACTTAB and old public housing stock. These assets aren’t leaving the ACT; they have transferred ownership and the money is being reinvested in the ACT.

New public housing of better quality is being built to house the tenants that are relocating, and this is part of a long-term program to improve public housing stock. No tenant will be homeless as a result, and they will certainly be rehoused in better quality housing than the rundown housing along Northbourne Avenue.

Recycling these assets is a very successful way to fund new public transport infrastructure, spark urban renewal along a tired corridor and rehouse public tenants in better quality housing. The benefits transcend public transport and benefit several areas of our economy such as employment and construction.

The asset recycling program has already raised $400 million of the expected $930 million before the first payment to the Canberra Metro consortium is required (in 2018, the first year of light rail operations). The Federal Liberal government has also contributed $66 million towards this project, as it is seen as a way to boost productivity.

The rest of the money for light rail will come from the ACT Government via General Government Service revenue, which totals around $5.1 billion in 2016/17. Commonwealth Grants are over 40% of this $5.1 billion, our rates less than 20% at $447 million. Interestingly, the amount received from payroll tax was almost identical to the amount received from rates, yet I have never heard anyone complain that payroll tax is increasing to pay for light rail.

If we can’t pay for $65 million a year for 20 years out of $5.1 billion dollars a year (in 2016 terms), we are in bigger trouble than cancelling light rail will solve. It is a small one percent of our annual budget that is entirely manageable and a sound investment in our future. Most people’s car payments are greater than 1 percent of their annual income.

The selfish argument that light rail will only benefit a small percentage of the population is also false. Gungahlin’s population will be at 100,000 within ten years. Based on ABS statistics from the 2011 census, the corridor for light rail Stage One that takes in much of North Canberra has 9% of Canberra’s population within one kilometre of the light rail line.

That doesn’t take into account the population of Woden or the Inner South of Canberra that would benefit from the Stage Two extension. That doesn’t take into account the people that would catch one of the more frequent integrated bus services to a light rail station. That doesn’t take into account those that will use the free ‘Park and Ride’ instead of paying around ten dollars a day to park their car in Civic or the Parliamentary Triangle.

It is also selfish and disingenuous to object to public funds being spent in areas that don’t directly benefit the individual. You may never need to use a sewage pipe in Theodore, but the greater public of Canberra benefit from a sewerage system. Public transport and road infrastructure are exactly the same.

Public infrastructure is for the general use and benefit of us all. Schools and hospitals are expensive to construct and staff, but no one objects to publicly funded health service or schools, even if we haven’t used them in years. They may be used by friends or loved ones, or ourselves at some point in the future.

No one uses every road in the ACT. However we all contribute to the funding and construction of these roads. People in Canberra’s north may never use the Monaro Highway, but they appreciate and understand how these roads benefit people in other areas of Canberra, including friends and family. Light rail stage one and stage two are no different.

Finally, let us look at your rates. The ACT Government went to the 2012 Assembly election with a range of taxation reform measures. It proposed removing stamp duty and inequitable taxes and slowly increasing rates. In the face of a concerted ‘your rates will triple’ campaign from the Canberra Liberals, the public returned the Government.

It was a courageous election policy, so courageous that Liberal Prime Minister Malcolm Turnbull has supported it, and described the political difficulty in securing this type of taxation reform as ‘ten out of ten’. It is a taxation reform that almost all economists recommend other states adopt; yet they lack the political will to attempt it.

Our taxation reform is designed to ensure a predictable income stream buffered from the stamp duty property boom and bust cycle. Stamp duty has been reduced; eventually it will be removed altogether. There have also been cuts to insurance taxes, car taxes and payroll taxes.

This provides a more predictable stream of income that prevents slashing services in years when stamp duty income suffers from a real estate ‘bust’ period. No one likes paying bills, and no one likes rates increasing, but they would also complain and be materially impacted if services had to be cut if the real estate market collapsed

The ‘triple your rates’ campaign run in 2012 is again being run by the Opposition, although as the tripling didn’t occur, they are now referring to rates increases as ‘unfair’. Yes our rates will steadily increase. Stamp duty elimination is only a part of that. Rates are also increasing as our home values increase.

Note that the fear campaign doesn’t have a promise of reversing taxation reform and reintroducing the inherently illogical stamp duty grab.

The real issue for this election campaign is this – are the increases in rates related to light rail?

The answer is no. Categorically they are not. As shown earlier, rates are less than 20% of our total budget. Light rail is not being paid for from your rates. To suggest that rates will increase to pay for light rail is a deceptive fear campaign not based on any evidence.

When light rail begins operation, the ACT Government will pay the private operator an annual fee to operate the light rail service and pay the balance of the construction cost. In twenty years, the consortium operating light rail on our behalf will hand the asset back to the ACT government, and we will have a workforce and administration with the experience to manage the network.

The annual payment to the Canberra Metro consortium will be $65 million or 1% of our current annual budget. In 2036 that $65 million will be a fraction of the annual budget of the ACT. Recall that the Commonwealth Grants totalled $5.1 billion dollars.

Funds used for major projects are usually raised through asset sales, Commonwealth Grants and borrowings. That is what is happening in the ACT. We aren’t paying for light rail from your rates, and they aren’t increasing to pay for light rail.

When you look at all slices of the budget pie, 1% is not much compared to 56%. There may be room for reform and productivity savings in the ACT Health and education sectors; and this would bring about far greater benefits on the front line of services than taking the 1% allocated for light rail and having to endure the future costs associated with road congestion and the drag on productivity that this would result in.

The case stacks up for light rail.

For more frequent updates on Capital Metro and light rail related news, please visit our Facebook page ‘Light Rail for Canberra‘.

This article was originally published on the ACT Light Rail website here.

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126 Responses to
How are we paying for light rail in Canberra?
bigred 10:15 pm 08 Oct 16

I cannot recall an issue polarise an electorate as much since the Australia Card issue all those years ago. So am probably inviting feisty feedback by attempting to advance a view. The Haas argument sound fairly reasonable but I suspect he could have included information about the increased employment that will be triggered by the ongoing and certain construction. He also neglects to point out that a lot of households are carrying a second or third vehicle on their balance sheets because current public transport does not work for them (often based on one trip 20 or 30 years ago). This is in effect a direct cost shift.

JC 8:05 pm 08 Oct 16

Cerdig said :

One kilometre catchment? Who on earth is going to walk 1km to catch public transport to work?

I live 900m from my closest bus stop in suburban Canberra.

I used to live in Sydney 1km from my local train station and I walked to the station each day and then another 1.5km at the other end to my office (Kings Cross station to Garden Island).

I used to leave home at 730 every morning for a 750 train and always had time to wait on the platform. So about 15 minutes of walking.

1km is not that far. Along the Flemmington road corridor it covers all the houses in Harrison and Franklin. Not unreasonable and if people are not prepared to walk up to that distance then there is no hope for public transport. And if people cannot walk that distance then there are other options like the bus but of course that comes at time penalty. But impossible to please everyone every single time.

JC 7:50 pm 08 Oct 16

justin heywood said :

– A reasonable person would assume that money from the sale of public housing would be used to build more public housing.

Umm it is. The land the inner suburb houses estates are on is worth a motza. So can sell that build new, including expanding public housing and still have money left over. Plus of course reduce maintenance bills by not maintaining ancient housing stock.

creative_canberran 7:48 pm 08 Oct 16

Cerdig said :

One kilometre catchment? Who on earth is going to walk 1km to catch public transport to work?

Healthy people.

But really the plan should be for rapid busses to spread out through Gunghalin and link to the light-rail.

I’ve already read Damien’s piece on the Light Rail website recently and I was struck by how unconvincing it was. That’s not to say he didn’t make a lot of good points. He did. But none of it delivered a knock out blow. It didn’t properly address how many are likely to give up cars, and it didn’t set up a case for urgency. Nothing about the argument elevates light-rail from ‘nice to have now, important to have in the future’, to ‘must build now, essential and viable’.

Masquara 6:56 pm 08 Oct 16

The light rail is going to only cost us 0.4 per cent of the ACT Budget? And as for the “servicing 9 per cent of the population of Canberra” – you’re expecting people in the inner north to walk perpendicularly to Northbourne to get on the tram, rather than head straight into town? NO-ONE in the inner north is going to use it, other than one or two burghers at the very top of Northbourne. Maybe. If there’s a handy tram stop – but that will annoy all the Gungahlin commuters, who won’t want stops all the way down Northbourne! Oh, and Shane Rattenbury’s negatively-geared tenants, if he writes a requirement into their tenancy contract!

Robz 6:31 pm 08 Oct 16

@rommeldog56 .. you are correct the OP is only quoting the cost of Stage 1 LR .. much like one would quote only the cost of constructing Tuggeranong Exprsseway or Majura Parkway or Hindmarsh Drive, yea ?
Once Stage 1 is constructed (comprising less than 1% of ACT expenditure) construction of Stage 2 can commence (comprising less than 1% of ACT expenditure).
Now compare expenditure on LR with that we spend on roads, ie half as much. Who will be the winner if LR becomes an attractive form of public transport (as it is everywhere it is introduced) and it has the affect of reducing our necessity for roads.

Cerdig 6:05 pm 08 Oct 16

One kilometre catchment? Who on earth is going to walk 1km to catch public transport to work?

justin heywood 12:24 pm 08 Oct 16

Wow. A written Gish gallop, with a bit of pre-emptive abuse thrown in.

I’ll take the first wobbly claim that catches my eye;

“The majority of the money to pay for light rail will come from selling assets such as ACTTAB and old public housing stock…’

– ACTAB, an income producing asset, was sold for just $105 million, and initially to help fund ‘a range’ of infrastructure projects, not just light rail. Yet that is your first claim as a source of ‘majority of the money’.

– A reasonable person would assume that money from the sale of public housing would be used to build more public housing.

KentFitch 11:46 am 08 Oct 16

” The long suffering residents of Gungahlin and north Canberra that endure road congestion and jam-packed ACTION buses can travel past light rail construction and know that a better alternative to driving and parking every day, or riding in sardine packed bus (if it doesn’t drive past them already full), is on schedule to commence in 2018.”

The tram would have more supporters if only this were true. If the transport benefits of the tram were positive, then we could have a discussion about how much they are worth. But they are not positive.

Capital Metro’s EIS Volume 3, Technical Paper 5: Traffic and Transport unambiguously show:

1) The combined number of intersections at which traffic will exceed capacity more than triples from 2 without light-rail to 7 with light-rail. Further, the combined number of intersections which will be operating at the limits of their capacity doubles from 3 without light-rail to 6 with light-rail. (Table 4.5 to 4.10, pages 41 to 45 )
2) Average combined AM and PM peak period vehicle speed over the road network around the proposed route in 2021 (not just traffic on the direct route) decreases from 27.8 km/hr without light-rail to 23.1 km/hr with light-rail. (Table 4.2, page 38)

[Due to errors in the traffic estimation pointed out by he ACT Government Environment and Planning Directorate, Territory and Municipal Services and others in responses to the EIS, these estimates are overly favourable to the tram scenario, and the most likely outcomes will be considerably worse: http://canberraautonomouscars.info/faq.html#eisapend and http://canberraautonomouscars.info/TramsForCanberra/tramsAndCanberra.html ]

Capital Metro’s own capacity and scheduling plans (6 minute peak headway) show peak period public transport capacity will be less than current bus service, and much less on a “per seats per head of population” basis in 2021.

For example, there are currently 68 bus services running between Gungahlin Town Centre and Civic each weekday morning from 6:30 until 9:00 (Route 56 – 8, Route 57 – 8, Route 58 – 9, Red Rapid 2xx – 43). The average ACTION bus carries 45.4 people seated, 25.5 people standing, and 2 bicycles. That’s around 3080 seated, 4828 in total, providing 51 seats per 1000 Gungahlin residents (based on latest 2015 population estimates).

These buses will all be replaced by 22 or 23 tram services, running on one route down Flemington Dr to Federal Highway, then to Dickson and Civic. They will carry around 1400 people seated in 2021 (4600-4700 in total), just under 19 seats per 1000 Gungahlin residents.

Total (seated and standing) passenger capacity per 1000 residents will fall from 79.9 (now on buses) to 61.8 (in 2021 on trams).

By purchasing more trams, the headway can be reduced to 3 minutes and capacity doubled, but this will cause massive traffic congestion, as every traffic cycle along the route will then be interrupted by a tram.

“They invent a fictional cost of $1.8 billion.”

I guess “they” is the auditor-general:
http://www.canberratimes.com.au/act-news/captial-metro-light-rail-auditorgeneral-fuels-doubts-about-gungahlin-tram-costbenefit-analysis-20160616-gpkjjs.html : “The auditor clarifies the cost of the project, saying the nominal cost (not discounted to today’s dollars) is $1.78 billion, including the $375 million lump sum, $1.27 billion in annual payments to the consortium over 20 years, and $130 million in government-retained risk, or contingency.”

But I am not arguing that $1.8billion is a fair representation of the cost. From the 20 year payment schedule released in the contract summary, discounting the payments back to 2016 dollars using 2.2% inflation gives a present cost of $950m. Added to this, the $375m 2019 capital payment discounted back to 2016 dollars is $355m, giving a 2016 $ project cost of $1.3billion, for a single 12km tram route which provides a poorer transport outcome.

The government frequently wrings its hands whilst rebuffing requests for worthy spending such as those made by the Public Advocate and Children’s Commissioner with homilies such as “oh, if only we had the resources”. Well, here’s $1.3b of discretionary spending on a tram that doesnt work that could be put to positive outcomes.

rommeldog56 11:34 am 08 Oct 16

From the OP “The other claim of the anti public transport forces is that light rail is unaffordable. They quote the total project cost of $930 million and fulminate about this cost. They invent a fictional cost of $1.8 billion.

They don’t tell you that this will be paid over 20 years. That the actual cost to the ACT is $65 million a year, for twenty years. That this is how most infrastructure assets are paid for. They realise this figure is affordable, and pretend it doesn’t exist.”

The spin just gets better and better. In 2012, ACT Labor said stage 1 would cost m$614. It is now claimed by the ACT Labor/Greens Govt that it has blown out to m$913 but the ACT Auditor General has said that stage 1 will cost ACT Ratepayers b$1.78 (including running costs) over the life of the contract. Thats a long, long way north of the original m$614 !!!

m$65 pa over 20 years is b$1.3. The Auditor General said b$1.78. Sorry, but I think most people would believe the Auditor General.

And I stress yet again, you are quoting figures for STAGE 1 only. There are many more stages to go !!

And you talk about others running a “deceptive, shallow and misleading campaign” . Good grief.

bj_ACT 11:05 am 08 Oct 16

ACT Chairman for Light Rail and a lobbyist for the sector gives one sided view of Light Rail without looking at the low ‘cost benefit ratio’ for the project and he makes no consideration that money from the sale of ACT Government Assets might be put to more effective use on another project. Well blow me down with a feather.

If the project had been better articulated, planned and designed from the start I think the majority of Canberrans would have been more supportive. A design like the Gold Coast light rail that linked Universities, Shopping centres, sporting complexes, entertainment precincts, hospitals, tourist destinations, workplaces and homes would have stood a better chance. A better chance of being funded by Infrastructure Australia and supported by Canberra taxpayers and voters.

I know Gunghalin will probably be 100k population in a decade, but Tuggeranong has had about 90k population for two decades now and its public transport and government facilities remain woeful.

WilliamBourke 10:26 am 08 Oct 16

Sustainable Australia strongly supports public transport, but prefers a rapid bus transit system (ideally electric) over Canberra’s proposed light rail system.

Reasons include: The light rail is too expensive and inflexible, benefits too few people relative to its cost (which is double that of the rapid bus transit according to the Grattan Institute), puts significant upward pressure on rates and taxes, and is a Trojan horse for massive overdevelopment along the route.

The last point is the key, and it is stunning that the Greens party is pushing for this rapid population growth-fed Trojan tram, given the huge and increasing ecological footprint that rapid population growth brings. Rapid population growth is not inevitable – it is the result of manufactured high immigration policies supported by the LLG oligopoly. We need manageable and sustainable immigration numbers, not the tripling that has occurred over the last 20 years.

A sustainable ACT will be Better, not bigger.

dungfungus 9:58 am 08 Oct 16

It’s been a long time since Damien has made a contribution to Riot ACT so for those who are unaware of the fact, Damien is the figurehead of ACT Light Rail who are passionate supporters of the proposed tram from City to Gungahlin.

This article must be re-cycled because it mentions Capital Metro and that entity disappeared almost 12 months ago.

rommeldog56 9:52 am 08 Oct 16

From the OP ” My intention in stepping through the economic arguments in this article is to assure you that the big numbers are not scary numbers, that the Territory is in a position to afford light rail, that you are paying for light rail in the same way as you pay for any other public service provided by the government, and that your rates are not increasing to pay for light rail. “

an ex head of ACT Treasury has said that all stages of light rail will cost about b$14. The Territory budget is deep in deficit and in trouble. Affordable ?? Nice spin. But not based on anything but rusted on speculation :

http://the-riotact.com/the-many-ways-to-present-a-glowing-budget/186263

The b$14 will become Gov’t expenditure. That b$14 has to be raised – and the Territory is already deeply in debt. To claim that Annual Rates will not increase because of the Tram is a nonsense and deceptive spin. All Gov’t revenue raising, including Annual Rates) will have to increase to cover Gov’t expenditures, including that on the tram.

The ACT Labor/Greens Govt admitted that by saying that the avg. 10%pa Annual Rates increases would help it to carry out infrastructure projects – which is what they say the tram is.

rommeldog56 9:37 am 08 Oct 16

From the OP ” Since 2012 we have seen almost every action and decision of the ACT Government linked to light rail by opponents of better public transport. They see light rail behind every government decision and spending announcement. It’s a deceptive, shallow and misleading campaign that the public is tired of. “

No, nice spin though. Its not opponents of public transport, just opponents of the spin that the Tram is a right and sustainably affordable public transport “backbone” for Canberra.

If u want to talk about “deceptive”, what about ACT Labor/Greens announcing that if re elected, they will sign contracts for change tram stage 2 to be from Civic to Woden but not announcing the cost to ACT Ratepayers ? Its a blank cheque being asked of ACt Ratepayers if ACT Labor/Greens are re elected. Nah – that’s not deceptive in the least. Nor is it deceptive to change the destination of stage 2 to be Woden (where they fear loss of votes) instead of the airport – that the same ACT Gov’t is louding as a new era in tourism through International flights at the same airport.

Also, how will the tram cross the Lake ? Cost of that ? Neither have been answered.

Any “deceptive, shallow and misleading”, arguments/comments from opponents of the Tram pail into insignificance compared to those of the ACT Labor/Greens Govt and their proxy, ACT Light Rail and the content in this article.

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