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Grattan infrastructure report questions Canberra light rail spending

A leading think tank has criticised the business case for Canberra's tram line, saying it substantially overestimates the economic benefits of the project.

The Grattan Institute's latest report on transport planning in Australia found governments spent about $170 billion on transport projects in the past decade, but cost-benefit studies had not been properly evaluated. The report, by Grattan transport program director Marion Terrill, says political considerations often come before the wider public interest.

Released on Monday, it points to political considerations involved in planning the 12-kilometre city to Gungahlin light rail line, noting it was a key commitment in the governance agreement between ACT Labor and Assembly Green Shane Rattenbury.

The report questions the use of disputed wider economics benefits as part of the project's benefit-cost ratio, a key point of the debate locally. The report said the 2014 business case included an estimated benefit-cost ratio of 1.2, which considered land use benefits and wider economic impacts.

These points "are typically excluded from project evaluations by Infrastructure Australia because the risks of overestimating them are so high," the report said. Together they account for almost three fifths of the projected benefits of the tram.

"If these land use benefits and wider economic impacts are excluded, the benefit-cost ratio is just 0.5 - well below the level needed to deliver a net benefit to the community.

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"This example demonstrates the need to undertake cost-benefit analysis with care using consistent methodologies to ensure true like-for-like comparisons of potential projects," the report said.

Using ACT government figures from an unsuccessful 2012 submission to Infrastructure Australia, the report says trams will deliver similar benefits to a bus rapid transit system in Canberra but cost more than twice the price.

In the submission, bus rapid transit attracted a benefit-cost ratio of 1.98, meaning for every $1 in spending it would bring $1.98 in benefits. Benefits from light rail was estimated at 1.02.

"On this basis, the ACT government's submission found that bus rapid transit would deliver higher economic returns than the economically marginal light rail proposal," the report says.

"The ACT government subsequently decided to proceed with the light rail proposal, without a valid explanation for why it chose a project that its own analysis suggested was not the best option available."

Economist and former senior Treasury official David Hughes has previously criticised the business case and called the benefit-cost ratio figure a "fantasy".

"The Grattan Institute is the latest in a long line of critics of the Gungahlin tram and they correctly identify the two key dates when the project went wrong," he said.

"In 2012 the government ignored its own analysis in choosing light rail over a busway, and in 2014 the business case included benefits which are implausible and unsubstantiated.

"The Gungahlin tram is now a classic case study in how not to make a policy decision but it is only part of a much larger problem. All of our governments spend money unwisely and rather than endlessly discussing which taxes to increase, they need to stop wasting the money they already receive."

Australian National University associate professor Leo Dobes, a critic of the tram project, warned in February the tram's economic benefits could be exaggerated through inclusion of wider economic benefits.

Ms Terrill said since 2012, more than half of Commonwealth infrastructure spending had gone to projects without Infrastructure Australia assessments, while states and territories had provided "little transparency".

She called for an independent body to provide rigorous and consistent assessments of all infrastructure proposals, with net benefits tabled in the parliament before public money is committed.