The Productivity Commission has questioned the ACT government's decision to proceed with a light rail line to Gungahlin, saying it ignored its own cost-benefit analysis without explanation.
Released on Monday, the report into public infrastructure in Australia highlights examples of poor value for taxpayers' money. The report considers the ACT government's unsuccessful 2012 funding submission to Infrastructure Australia on the project, comparing upfront capital costs for light rail and bus rapid transit.
Estimating the cost of the 12-kilometre line at $614 million, an economic appraisal found a benefit-cost ratio of 1.02, much lower than the 1.98 ratio for bus transit at a cost of $276 million.
An updated benefit-cost ratio will be included in the final business case from the Capital Metro agency, due to be presented to the government in October.
"The ACT government's decision to proceed with a light rail project appears to be an example of where the results of cost-benefit analysis have been ignored without a valid explanation," the report said.
Planning for the light rail public-private partnership has developed significantly since the 2012 submission, but the government remains committed to a cost of about $614 million.
The report said light rail's benefit-cost analysis considered factors including the 25-minute journey time from Gungahlin to the city, but not environmental impacts on the corridor or accidents.
A cost-benefit analysis by transport consultant Bob Nairn, commissioned by the ACT Liberals, found a benefit to cost ratio of 0.43, indicating the project has significantly more costs than benefits.
He concluded the project, due to be under way in 2016, was neither economically or financially viable.
Mr Nairn's calculations were based on a more expensive model of running tram lines down the outside of lanes of Northbourne Avenue.
The Productivity Commission report found bus rapid transit to be a "greatly superior option" and questioned the ACT government's decision to proceed with light rail based on a triple bottom line evaluation undertaken by engineering firm URS Corporation.
The evaluation compared the social, economic and environmental impacts against a "do nothing" scenario.
The report questions why the results were formulated before the cost-benefit analysis and says the government used a less reliable form of analysis including a potentially disproportionate star rating system.
The report's key points highlight the need for an overhaul of how public infrastructure projects are chosen and developed in Australia.
The report praises the use of betterment levies for recovering some of the cost of large-scale infrastructure projects, arguing they represent relatively little impost on land owners without distorting economic activities.
The ACT government will consider a levy on home owners and a special rating zone to fund the Capital Metro network, of which the Gungahlin line is the first stage.
Homes around the line, which will feature 13 passenger stops and at least one depot, are expected to increase in value by as much as 25 per cent.
Light rail was a key aspect of the parliamentary agreement that returned Labor to government with the support of Greens MLA Shane Rattenbury.
"The Productivity Commission's report is an embarrassment for the ACT government and will be a cause of alarm to Canberra taxpayers," opposition transport spokesman Alistair Coe said.
Capital Metro Minister Simon Corbell said it had relied on outdated assessments.
"The Capital Metro Agency is unaware of any attempt by the Productivity Commission to verify statements with the agency about light rail," he said. "A cost-benefit analysis is not the only tool government should use in assessing infrastructure investment options."