New analysis of the Gungahlin tram line questions the claimed benefits, casting doubt over whether higher land values in the corridor, higher income from parking and even construction jobs should be counted as legitimate "benefits" of the project.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The independent analysis by the Centre for International Economics warned the government against "double counting" benefits, and said there was little evidence to support the economic merit of the project, which "appears to be more focused on environmental and social objectives".
The economic arguments related to higher land values in the corridor and more people living and working there, but there had been little formal analysis of those benefits, the centre said.
Capital Metro rejected the claim the project had no economic merit and said the centre was using outdated figures, but it agreed with some of the warnings about project benefits. Executive director of economics and finance Duncan Edghill said Capital Metro's analysis of costs and benefits would be "conservative". It would not include parking revenue as a benefit, and would not double count the increase in land values. Nor would it count jobs.
"The jobs analysis that was released isn’t feeding into economic methodology, again for that double counting reason," he said. "Those jobs benefits are real. They're the thing that people see at the end of it all, but from a methodological point of view we're not disagreeing with CIE that you don’t just jam that into the economic analysis as a benefit."
The report by the Centre for International Economics was commissioned by the ACT Assembly's estimates committee, which is considering the 2014-15 budget. The centre has already done one analysis, in which it pointed to the budget risks. Now, it has done more detailed work after a request from the committee.
It looks at the government's 2012 submission to Infrastructure Australia, which set the project cost of $470 million to build and $54 million to operate and maintain against a list of benefits. One of the biggest benefits was a shorter journey time, and another the higher parking revenue.
But the Centre for International Economics said parking should not be counted. Increased parking charges might be justified and encourage more people to use the tram, but that was "not a benefit to the ACT, but rather a transfer from individuals to government". When it removed parking from the equation, the costs outweighed benefits by $190 million under existing population projections.
Without parking, the project required a much bigger population to be justified, the report comments.
"Even with continuing population growth in Gungahlin significantly above the territory average, there is unlikely to be sufficient demand for light rail to make the project economically efficient without the project inducing greater density in the transit corridor," it says.
It also warns against counting higher land values.
"Increase in land values is not necessarily a separate benefit because it reflects the willingness of landowners to pay for the benefits of light rail, which have already been included in [the] cost-benefit analysis. Including the uplift in land values as a separate benefit to the decreased travel time, increased urban amenity, uplift in employment and decreased air/noise pollution is likely to double-count benefits," it warns, pointing out that the increased land values could come at the expense of values in other parts of the city.
The centre said the project was not justified only by the jobs - because the same money could be spent on a different project and still generate jobs. "Claiming that the Capital Metro creates jobs is not a justification for the Capital Metro over other projects," it said.
And it points to the uncertainty of light rail costs, with one estimate suggesting $20 to $40 million a kilometre, and another $13.6 to $43.8 million a kilometre.
Mr Edghill said he agreed on not double-counting land values, not over-counting jobs and not including parking revenue. But he rejected the suggestion that costs were uncertain, saying much work was being done to reach a final figure.
"When we put up the final business case and once we've finished doing this round of design work and we've updated our cost estimates then what were presenting to government will be providing a good deal of certainty as to what the costs will be," he said.
The business case did not rely on any single feature such as a bigger population in Gungahlin, but on a "whole multitude" of benefits, including transport benefits such as time savings, environmental and health benefits, land benefits created by "unlocking" unused land, and wider benefits from economic activity.
A cost-benefit analysis was not a "magic number" that guaranteed costs and benefits, but an estimate looking forward, he said.
"A cost-benefit analysis in any event is not gospel. It's simply one tool that government needs to use in making decisions about projects."