RAH's $2.7bn bill queried by economists
ECONOMISTS have questioned the decision to pay up to $390 million a year to fund the Royal Adelaide Hospital.
ECONOMISTS question the decision to pay up to $390 million a year to fund the Royal Adelaide Hospital.
Confidential documents leaked yesterday reveal taxpayers will pay $2.7 billion up front.
Over the 35-year life of the contract being negotiated with a private consortium, taxpayers will pay a total of about $10 billion in repayments.
The leaked Macquarie Bank documents caused a political stoush yesterday, with the Opposition claiming they proved the Government had misled voters over the ballooning cost of the project.
But the Government says the $2.7 billion price tag does not reflect a cost blowout in the project, maintaining construction alone will be $1.78 billion, as promised.
Yesterday, Health Minister John Hill also suggested that former Save the RAH campaigner Jim Katsaros was behind the leaked document, which he angrily denied.
The Macquarie Bank document also reveals:
FINANCIAL closure on the deal was due to be completed by the end of March.
MEDICAL items and equipment for the new hospital are not included in the $2.7 billion cost.
FINANCE during the construction will cost $671 million.
REVENUE from commercial leases at the site, including a gym, newsagent and convenience store, will go to the private investor.
The document, which is pitched at potential investors in the project, says the Government will pay a rate of return of up to 15 per cent - almost 10 per cent higher than if it borrowed funds itself.
SA Centre of Economic Studies deputy director Jim Hancock, who is also a former manager for the South Australian Treasury, said the Government had signed taxpayers up to "premium" costs with the Macquarie Bank deal, for questionable returns.
"It is not clear to me what risks could possibly be transferred to the private sector that would then warrant paying a significant interest rate premium," he said.
"I would be concerned if the State Government was paying an effective interest rate that was much above the state's own borrowing cost."
"I struggle to see what might justify that."
Mr Hancock said the State Government could raise the funds for the project with an interest rate of about 6 per cent, but the project would then sit on the state's balance sheet. He said the deal was "probably" politically motivated to keep the state's Triple A credit rating intact.
Prescott Securities chief economist Darryl Gobbett said the Government was shifting the debt to Macquarie to avoid a public perception of State Government debt.
He said the Government had a "fixation" with not borrowing funds, even if it proved a better deal for taxpayers.
"I think they have taken it to the extreme where they are now saying we shouldn't even be borrowing for major capital works such as a hospital."
Signed by a "very concerned citizen of South Australia" and addressed to Treasurer Jack Snelling, the letter warns the Government that the hospital is another State Bank disaster in the making.
"Only this time you have the power to stop it before it happens," the letter says.
Opposition Leader Isobel Redmond said the Government had "deceived" taxpayers before the election by only referring to the $1.7 billion construction cost.
"This staggering level of debt is catastrophic for SA," she said. "How can Labor burden South Australians with paying nearly $1 million a day on this new hospital when they can't even find $370,000 per year to keep the Keith Community Hospital open?"
Treasurer Jack Snelling refused to be interviewed by The Advertiser yesterday, but said in a statement: "I'm entirely convinced that a PPP represents the best value for money for taxpayers for a project of this complexity."