Lack of cost management a scourge of the bureaucracy

A $90bn blowout in the cost of national infrastructure projects is a timely reminder of the limits to government in an age when many see greater state intrusion as the answer to all ills. The list of cost overruns detailed in The Australian Business Review on Monday is a roll call of false expectation that makes depressing reading for taxpayers. It is made worse by the litany of excuses offered for getting cost estimates wrong and the fact the list is by no means exhaustive or complete. The lack of cost management in infrastructure reflects a larger fiscal ill-discipline in critical areas of public policy, from closing the gap on Indigenous disadvantage to unsustainable spending on the National Disability Insurance Scheme.

The $90bn cost overrun figure for infrastructure is an estimate based on an analysis of publicly available information on some of the nation’s biggest projects. At the top of the list is the inland rail project, where projected costs have more than tripled from $9.9bn to $31bn. The cost of the Sydney West Metro has almost doubled from $13bn to $25.3bn. And the projected cost of the Snowy Hydro 2.0 scheme has soared from its initial estimate of $2bn to $10bn. Poor cost control and planning are on display in revised estimates for the Brisbane Olympics, where the cost of refurbishing the Gabba stadium has blown out from $1bn to $2.7bn.

Explanations for the increased costs include a tight labour market, rising materials costs and higher wage demands. These may well be factors. So too is the propensity of government ministers to announce projects before proper costings are known. This reflects a culture that does not hold itself to account, something identified by the Productivity Commission’s latest report into bureaucracies’ wasteful spending on Indigenous programs.

Unfortunately, experience shows higher-than-expected costs for government projects are the norm, not the exception. The Clem Jones Tunnel road in Brisbane cost $4.2bn, an almost fourfold increase on the initial estimate of $1.1bn. Melbourne’s EastLink road cost $3.6bn, not the $1.5bn forecast. The Chatswood rail link in Sydney was $3.6bn, more than double the estimate of $1.6bn.

Governments must be better at managing costs. This is particularly so given the large pipeline of high-value projects that will be needed as part of the decarbonisation agenda. This includes an announced $20bn of high-voltage transmission lines and big fields of offshore wind developments. Both will inevitably face higher-than-expected costs, and taxpayers will be called upon to help. The inflationary impact of the green transition is not limited to infrastructure. Chris Bowen confirmed on Tuesday that the government is studying a new blueprint for greater government intervention. The review is designed to look at what can be done to stop companies with high carbon dioxide emissions moving their production offshore. It will look at the risk of carbon leakage, development of policy options to address carbon leakage, and the feasibility of an Australian Carbon Border Adjustment Mechanism, particularly in relation to steel and cement. In short, the answer may well involve the creation of a new European-style bureaucracy to shield industry from the fact it is less internationally competitive due to another layer of government intervention.

The words uttered by Ronald Reagan in his inaugural speech have never been more prophetic: “In this present crisis, government is not the solution to our problems; government is the problem.”