Time for Bracks to own up on PPP costs
Poor value behind the breezy facade of the public-private partnerships
By Kenneth Davidson
The Age www.theage.com.au
May 1, 2006
Next weekend Premier Steve Bracks and Treasurer John Brumby will be expected to account to deeply suspicious rank-and-file ALP membership for their fierce commitment to funding state infrastructure through public-private partnerships. This is despite evidence the projects initiated by the Government have failed to deliver value for money and are likely to short-change the people of the state as taxpayers, or as motorists, of billions of dollars over the life of the various contracts.
The most notorious examples include the franchising of Melbourne’s tram and rail network, the CityLink, the Spencer Street station redevelopment, the County Court, the Royal Women’s Hospital, the Convention Centre and related developments at Docklands and, coming up, the renovation of the Royal Children’s Hospital.
So far the scandalous misuse of public resources hasn’t registered on the political Richter scale because the complexity of the contracts negotiated between the Government and the financial underwriters of the projects have been couched in language that would make the tax avoidance schemes rubber stamped by the Barwick High Court judgements in the ’70s and ’80s look like exercises in plain English.
Justice Murphy famously described the High Court as the tax avoiders’ temple. The tax avoidance industry was brought to a shuddering stop when the Costigan Royal Commission into the the criminal behaviour of the Painters and Dockers Union inadvertently uncovered the systematic use of “bottom of the harbour” schemes to avoid tax.
Objective analysis of PPPs has not so far led to widespread disquiet. Its issue is too difficult for the swinging voter, who usually in the end are persuaded to vote for the most spectacular sizzle instead of the best sausage. (It will be some years down the track when the cost of these PPPs become unsustainable.)
But some people in the Bracks cabinet are disturbed. And their political antenna tells them the whole issue could blow up in their faces if the iconic Royal Children’s Hospital PPP delivers the same massive financial benefits to the PPP developers that will result from the RWH PPP at the same time as Victorians are expected to donate generously to the Easter Appeal for the RCH.
There is no reason why the financing for PPPs shouldn’t be set out in a way that allows ready comparison with traditional debt financing. Both involve a stream of payments or charges over the expected lifetime of the asset and both involve a charge against future tax revenues or users in the case of toll roads.
The only possible reason why governments addicted to PPPs (state Labour governments and the British Government) aren’t prepared to present information in a way that allows easy comparison of PPPs and traditional debt financing is because PPPs are their preferred financing mechanism and the comparison doesn’t favour PPPs. Under pressure from the state ALP rank-and-file, Brumby established an inquiry into the projects financed by PPPs up to 2004 by an independent consultant and a supporter of the Bracks Government, Peter Fitzgerald.
The report found that the policy delivered poor value for money. The poor value of these projects was disguised by avoiding direct comparison with the same project being debt financed, instead using tools invented by the banks selling PPPs such as the “Public Sector Comparator”, which is an abstract financial model that builds in fanciful assumptions to show PPPs in a favourable light.
One recommendation made by Fitzgerald in his 2004 report, which was accepted by the Bracks Government, said “the State should publish details of the forecast payment schedules where contracts are signed under Partnership Victoria policy. These schedules should be posted on the Partnership Victoria website.
So far this hasn’t been done. Under pressure, the draft platform to be considered next weekend (Ch.4.12) states: “Labor will … publish a public interest statement for all infrastructure projects including a value for money statement for all Partnership Victoria projects, taking into account traditional and other forms of financing.”
There are only two comparisons required. That which is expected under the PPP and that which would operate under full public funding.
There can be only one explanation as to why a Government refuses to do this and that is the Government has a vested interest in bad government. The secrecy surrounding the decision-making process in relation to PPPs is nothing more than a fertile breeding ground for corruption.
Businesses in the business of negotiating contracts worth hundreds of millions with government should not be able to hide behind commercial-in-confidence when they have their hand out for taxpayer dollars any more than a widow, an aged person or the unemployed can hide behind privacy considerations when their benefit claims are to be means tested.
Audited information should be officially available to confirm or deny the claims made in my columns to the effect that the subsidies to Connex and Yarra Trams at $560 million are twice the level paid to the Met in 1999, and that CityLink tolls paid to Transurban are twice that needed to finance the same road financed by debt. Also, it may show that the benefit of the $1.8 billion Southern Cross (old Spencer Street) roof could have been achieved with the expenditure of $100 million from the current budget surplus, that the Packer family’s County Court will cost $400 million more than the Federal Court, which is of similar capacity, and the RWH will cost $400 million more than if it was financed out of government debt.
I have sent a number of written questions to the Minister for Major Projects on the billion-dollar Convention Centre development on Southbank relating to the Government’s financial commitment, which should be answered if the Government is serious about meeting its commitment to Fitzgerald and the spirit of the draft ALP platform that is expected to be put to the Victorian branch next week.