Chapter 2 - Background: Commonwealth road and rail funding

Chapter 2 - Background: Commonwealth road and rail funding

2.1                 Building, maintaining and operating roads and railways is a responsibility of the States and Territories.[10] For many years the Commonwealth has contributed heavily to improving roads, by way of grants to the States/Territories or direct to local government. The Commonwealth has contributed to improving railways to a much smaller extent.

Commonwealth road funding

2.2                 The Commonwealth has made grants to States for roads since 1922. It started full funding of a National Highway System in 1974. At the beginning of the 1990s the Commonwealth funded roads in the categories: the National Highway, national arterial roads, state arterial roads, and local roads. After various changes during the 1990s, the Commonwealth now (pre-AusLink) funds roads in the categories:

  • the National Highway
  • roads of national importance
  • Black Spots
  • local roads.

2.3                 The National Highway, roads of national importance, and Black Spots are funded on a project by project basis. Local roads are funded by direct grants to local councils under the Roads to Recovery Act 2000, and by untied grants ‘through’ the States, under the Local Government (Financial Assistance) Act 1995, on the understanding that they will be spent on roads. The local roads grants are shared among the councils by a formula.[11]

2.4                 In the 25 years to 1999 the Commonwealth spent $43 billion on roads (including untied grants to States with a view to road expenditure; 1998-99 dollars). Of that, $18 billion was for the National Highway System, including $3.7 billion for the Hume Highway alone.[12] Since 1997-98 Commonwealth road expenditure has been:

Table 1: Commonwealth road spending 1997-98 to 2003-04 
$million current dollars  1997-98  1998-99  1999-00  2000-01  2001-02  2002-03  2003-04  total 
National Hwy  706  752  632  697  784  763  705  5039 
Roads of National Importance  109  123  184  135  234  214  227  1226 
Black Spots  36  37  38  41  42  44  45  283 
Roads to Recovery        150  302  202  302  956 
State identified road grants  391  397  409*          1197 
Local gov’t identified grants  370  377  389  406  425  451  462  2880 
other  2  2  3  2  3  9  43  64 
TOTAL  1614  1688  1653  1432  1790  1684  1785  11646 

Totals may not add due to rounding. 2003-04 is an estimate.

* Rolled into GST grants to States from 2000-01, so figures before and after are not strictly comparable.

source: DOTARS, ALTD programme progress reports various years. DOTARS, Portfolio Budget Statements, 2003-04. Bureau of Transport and Regional Economics, information sheet 23: Public road-related expenditure and revenue in Australia (2004). Parliamentary Library Bills Digest on AusLink (National Land Transport) Bill 2004.

2.5                 In assessing the ‘right’ amount of road spending in an economic sense, the relevant figure is of course not Commonwealth spending, but total spending. Since 1988-89 total road spending by government has been:

Table 2: Total road spending by government 1988-89 to 2001-02 
$ million current dollars  Commonwealth  State  Local  Total  Cth as per cent of total 
1988-89  1232  1603  1431  4266  29% 
1989-90  1358  1908  1635  4901  28% 
1990-91  1596  2224  1556  5376  30% 
1991-92  1720  2046  1570  5337  32% 
1992-93  2177  1877  1706  5760  38% 
1993-94  1552  2207  1636  5396  29% 
1994-95  1535  2264  1503  5303  29% 
1995-96  1602  2616  1654  5872  27% 
1996-97  1623  2905  1845  6373  25% 
1997-98  1636  3378  2000  7014  23% 
1998-99  1707  3246  2329  7282  23% 
1999-00  1675  3135  2585  7395  23% 
2000-01  1458*  3911  2254  7624  19%* 
2001-02  1821  3545  2214  7580  24% 

Source: Bureau of Transport and Regional Economics, information sheet 13: Public Road-related expenditure and revenue in Australia 1999. Information sheet 23: Public road-related expenditure and revenue in Australia (2004). Totals may not add due to rounding.

* State identified road grants were rolled into GST grants to States from 2000-01, so figures before and after are not strictly comparable.

Figures for Commonwealth spending in this table exceed those in table 1 because of the inclusion of Federal Interstate Registration Scheme amounts.

Note: ‘These figures provide a picture of the expenditure on roads by each level of government net of transfers of funds from higher levels of government... it is a measure of the financial effort made by each level... While an effort has been made to estimate the expenditure on road construction and maintenance only, there is still some expenditure included on administration, regulation and subsidies.’ BTRE Information sheet 23, p.1

2.6                 Private spending on roads has also become significant in recent years, through privately financed urban tollways. An estimate of total spending on new fixed assets in roads, excluding repair and maintenance, is:

Table 3: Total spending on new fixed assets in roads: 2000-01, 2001-02 
$ million  Common-wealth  State  Local gov’t  subtotal: gov’t  private  TOTAL 
2000-01  883  1953  1486  4322  870  5192 
2001-02  1246  1001  1622  3869  1411  5280 

Source: Bureau of Transport and Regional Economics, Australian Transport Statistics, 2003,2004. Derived from unpublished ABS and DOTARS data.

Figures differ from those in previous tables because they exclude repair and maintenance.

Commonwealth rail funding

2.7                 Commonwealth capital spending on rail, compared with its road funding, has been irregular and, on average, very small. It has mostly related to particular projects such as gauge standardisation from Adelaide to Crystal Brook and Melbourne (1982, 1995), and the Alice Springs - Darwin railway (2001-02).

2.8                 In the 25 years to 1998-99 the Commonwealth spent $1.2 billion on railways (excluding its subsidy of the operating losses of the then Commonwealth-owned Australian National).[13] Since 1997-98 Commonwealth rail expenditure has been:

Table 4: Commonwealth rail spending 1997-98 to 2003-04 
$million current dollars  1997-98  1998-99  1999-00  2000-01  2001-02  2002-03  2003-04  total 
Alice Springs - Darwin railway        55  165  14    234 
mainline track upgrade    5  50  46        101 
AusLink investment              450  450 
ARTC equity injection  18            143  161 
other  3  7  9  13  9  3  1  46 
TOTAL  21  12  59  114  174  17  594  992 
source: DOTARS, various. Parliamentary Library Bills Digest on AusLink (National Land Transport) Bill 2004. 

2.9                 In assessing the ‘right’ amount of rail spending in an economic sense, the relevant figure is of course not Commonwealth spending, but total spending. It appears that there is no readily available time series information on total rail investment comparable to the figures for roads in table 2 above. This is most unfortunate, and the Committee hopes that the research needed to plan economically sound corridor strategies will remedy this.

2.10             States have from time to time made significant investments in their total rail networks,[14] but overall it appears that most of their efforts are concentrated on maintaining capital city passenger services where the political pressure is highest. For example:

The [NSW] government will rise or fall on what it does about its CityRail. That is where its focus is; not on its regional rail. I think that is throughout the country and that is part of the problem.[15]

2.11             In calculating the total State effort to improve rail infrastructure, a complication is that vertically integrated State rail authorities may count as capital expenditure both below rail network improvements and purchase of rolling stock such as urban passenger carriages. The latter is often a high proportion of the total but, however worthy, it is not ‘infrastructure’ in the AusLink sense.[16]

2.12             An estimate of total spending on new fixed assets in railways, excluding repair and maintenance, follows. The figures for roads from table 2 are repeated for comparison.

Table 5: Total spending on new fixed assets in roads and railways: 2000-01, 2001-02 
$ million  Common-wealth  State  Local gov’t  subtotal: gov’t  private  TOTAL 
2000-01 rail  40  223  0  263  46  309 
2000-01 road  883  1953  1486  4322  870  5192 
2001-02 rail  17  1311  0  1328  485  1813 
2001-02 road  1246  1001  1622  3869  1411  5280 
Source: Bureau of Transport and Regional Economics, Australian Transport Statistics, 2003,2004. Derived from unpublished ABS and DOTARS data. 

2.13             The AusLink White Paper comments:

It is well-documented that the rail system in Australia has been under-funded for a long time and its role in handling the nation’s freight task has been declining relative to road. The $1.8 billion to be invested in the rail system improvements over the next five years will begin to turn this around. Rail has the potential to substantially increase its share of the freight task if significant improvements are made to rail infrastructure and operational practices are modernised.[17]

Comment

2.14             The disproportion between Commonwealth spending on road and rail improvement has often been excused by the claim that ‘under the Constitution’ railways are a State responsibility. This refers to the fact that at Federation railways were left in State ownership.

2.15             In fact both railways and roads are a State responsibility - they are crown land vested in a State.[18] Both are also a Commonwealth responsibility insofar as the Commonwealth voluntarily accepts responsibility for helping to improve the national transport network. The fact that the Commonwealth has contributed primarily to improving the national highway system has been a matter of history and political choice.

2.16             After including State, local and private spending, it appears that a very large gap still remains between the rate of capital formation in roads and railways.[19] Whether this balance between road and rail investment is economically optimal appears to be unknown.

2.17             The economically correct rate of investment in each mode depends on many things such as their relative importance in Australia’s total transport task (present and predicted), the quality of their existing assets and the likely trend in the productivity of their use of assets and, therefore, the likely rate of return on further investment.[20] The Committee is unaware of any past attempt by government to assess these things on a unified basis in order to discover whether the balance of public spending on road and rail is economically sound - that is, whether it directs investment with priority to where the returns are highest, without preconceived bias towards one mode or the other.

2.18             Considering the large amounts of public money involved, this is regrettable. The Committee is optimistic that corridor strategies under AusLink will fill this gap.

2.19             This comment is mainly about the National Network and long distance non-bulk freight transport, since this is the area where road versus rail choices most arise.[21] The Committee accepts that spending on local roads and regional projects is affected by social policy considerations to do with supporting rural communities. Thus, as a matter of policy, they may take a priority higher than that suggested by a purely economic calculation. However it is still important that these projects should be prioritised in a disciplined way, with economic and non-economic motives clearly distinguished.

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