A Greater Australia: Population, policies and governance - CEDA

Section 4.2in any Australian urban area. Moreover, congestion charges reward governments thathave underinvested in the reduction of congestion and could encourage monopolypricing of roads. The interaction of congestion charges and existing taxes can alsolead to increases in effective marginal tax rates on labour effort, causing deadweightlosses.Additionally, the conventional analysis of congestion charging assumes a dollar is adollar, so the revenues transferred to government are a mere transfer. However, if someof those revenues are wasted, then the transferred revenues should be valued at lessthan a dollar, i.e. there is some shrinkage along the way, with that shrinkage itself beinga welfare loss. If there is such waste (say on ill-conceived public transport projects),then it takes proportionately very little of it to eliminate any efficiency gains from congestioncharging. 18Last but not least, congestion charging will not remove the harm caused to existingresidents by rapid population growth. To see this, assume the policy question iswhether the incumbent motorists, i.e. those who used the road originally, are better off.The answer is that they will not be, in the absence of special income transfers backfrom government, as motorists as a group are worse off. 19 Abstracting from the use ofthe revenues, their welfare with the charge in place will be lower than it was without it,and presumably even lower than it was prior to the increase in migration. So congestionpricing, whatever its potential merits, is not a panacea and at least as matters nowstand, the case for its implementation has not been made.This brings me to the third policy prescription, which is better governance of urbaninfrastructure. It hardly needs to be said that there are still major weaknesses in themanagement of public transport. Again, New South Wales provides an extreme case,with costs per passenger kilometre in the Sydney rail system that are 40 per cent higherthan those in Melbourne 20 : and Melbourne itself is no model of efficiency, especially interms of track utilisation and the timeliness of capacity expansion.Moreover, it is clear that we still do not do a good job of selecting major infrastructureprojects – as highlighted by the now notorious case of the East-West railproject in Victoria, which was the top project recommended for funding in 2009 byInfrastructure Australia despite the fact that its costs were determined “on the backof a fag packet” by the then Victorian Labor Minister of Transport, the CommonwealthInfrastructure Minister and the head of the Victorian Department of Transport 21and despite a cost-benefit appraisal that involved double counting of benefits andserious errors of analysis.Nor has the attempt to introduce commercial disciplines by relying on Public PrivatePartnerships (PPPs) been a clear success. While these may have merits in terms ofproductive efficiency, their use has complex, and often undesirable, impacts on thequality of public administration. In particular, because the incentives are high-powered(i.e. the private party secures substantial gains from reducing costs under the contract),these arrangements increase the returns to rent-seeking and to tainted deals betweengovernments and private sector suppliers. Particularly with PPPs, the effects are thenthree-fold: they concentrate the gains from the project (as some share of these is nowcaptured by the private participant), and by so doing, increase the pay-offs from collusionbetween the public decision-maker and the project’s private beneficiaries; theyallow crucial aspects of the project to be cloaked in commercial confidentiality, reducingthe transactions costs of collusion; and they relax (or, more properly, are widely butincorrectly claimed to relax) the public sector budget constraint. Each of these effectsinduces a deterioration in the efficiency of decisions and overall outcomes. 22A Greater Australia: Population, Policies and Governance198