Action for Public Transport (N.S.W.) Inc.

Who we are

Action for Public Transport (NSW) Inc. ("APTNSW") is a transport advocacy group active in Sydney since 1974. We promote the interests of beneficiaries of public transport - passengers and the wider community alike.

Starting Point

In 2016 the Standing Committee on Infrastructure, Transport and Cities conducted an inquiry into the role of transport connectivity in stimulating development and economic activity both in major urban areas, and in regional Australia.

In its report, Harnessing Value, Delivering Infrastructure, the Committee concluded that high-speed rail serving Australia’s east coast would foster a better balance of settlement, and stimulate economic activity in both urban and regional contexts. The Committee also saw a need for the transit systems of Australia’s big cities to be retrofitted to world’s best practice.

APTNSW concurs with both conclusions.

We are pleased to be able to contribute to the next phase of the Committee’s work, which is to inquire into options for financing faster rail.

Key points

1. The delivery of faster rail should not be crippled by an expectation that it be achieved at "no cost to government". The Commonwealth Government should be prepared to take a major role, as it did historically in the provision of Australia’s interstate road system.
2. The first source of funding for faster rail should be the redirection of funds from urban motorways, which have proven ineffective in achieving their stated aim of reducing traffic congestion in major cities.
3. The most reliable method of value capture is the most direct - property rights. The Commonwealth should move immediately to secure routes for faster rail, including high-speed rail.
4. The Committee’s work on "value capture" mechanisms has focussed on the funding of the capital costs of faster rail. The Committee could broaden its consideration to encompass value capture as a means of funding rail services over the long term.
    
    
    
    

The Committee concluded in Harnessing Value, Delivering Infrastructure that value capture has the potential to make a considerable contribution to funding high-speed rail.

The Committee’s current terms of reference however require it to inquire into options for financing faster rail. It is not restricted to considering high-speed rail (which is clearly a subset of faster rail).

High-speed rail

We agree with the Committee’s conclusion that high-speed rail offering journey times of 3 hours or less from Brisbane to Sydney and from Sydney to Melbourne would be transformational, and we fully support it. It is disconcerting to see that this High Speed Rail line is not shown in the Australian Government’s 20-year plan for a Faster Rail Network https://investment.infrastructure.gov.au/files/national_rail_program/Faster-Rail-Plan.pdf.

We agree with the evidence given to the Committee by the late Tim Fischer, who pointed out that the line ought to serve Canberra directly rather than relying on a "spur". The Australian Government's 20-year plan does indicate faster rail between Sydney and Canberra via Goulburn, which we hope will be of high-speed standard (better than 200km/h).

Faster rail by upgrade

Some comparatively modest upgrades to existing rail systems have the potential to deliver significant travel time savings, moving us towards the more balanced pattern of settlement and economic activity the Committee is advocating. Victoria’s Regional Rail Program is providing a useful demonstration of what can be achieved. It is pleasing to see that Federal funding ($2 billion) is now in place to help deliver faster rail (averaging 160km/h) between Melbourne and Geelong.

In NSW, projects offering comparable benefits include upgrading the Newcastle line and the South Coast line. The present 60km/h average speed achieved on the South Coast line is ludicrous¹; much higher speeds could be achieved by constructing a tunnel between Waterfall and Thirroul (a distance of approximately 22km).

We are aware that the Federal Government is contributing funds for a business cases for faster rail between Sydney to Newcastle, and has announced it will also support business cases for faster rail corridors between Sydney and Wollongong, and Sydney and Parkes (via Bathurst and Orange).

Similar commitments have been made for faster rail in Victoria² and Queensland³.

We welcome this support, but we have in a number of submissions to the Committee indicated our concern that the cost-benefit methodology underpinning standard business cases is systematically biased against rail investment. Our concerns were echoed in several other submissions to the Committee.

One factor that we expect will be of interest to the Committee is the “discount rate” applied in the business cases noted above. Rail investment yields benefits over a very long timeframe, for many generations. If a lower value is given to benefits accrued after longer periods (i.e. a high discount rate applies), rail projects are disadvantaged.

Funding vs. financing

The Committee’s terms of reference relate to the financing of faster rail, whereas the Committee’s previous focus was on funding high-speed rail.

As we understand it, the question of financing a project relates to raising the cash to build it at the outset, using debt or equity or both. Even in the case of high-speed rail, it is hard to see how this is an impediment for the sovereign national government of a first-world nation, working with State governments.

The question of funding a project concerns who ultimately pays for it over the long term.

Generations before us invested in Australia's cities and towns – providing water supply, schools, hospitals, roads, rail systems, sewerage, electricity networks, and cultural facilities. These were funded over many years by taxpayers and users (access fees and usage charges). There is no particular reason we cannot do this again (as with Snowy 2.0).

If it is so minded, government can seek to transfer the responsibility for financing projects to the private sector, as has been the fashion since the 1980s. The question of funding however does not disappear.

Since value capture is a funding mechanism we suggest that the Committee’s original focus on funding options may be more fruitful. The Committee’s recognition that general taxation and passenger fares are not the only funding options has opened up a useful discussion.

Reviewing priorities

Australia has suffered many years of malign neglect of its rail systems at federal level, and it is time to rebalance Federal and State spending patterns. There is no reason to wait for value capture options to be developed before progress is made on faster rail.

A great deal could have been achieved with the money spent in recent years on urban motorways, which demonstrably failed to achieve their stated aim – to reduce traffic congestion in major cities. There is much to gain and nothing to lose by redirecting existing funding towards delivering faster rail.

Strategic land ownership

The best way to capture the value added by investment in faster rail is strategic land ownership. Ownership automatically secures for government the capacity to capture value, as well as guarding against price escalation and loss of route options. This is the approach the Commonwealth took in securing land for a second Sydney Airport at Badgery’s creek in 1983, and it has a great deal of merit. Similarly, Landcom is active along Sydney’s north-west rail link, which should ensure the NSW Government captures some of the increased property value created by its investment.

The Commonwealth should move immediately to secure routes for faster rail, including high-speed rail.

Value capture

The benefits of faster rail will accrue to an extensive area, not just to the areas around stations. That said, benefits will not be evenly spread across the entire continent, and it is reasonable to look at geographically targeted revenue raising mechanisms (value capture).

While the focus of the Committee’s Inquiry is on the capital cost of faster rail, the Committee for Sydney suggested in its submission that value capture could have an important role to play in supplementing farebox revenue, funding the ongoing provision of rail services. We think this is an important point for the Committee to consider.

Capital gains tax

We appreciate that the Committee is concerned about the prospect that increased value created by public investment in new rail links can enable landowners to sell at an unusually high profit, which may or may not attract capital gains tax. Capital gains tax is entirely within the control of the Commonwealth. The Committee could investigate whether a different approach could be adopted in some locations.

General local rates

There would normally be some automatic "value capture" when public investment adds to land value, because Council rates are based on land value. Rate pegging in NSW however limits the total amount of revenue that can be raised from rates, and removes this form of value capture. Nonetheless, we note that Gold Coast City Council and Sydney City Council have both contributed to the financing of light rail systems.

One option the Committee might consider is working with State and local government to raise such ceilings in appropriate areas, on the basis that the gain in revenue is shared among them. The share of each could reflect their contribution to the delivery of the rail infrastructure that produced the gain (at least in part). In the case of Councils that contribution might have come in the form of supportive rezoning rather than direct funding.

Special rates

London used a business rate supplement on commercial properties above a specified rateable value in the Greater London Authority area to contribute to the funding of the Crossrail project (the "Elizabeth line").

Melbourne's City Loop, completed in 1985, was partly funded through rate levies imposed by the Melbourne and Metropolitan Board of Works and the Melbourne City Council. The MMBW levy applied across the Melbourne metropolitan area. The Melbourne City Council levy initially applied to CBD properties and then to all properties in the municipality.

NSW Councils also have the option of adopting special rating areas, but again rate pegging currently undercuts the benefit potentially available. As noted above, the Federal Government could work with State and local government to change this situation.

Parking levies and road pricing

NSW has a parking levy that currently supports the provision of parking stations at railway stations. This approach could be used to support the development of faster rail, which would take pressure off road systems. Road pricing, if introduced, is another possible source of funding for faster rail.

Payroll and sales taxes

Since 2009 New York State has applied a Metropolitan Commuter Transportation Mobility tax on the payroll expense of employers and the net earnings of self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD)⁴. Counties in the metropolitan commuter transportation district (MCTD) also collect a sales tax of 0.375%.

"New city" approaches

In the view of APTNSW, it is unrealistic to expect the delivery of faster rail at "no cost to government". Such a stricture would tilt the playing field towards developer-driven proposals based on the rezoning of agricultural land for "new cities".

We are aware that business cases for two proposals of this kind are underway (CLARA from Melbourne to Greater Shepparton and North Coast Connect from Nambour to Brisbane). They may well prove to have merit, but it is important to build on historical investment in existing regional centres and to increase the opportunities available to their residents.

At first glance "new city" proposals might seem to offer faster rail at "no cost to government", but this could turn out to be an illusion. Unless the developer provides the full range of infrastructure and services expected by residents, pressure for public investment to provide them is inevitable.

Farebox revenue

Proposals for faster rail need to be realistic about the fares that can be charged. Sydney's Airport Rail Link is a cautionary tale.

It was reportedly expected (using conventional analyses) that removal of the $2.60 "station access fee" for passengers using Mascot and Green Square (in 2011) would increase patronage by around 15-17%. Instead, these stations reportedly saw patronage jump 70% in a year in response to cheaper fares ("Ticket sales rocket on airport line as prices plunge" SMH June 9, 2011).

Even allowing for the underlying increase in patronage (around 20% in the estimation of the Airport Link company) this is a stunning turnaround. It is now perfectly clear that high fares (due to station access fees) artificially, and savagely, suppressed patronage on the airport line (to Sydney’s detriment). The negative impact on revenue forced the private company that developed the line into liquidation.

The Committee has noted that the Hong Kong system’s strong financial performance rests on property income, not farebox revenue.

Conclusion

APTNSW commends the Committee for its important work and thanks the Committee for the opportunity to contribute. The Government’s willingness to allocate funding to faster rail (160km/h) between Melbourne and Geelong suggests that the Committee’s work is yielding dividends.

The step-change in connectivity Australia desperately needs is not beyond our wit, nor beyond our reach.
 
 
 
 

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References
¹Australian Government Faster Rail Plan p.3
²Melbourne to Greater Shepparton; Melbourne to Traralgon, and Melbourne to Albury-Wodonga
³Brisbane to Moreton Bay and the Sunshine Coast; Brisbane to Toowoomba; and Brisbane to the Gold Coast
⁴The MCTD includes the counties of Bronx, Kings (Brooklyn), New York (Manhattan), Queens, Richmond (Staten Island), Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester

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