Policy change could boost chance of South Coast rail upgrade

Improvements to the South Coast rail line could be more likely under a change to assessing infrastructure projects put forward by Shadow Treasurer Ryan Park.
Improvements to the South Coast rail line could be more likely under a change to assessing infrastructure projects put forward by Shadow Treasurer Ryan Park.

Upgrading the South Coast train line could become more attractive to government under a plan put forward by the state Labor party.

Should Labor win the next election, the party has pledged to review the official “discount rate”, which is one of the key methods used to to calculate the costs and benefits of major projects

The discount rate is a calculation tool used to put the present and future costs and benefits of a project on a comparable footing and is a crucial part of cost-benefit analysis.

It allows governments to fairly compare the merits of competing infrastructure projects

A lower discount rate is likely to improve the relative attractiveness of public transport rail projects because of the long-term nature of the investment.

That would be good news for any potential upgrade of the South Coast rail line, because its long-term benefits may rise relative to the controversial F6 extension proposed between St Peters and Loftus.

The competing projects were subject to claims in a secret internal memo that transport officials were directed to not to compare the costs of the F6 extension to a South Coast rail upgrade.

The government has denied there was a focus on road over rail.

Labor planned to move a motion in NSW parliament on Wednesday calling on the government to review the discount rate used to calculate the benefits of infrastructure projects.

Shadow Treasurer, Ryan Park, said it was time for the discount rate to be reviewed so that voters can be confident the costs and benefits of major projects are being properly measured.

“NSW Labor calls on Treasury to review the discount rate that is being applied to infrastructure projects across NSW to ensure that it is set at an appropriate rate for this low inflation, low interest rate environment,” Mr Park said.

He said if the government did not take action, Labor would seek to review it should it win power in the 2019 state election.

A report released by the Grattan Institute think tank in February this year called for the discount rate to be slashed to 3.5 per cent for low-risk projects such as urban rail and roads and to 5 per cent for slightly riskier investments.

Grattan's analysis found the cost-benefit ratio of major rail proposals more than doubled when the discount rate was lowered from 7 per cent to 4 per cent.

Grattan’s Transport Program Director, Marion Terrill, said Australia’s high discount rate “distorts public policy priorities” by making projects with near-term benefits look more attractive that those where benefits take longer to materialise.

“The advantage of having a more realistic discount rate is that you can better see all projects on their merits,” she said. “You are more able to see which infrastructure projects are the most viable.”

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