Palaszczuk and Baird need to stop wishing for miracles

Ahead of the COAG meeting, Premier Palaszczuk has written a desperate open letter to the Prime Minister requesting an extra $1 billion to partly fund the $10 billion Cross River Rail (CRR) megaproject and the Gold Coast light rail (GCLR) extension.

Once you excise Palaszczuk's 'Queenslander-under-siege' rhetoric, reading past the incredible words (for a letter between two heads of government in our Federation) like shamefully, iniquitous, coercive, bullied, ransom and heist, the Queensland Premier is arguing that Queensland is 'owed' its per capita 'share' of the Commonwealth's $5 billion Asset Recycling Initiative.

The first point to make is that this $5 billion fund is designed to cover the loss in 'tax equivalent payments' so that the state is no worse off from the sale. Without the Commonwealth covering the states for that loss, states would be less likely to privatise an asset even if it would be better for the economy overall.

The fund also provides an incentive for states to 'do the sensible thing'. This type of fund is neither new nor coercive, indeed previous Queensland Governments have agreed to important economic reforms in return for 'competition payments' that have benefitted the state.

Palaszczuk has signalled that she has no interest in federation reform and would rather build megaprojects whose economics just don't stack up.

Palaszczuk points out that: "This project [CRR] was identified as the number one requirement for the nation in Infrastructure Australia's last priority list." That is certainly true and reflects very poorly on Infrastructure Australia's ability to undertake independent due diligence of business case assumptions as opposed to 'ticking and flicking'.

The business case that Infrastructure Australia reviewed was based on internally-prepared and since discredited passenger demand forecasts. The 'nightmare scenario' painted where we would have a bottleneck on the Maryvale Bridge (rail crossing) by 2015 has simply not eventuated.

The Newman Government shrunk CRR into the $5 billion BaT Tunnel, but even that projects economics were very marginal and some hardhead LNP Ministers were having serious second thoughts by late 2014.

Mega-projects are incredibly risky and governments must opt for the big bang solution only when all other options have been seriously considered. The global evidence on mega-projects makes for sober reading. Across hundreds of projects reviewed by Professor Bent Flyvbjerg's team at Oxford University, on average demand forecasts were double actual demand, and costs were estimated to be half of final costs.

Professor Tony Makin from Griffith University demonstrated in his submission to the Productivity Commission Public Infrastructure Inquiry that bad infrastructure projects reduce economic growth and cost jobs in the long-run because they reduce productivity after the sugar hit wears off.

So before Palaszczuk pulls out the begging bowl, she should carefully consider how major infrastructure projects in Queensland are identified, prioritised, financed and funded, including how to make Building Queensland a truly independent advisor to government. She should also listen carefully to Queensland Treasury's reservations about both projects.

Meanwhile, rather than writing a letter to the PM begging for money, NSW Premier Mike Baird has proposed to increase the GST from 10% to 15%.