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The worst of wasteful government spending

By Brendan O'Reilly - posted Thursday, 2 August 2018

The late Kerry Packer famously saidat a 1991 Government inquiry:

I am not evading tax in any way, shape or form. Now, of course, I am minimising my tax, and, if anybody in this country doesn't minimise their tax, they want their heads read because, as a Government, I can tell you you're not spending it that well that we should be donating extra.

Packer was correct then, and little has changed since.


Below are examples of (what I regard as) the worst of government waste, along with my reasoning. The ranking is not strict, and there certainly are deserving but omitted contenders.

I have excluded so called "moral hazard" (affecting the biggest areas of outlays, like social security and health). It covers effects like illegitimacy rates soaring in response to the availability of sole parent pensions, people squandering their lifetime earnings in the knowledge that the State will provide an age pension and subsidised housing, and over-use of "free" health services in the absence of price signals to consumers.

1. Cancellation of Melbourne's East-West Link. I am putting this at the top of the list simply because this exercise was pure waste, leaving almost nothing to show for the outlay. The Andrews Government in 2015 agreed to pay $339 million to the project consortium to walk away from this freeway contract initiated by the previous government. The Victorian Opposition claims that there was an additional $400 million to $500 million in sunk costs already incurred by the State Government, bringing the total cost for a road never built to between $800 million and $900 million).

2 "White-Elephant" Desalination Plants. Some years ago, because of green-left opposition to building new water storages, state governments sought to simply curtail demand for water by lifting charges (also generating revenue). The problem was that, as drought reappeared from 2003 to 2010, there was very little scope for further water savings. Spurred on by a fit of climate change alarmism, state governments panicked about the lack of water in storage, and went on an orgy of spending on desalination plants (massively more expensive to build and operate than storage dams that can fill at virtually no cost).

All of the mainland states have built huge and expensive desalination plants, with that in Melbourne by far the biggest. A reasonable case can be made for the desalination plant in Perth but the rest have been a costly waste of money. The Melbourne plant cost about $4 billion, the Sydney plant $1.803 billion, the Gold Coast plant $1.2 billion, and the Adelaide plant about $2.2 billion. By way of illustration, the Sydney plant's costs are more than $500,000 a day, although it has not supplied any water since 2012. Desalination also uses enormous amounts of electricity (which is now very expensive in this country) and (despite not being used) these plants have been responsible for adding $100 to $200 annually to household water bills.

3 Collins-Class Submarine Replacement Project. This $50 billion project seeks to replace Australia's problem-plagued Collins-class submarines with subs from French shipbuilder DCNS. The project has design issues because standard French subs are nuclear-powered. There is a bipartisan commitment to buying diesel-electric powered subs, and (seemingly for vote-buying reasons) to building them in Adelaide, even though this might add 40 per cent to the cost. The Australian contractor, Australian Submarine Corporation (ASC), also has a dreadful record on other projects.


Anecdotal evidence suggests that (privately) our defence professionals support buying off-the-shelf nuclear-powered submarines, for reasons of performance, reliability, and much more bang-for-the-buck.

The mistake of the sub project is being repeated in the recently announced decision to spend $35 billion building nine British-designed anti-submarine frigates (mainly) at SA's Osborne shipping yard. ASC is again to be the main domestic player (in another vote-buying exercise), with the contract being rushed in order to prevent the Adelaide shipyards being shut down due to lack of other work. It seems that the hull will be Australian built with most of the systems and internal workings coming from overseas.

The stark truth is that the government could be saving tens of billions, and be getting more reliable vessels by instead shutting down Australia's (uncompetitive) ship/sub building industry, and buying the superior overseas product at much lower cost.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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