As a person of influence, no doubt you keep up to date on issues on which to influence others and they wish to influence you. May I bring you up to date on a major matter? It is a serious and long term responsibility. We are playing with our quality of life and our children’s fate. Please keep an open mind and question out of date conventional wisdom on issues that should not be dismissed lightly.
Australia has achieved world-leading prosperity and liveability since the last War. Population is projected to double in the next 4/5 decades. Melbourne and Sydney are projected to double to +8m. Congestion endangers liveability. Slow growth of the Western World affects Australia. These together, and also a possible external economic shock, make the Australian economy vulnerable. The IMF recommends large scale infrastructure investment.
Australia has an ideal, large infrastructure project: High Speed Rail. It would mean not only linking east coast cities, but also building new ones along the route to distribute population into regions and cut congestion in major cities. Fast Freight Rail would halve the cost and delivery time of interstate general freight and connect the new cities.
Not to build (HSR)and (FFR) would mean that the populations of Melbourne, Sydney and Brisbane would double and precious liveability would be lost.
The VFT2 concept for the HSR/FFR project is innovative and remarkably robust. It would be private, self- funded and not call on government funds. The risk of failure and government intervention would be minimal. The project would stimulate economic growth and budget repair.
Overall, the VFT2 concept fits the infrastructure criteria and the needs of Australia at this time. It would be a world-leading project that the population would support. It would set up prosperity for the next century.
Since World War 11 Australia has turbo-charged its endeavours by tripling its population. It has become an outstandingly prosperous country, the wealthiest per capita world-wide. It is the most liveable, least unequal nation, and the most successful diverse population in the world. It has not had a real recession for 25 years. It is one of few countries with AAA credit rating. An extraordinarily high quality of life has been established. Now the question is whether to prosper or to decline.
Today population increase is projected to double in the next 4-5 decades, faster than the world average and much faster than developed countries with declining populations. There are signs that Australia is not providing the infrastructure to support it. What should have been spent on infrastructure has been spent on welfare, health and education.
Many people are against population increase. They feel that government will not manage infrastructure to protect their cherished liveability, a strong feeling below the surface. Population increase is a good thing. It underwrites growth and prosperity. It leads to an optimal economic scale of operation for an isolated nation that is more competitive and self-sufficient.
Melbourne is the most liveable city in the world. At 4 million people it is by far the largest of the top 10 most liveable cities. It will start to lose its place as population and congestion grow. Melbourne is projected to grow to 8 million in the next 4-5 decades, the size of London today with a liveability ranking of 53. At present Melbourne and Sydney are larger in area than cities like London and more of its people travel further to work by car as there is less public transport. Congestion in Melbourne and Sydney is high and rising exponentially with population increase. Liveability is being degraded.
The tipping point to rapid loss of liveability is probably sooner than 6 million, if nothing is done. It has been suggested that ‘smart city’ ideas will halt the deterioration. No doubt these are more effective on new greenfield cities than old brownfield. They may have some effect on slowing deterioration of liveability in Melbourne and Sydney, but not enough to rely on them alone. India is building 100 smart greenfield cities in a poor country of heavily congested old cities.
As liveability and prosperity decline the attraction of an Australian competitive advantage to high tech and high aspirational entrepreneur immigrants diminishes. Fewer such migrants reinforce decline.
The tipping point is where the positive effect of population increase on growth and prosperity slows as the negative effect of congestion overtakes it. Population increase itself then becomes a negative for the economy.
At the same time, Australia is caught up in the changes to the developed Western countries. Over millennia city-states, nation-states and empires have bloomed and withered. They grow when they invest and work; they decline when they do not invest and work, and cannot defend themselves from invasion. Their history is rather like that of families where the first generation earns a fortune, the second manages it and the third dissipates it. Today the Western nations are not investing and work is stagnating as under-employment grows. What was not experienced in previous centuries was the increase in welfare in the last 50 years, which has grown beyond the means to pay for it, and unions that have driven up wages beyond productivity improvement, nor was there the added cost of climate change. These have led to more sudden decline. Growth and prosperity are faltering. There is much distress and people are unsettled.
Concurrently, the Chinese have invested and worked. They consider their competitive advantage over the West is “we work”. Their growth has been extraordinary. They are challenging the West.
Australia is not investing as before. It has been suggested that mining investment is down $200b over several past and future years. Non-mining investment could be down similarly, nearing some $400b in total. Government spending of $50b extra on infrastructure is not enough. What is to be inferred when young people are heard to say “Why should I work?” Australia is growing below its potential.
What if the tipping point of Australian liveability and the Western trend to lower prosperity combine? Added to this is the possibility of an external shock, say from China faltering. Australia is in a vulnerable situation at present. It needs major budget repair to sustain it in hard times.
Australia is on a cusp: greater prosperity or decline? It is not evident which way it will go. The authorities seem to be holding their breath, waiting without new decisions about what to do in this precarious position.
The way out is to concentrate deeply on innovation to create massive productivity improvements by large investments that generate jobs and work at all levels which would return Australia to prosperity.
Clearly, fiscal and monetary policy have become ineffective to pull the country out of the doldrums or possible future catastrophe. The best advice is encapsulated by the IMF which is to invest in large infrastructure to stimulate economic growth and create jobs without increasing government debt.
Above average growth for several years for the first time in a decade would make the adjustments needed for budget repair more palatable and less painful. It may kick-start private investment in Australia to more normal, higher levels away from ongoing decline. It would create more work and jobs to reinforce the recovery.
Australia is fortunate; it can do this when few other countries can. There is a very large, practical infrastructure project that fits the situation. It would prevent the effect of population increase on growth turning negative at the tipping point. It would substantially increase innovation and productivity. It would not increase government debt. It is High Speed Rail in Australia.
High Speed Rail
Some people are critical of HSR on the grounds that it is too expensive and has a low cost/benefit ratio; a white elephant. This is not necessarily so. The previous Labor government held an inquiry into HSR which reported in 2013. The cost was too high for a government project and it was deferred. The current government has so far put HSR aside. The VFT2 has developed a highly innovative and prospective concept for HSR in Australia. The critical difference is that no HSR means that Melbourne and Sydney will automatically grow to +8m and lose their liveability and prosperity.
At what cost the absence of HSR in Australia? It must be recognised that policies of no HSR soon would mean the enormous cost of loss of liveability, and consequent destruction of value. There has been no public acknowledgement of this, and no public debate on population increase. It is not too late. There is a viable solution. It is offered as the VFT2 concept.
The 2013 Labor Government report on HSR explicitly stated that HSR would not connect with the major east coast airports. The corridor and tunnels were sub-optimum. HSR would be built in stages, and not completed for 35 years, too late for much provision of population distribution. It was an interstate facility with no discussion of regional population distribution. There was no consideration given to general freight. HSR was a government project. It required large amounts of government debt so it was permanently deferred. All this suited the airline industry.
The 2015 government policy could be described as the ‘airline strategy’. HSR has been deferred indefinitely, and, because Kingsford Smith Airport will run out of capacity as population increases, Badgerys Creek Airport will be built. (It would be unnecessary if HSR were built.) Again, this is an interstate policy with no provision for regional population development, which would, of course, cut the airline interstate market. Little government debt is needed as airlines will provide incremental investment, except for the new airport.
There is a major productivity issue in transport that the Federal Government has committed to address. It is backing the inland rail project. It is a low cost, sub-economic, slow, diesel loco, single freight track between Melbourne and Brisbane by-passing Sydney. It has merit as it will take some interstate trucks off the road. It will connect inland towns and carry mining and agricultural product to the Port of Brisbane and to the east.
Government authorities are tending to shorten population projection periods. This appears to reduce the population increase. They are putting in place infrastructure for smaller numbers now that will become larger later. Population growth may not stop after 50 years. This will block the larger infrastructure necessary for the longer term. There are two critical examples. Skyrail in Melbourne between Melbourne and Dandenong blocks the possibility of HSR from the east. It is intended to serve the 2-300,000 people expected to settle in the outer fringe suburbs 30-40km from the CBD. HSR would serve a new city of 1m around 2-300km into Gippsland in less travel time. In Sydney there is a proposal to build HSR between Central and Wollongong which would block the interstate HSR to Melbourne.
These policies are indicated in Table 1.
Table 1 Comparison of High Speed Rail Concepts
|VFT Concept (2014)||Labor report (2013)||Liberal Government (2015)|
|Completion||10 years||35 years||15 years?|
|New business opportunities||high||low||low|
Maintenance of liveability while doubling of population is the core objective and value creation of HSR. This would be a great benefit to Australia. It can be done by applying the VFT2 concept, though not by the 2013 and 2015 approaches.
The HSR/FFR project would be too large and complex for government. It would be a huge draw on government debt. Damaging major cost and deadline over-runs would be expected. PPP is inappropriate as there would be many governments involved in the same project. Governments tend to select the lowest costs e.g. the 2013 corridor. Private enterprise seeks the greatest customer benefit e.g. the VFT2 east coast route. For these reasons the private railway consortium is proposed.
Potential HSR projects must conform to crucial imperatives to satisfy Australia’s needs. Fundamentally, they must effectively distribute a large proportion of the growing population into the regions, must significantly disrupt the interstate freight distortion between Melbourne, Sydney and Brisbane, and must support budget repair. Other imperatives apply. First, completion must be timely to capture as much population increase as possible before people settle in the major cities and reduce liveability. Second, the business model must be robust and self-sufficient so that the risk of business failure requiring government support is minimised. It must be large enough to significantly stimulate economic growth. Third, it must generate large economic benefits and a high cost/benefit ratio for the Australian people over and above its business profitability. Fourth, it must not draw on any government funds or government debt to protect government finances. Fifth, it must be an iconic project that unites the people behind it in a national commitment.
The VFT2 Concept
The VFT2 concept for the private HSR consortium fully meets all these criteria. There are 3 consortia interested in HSR in Australia. As yet it is not known how they all measure up to these imperatives. The Labor Report of 2013 does not meet them, nor does the present Government position satisfy them.
The overall objective of the private VFT2 concept is to fully satisfy the criteria. The business objectives are based on innovation, creating value (value added), productivity, customer orientation, safety, competitiveness, private value capture and robust business strategy. The ultimate business objective is to be the most value-creating railway in the world, making it the most profitable, robust railway business in the world.
The criteria are critical dimensions for the strategies that are the basis of the business model and the economic benefits as represented by the C/B ratio. Innovation, the value created by it, is the driver of strategy. All must contribute effectively to the overriding objectives of maintaining liveability and prosperity and disrupting transport distortions.
The VFT2 Business Concept
The first VFT2 concept is to apply innovative engineering to limit construction time to 10 years in order to capture the most settlers for regional cities before they decide on major city fringe locations.
The new HSR technology selected is ‘wheel-on-rail’ because it is tried and tested, safe and low cost. It is the equivalent of the 747 compared with the Concorde. The latter proved faster, but uneconomic and so did not progress. There is not time to rely on new untested technology.
The route chosen along the east coast is more customer orientated to where people will want to live and has abundant water supplies compared with water scarcity for cities of 1m on the inland route. It also connects with all major airports. This route has the highest value capture, especially in the major cities, enough to pay for the whole project.
The VFT2 HSR would deliver passengers right into the CBD for greater convenience. As congestion to airports grows, the competitive advantage would grow. Similarly, the CBD would grow around the HSR termini for even greater convenience and more value would be captured.
The HSR Railway Consortium would cut a trench in Sydney, Melbourne and Brisbane next to suburban rail for 30 km into the CBDs to build higher capacity suburban rail in it, remove level-crossings, shift suburban trains onto the new tracks, and then cut a trench under the old tracks for HSR. Housing would be built above the trenches. When sold, revenue from housing would cover the cost of the total HSR project that built the houses. These houses would be built and sold in the middle years of the 10 year construction period. The whole project would be paid for by value capture before it is finished. The value of housing sold would equal the capital cost of the HSR project that created the value.
The calculation is based on construction and sale of 400,000 dwellings in Melbourne, Sydney and Brisbane over 4/5 years, sold at $500,000 each on average or $200b in total. In practice, the sale price may be higher. It could be up to 50% more, and would be a contingency to allow for up to 50% cost over-run on the $200b initial cost estimate of the project.
To distribute more people to the regions, new cities of up to 1m would be built between Melbourne, Sydney and Brisbane above regional HSR stations 2-300 km from CBDs. Regional HSR stations would be the centres around which the new cities would coalesce. The stations would be in trenches to increase value created and captured, instead of cutting the cities in half at ground level.
The aim is to house 10m of the 24m population increase over the next 50 years in the regions. Inner city housing in the major cities would be in addition to regional housing provided in the first decade. This extra supply of housing would make housing more affordable in the east coast market. The authorities may be wise to reinforce this additional supply of housing by promoting the expectation that interest rates may increase and prices decrease in the future so that affordability is re-established.
Regional cities would be started in the construction period. Jobs that would be available in CBDs to new settlers in fringe suburbs of major cities would then be available to the same settlers, who instead move to the new, lower cost regional cities. In other words, the same jobs in CBDs would be available to those living in the new cities. The commuting time from new cities by HSR would be less than from fringe suburbs. Commuters would be subsidised by a small increase in major city land taxes. This would spread the benefit of lower congestion and greater liveability from people in the major cities to the regions. It would ensure the new cities get a good start.
Commuting would start before the interstate HSR project was completed. Commuter patronage would gradually increase as cities are established and grow. It may exceed the total interstate patronage in time. This would more than double patronage in total. Patronage risk would be reduced very significantly. This would mean double revenue as well as patronage. Patronage of the project would be remarkably robust.
Airlines should be attracted to membership of the private Railway Consortium by this large and growing patronage available to their passenger management expertise.
There is a major distortion in east coast interstate general freight. What should be carried by sea is carried by rail; what should be carried by rail is carried by road. High cost interstate road transport has some 90% of the market. This effects the market directly, and indirectly where the major cities are isolated competitively by high freight costs. When this is ended by FFR, competition would increase, productivity improve and prices moderate.
The VFT2 concept for general east coast freight is to build FFR tracks adjacent to HSR tracks at the same time into inter-modal distribution terminals in each capital city including Sydney and serve each regional city along the route. Cost savings would be made by constructing both tracks together. Driverless FFR trains would have dedicated, dual, standard gauge, electrified tracks that would connect with the main standard gauge freight rail system.
FFR would halve the cost and delivery times of freight between the main cities which would stimulate economic growth and international competitiveness.
Maintenance costs of HSR in Australia would be less than in Japan or China because HSR would not have the same high level of capacity utilisation for many decades. World best practice maintenance arrangements would be designed into adjacent HSR and FFR tracks during construction. World best practice maintenance management would be adopted during operations when both HSR and FFR are shut down for 5 hours from midnight every night.
It is valid to regard the FFR project as the single biggest source of productivity improvement in Australia. It would halve interstate cost and delivery times and increase transport competition. It would remove the high cost of interstate road freight that causes capital city competitive isolation and higher cost of output. FFR would reduce the cost of living of consumers of end products. It would serve interstate cities and all new cities on the route via Gippsland.
The VFT2 Concept Benefits
The broad application of innovation gives a remarkably robust project that produces large scale economic benefits for the community.
The VFT2 concept would give a large stimulate to economic growth sooner rather than later. Spending would begin within 2 years as soon as the private feasibility study is completed positively. Resources released by the decline in mining investment would be taken up in constructing the HSR/FFR project
over the 10 years. Many thousands of jobs would be created along the east coast directly and indirectly. Many would be everyday jobs as well as skilled and high technology jobs.
The railway consortium envisaged in the VFT2 concept would be private and self-financing. It would not draw on any government funds. The strong economic stimulus, and no drawing on government budget or debt, would make for early budget repair. The private VFT2 project would save Australia’s AAA rating by improving productivity, lifting competition and stimulating the economy without enormous cost to government debt.
The VFT2 concept would create a large increase in the supply of new housing to correct the lack of housing affordability, especially for first home buyers. In Melbourne, Sydney and Brisbane there would be built many inner-city dwellings. They would be well-located, architect designed, low-rise housing above the tracks where local infrastructure and services are already in place, with access to jobs by public transport, with roof gardens, footpaths and bicycle tracks above connecting to suburban stations and the CBDs at average prices that would be a magnet to buyers.
New, smart, compact, sustainable, rapidly growing cities in the regions of one of the fastest growing countries in the world would be built over HSR stations. They would be less than 60 minutes from CBD jobs by HSR commuter trains (less than many outer suburbs today). The capital cost of the housing would be more affordable than in major cities based on cheap rural land prices and the operating cost of commuter fares as part of the weekly bills would be low: a magnet for new settlers.
The savings on government spending on local infrastructure for housing above the tracks in the inner-city areas instead of fringe suburbs would be transferred to infrastructure for the new cities.
FFR would take virtually all inter-state semi-trailers off the roads and save associated accidents, misery, lives and injuries. It would also save lives by preventing high congestion accidents. Many thousands would be saved each year cumulatively for decades. This would be a huge health cost saving.
Congestion cost savings would be returned to government in the form of higher taxable income.
New cities would redistribute growing school populations from distressed city fringe suburbs to new high growth, attractive areas in these new cities. School funds saved would be focused on high quality teachers for children at the time they first learn to read and write to reduce illiteracy.
The VFT2 concept would cut CO2 production by petroleum based road, rail and air transport. This major reduction would be the result of direct action. Electric HSR/FFR is far more efficient than petroleum energy. There would be a small incremental increase in electricity demand, much less than the incremental increase in renewable electricity supply. Operations of HSR/FFR may be regarded as completely green. They would extend the short 21-day Australian strategic petroleum fuel stocks.
VFT2/HSR/FFR concept would be a strategic insurance in case the control tower of KSA were hacked, damaged, or disabled. It would be available to rapidly move defence personnel and materiel.
Housing would pay for the whole capital cost of the project. Inter-state HSR would be competitive with lower labour and energy costs than air, and very low fixed costs after early payment is completed. It would be very profitable with a high ROI. HSR commuting would be profitable with subsidies and low fixed costs. FFR would be very profitable with a high ROI. Ongoing business of construction and development of new cities would be profitable with good ROI. Taken all together, the private consortium VFT2 concept would be very profitable and have an outstanding ROI. It would be remarkably robust project. It would create a very high C/B ratio.
The impact of the three policies is indicated in Table 2. Proposed concepts for HSR/FFR are summarised in Table 3.
Table 2 Comparison of Three High Speed Rail Scenarios
|VFT Concept (2014)||Labor report (2013)||Liberal Government (2015)|
|Passengers||HSR||HSR||Badgerys Creek Airport|
The VFT2 concept would be an iconic project given the wide public commitment and support for HSR. It would be seen as the action necessary to protect liveability while population doubles. Overall the robust VFT2 concept would be central to on-going prosperity. It should be adopted by proponents of HSR in Australia. The 2013 approach would lead to stagnation, and the 2015 policy to decline.
Table 3 Comparison of High Speed Rail Consortia Models
|VFT Concept (2014)||Private Consortia|
|Time Syd/Mel||3 hours||3 hours|
|New regional population||10m||2m|
|Completion||10 years||30 years?|
The VFT2 concept is a viable component of managing population increase to best effect. It would be profitable in its own right with a huge C/B ratio, all to be confirmed by private feasibility study. Implementation of the concept would require the Government to endorse it, encourage it and cooperate in fast tracking it.
There are potentially three private consortia interested in the project. It is not a whimsical quest; it should be seriously considered. The opportunity cost of not doing it is the road to decline.
The VFT2 concept fits the criteria for a successful future for Australia and the benefits are so great it may be impossible to calculate the C/B with accuracy. HSR would redistribute population to regions with enormous benefit of little destruction of value from loss of liveability in the major cities. FFR would capture value from ending the interstate freight distortion yielding vast productivity improvement. HSR would end the issue of housing affordability by housing people conveniently at low cost in the inner-city suburbs and regions. The private project HSR/FFR project would be very profitable in its own right and would be self-financing within the construction period. The role of the consortium in construction of new cities would be long-term. The VFT2 concept creates many new business opportunities. The business case is remarkably robust. The risk of failure and the need for government rescue is minimal. There would be no call on government funds.
Overall the VFT2 concept fits the criteria and needs of Australia so well for rapid population increase going forward that this outstanding project should be readily adopted with confidence. This private project would be most effectively implemented in close cooperation with government. It is a world-leading, iconic project that would have unity of public commitment and support. It would set up prosperity for the next century, an era of confidence, in which entrepreneurship, art and science would blossom and drive it forward.
Further information is available in the book, Peter J Knight High Speed Rail for Australia-Now, 2015, and on the web-site www.veryfasttrain.com.au where there are more recent notes.