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High-speed rail has the potential to transform a country by slashing commute times and emissions. But it ain’t cheap. After decades of debate the Albanese government established a High-Speed Rail Authority in 2022 and committed to a $500 million plan for a high-speed rail corridor between Sydney and Newcastle. The dream is for a network to connect regional communities, Sydney, Melbourne, Brisbane and Canberra. But could Australia actually have high-speed rail?
Making the negative case in today’s Friday Fight is economist Jason Murphy and arguing in the affirmative is journalist and critic Megan Clement.
Let’s admit at the outset that high-speed rail is awesome.
I have felt pure joy on a TGV. I went to Japan to go on a Shinkansen. I freaking love going on high-speed rail. But I can also use my rational brain. And my rational brain says Australia can’t make it work.
Firstly, the money problems.
Imagine you run a café. I offer to sell you a machine that saves you $2 worth of coffee beans a day. The machine costs $50,000. Would you buy it?
I offer a fuel-saving device for your car. It saves you $10 a week and costs $100,000. Do you want it?
I can sell you a new fridge that will keep your leftovers fresh longer, saving you $100 a year in groceries. It costs $28,000. Would you like one?
I’m trying to prime the idea that even when benefits are real, and genuinely beneficial for the environment, they can cost too much.
The problem with high-speed rail is really, really simple. It costs too much for the amount of benefit.
The amount of carbon that will be abated by high-speed rail is small. Domestic aviation is a small issue for our carbon emissions compared to road transport, and high-speed rail doesn’t reduce road transport much (nor does it reduce international aviation).
Part of the impediment to grasping the downside of high-speed rail is the challenge of very large numbers. Once we get over $100 million, they all just look big. But $100 billion is actually kind of… a lot?
Economists love opportunity cost. The opportunity cost of spending $100 billion is safely measured by the annual cost of borrowing that sum (because we could get another $100 billion by borrowing it). So how do the benefits of high-speed rail stack up compared to the opportunity cost?
Let’s look at it on a per-passenger basis:
- The Melbourne-Sydney air route carries eight million passengers a year. Call it 22,000 a day.
- Brisbane-Sydney carries 4.3 million passengers.
- Canberra-Melbourne is a million.
- Canberra-Sydney: 600,000 passengers a year.
We will round up and say demand for air travel on these routes is 40,000 a day total at the moment.
So let’s begin with the cost:
- The interest cost on $100 billion is $5 billion.
- Assume 40,000 high-speed rail passengers a day (you’d never capture 100% of air passengers but of course, the population is growing, and some passengers would come from regional towns along the way).
- Interest cost per day is about $13.5 million.
- Need to make $337 in profit off each passenger just to cover the interest cost of the build.
So a fair floor for the ticket price would be $337, just to recoup the infrastructure investment. What’s not covered: running the trains, running the stations, track maintenance and paying back the original $100 billion.
This is a lot, right? Either the tickets cost more than $337 each way or it is a subsidy of $337 from the government to the kind of people who travel Sydney-Melbourne. That seems a lot. Maybe they should just have their meetings on Microsoft Teams instead.
Sure, there’s no iron-clad need for us to recover the benefit of public spending. We can (and do!) make whimsical, politically-motivated investments that have benefits far below their cost.
But spending money for low benefit is wasteful. Waste is how societies end up with children whose lives are worse than their parents. We can afford a bit of pork-barrelling at the edges but doing it at a $100 billion scale is pretty risky.
If we make high-speed rail users contribute to its cost, the cost of tickets will be really, really high. Nobody will use it.
Right, so what if we let taxpayers pay for the upfront costs so passengers just pay the variable costs, the cost of wear and tear on trains and electricity and staffing at stations?
The risk is that if a system isn’t paying for its own infrastructure, it gets run down.
I can see the doom loop already. The track needs fixing, but it will cost $10 billion. The government delays the spend, trains have to do part of the trip at half-speed, people give up and start flying.
And government is likely to be subsidising even the variable costs of operating, not just the upfront cost of building, according to the Bureau of Infrastructure, Transport and Regional Economics.
“The high upfront cost of dedicated high-speed rail means it characteristically requires government support for construction and, in all but the most favourable circumstances, ongoing government financial support.” (Emphasis added.)
If government has to subsidise operations too, it’s going to be tempted to cut services.
DING! DING! DING! CRIKEY EDITORS DECLARE MURPHY HAS OFFICIALLY PASSED HIS ALLOCATED WORD COUNT
Suddenly the high-speed rail doesn’t take 2h 44min to get to Sydney, it takes 3h 44m. And frequency is inconvenient. Services are hourly at peak, less often in the day and at night. Most people say screw it and fly. There are calls for more taxes on air travel to even the playing field, but they are very unpopular with the public.
It becomes an extremely expensive white elephant.
The Melbourne-Sydney trip is estimated to take 2 hours 44 minutes, which isn’t even that quick. And that’s express. But if you think you’ll be on an express train that doesn’t stop along the way, I suggest you haven’t been paying any attention to the way Nationals MPs work. Australia’s parliamentary system is designed to make sure the regions are dragged along.
$100 billion is the introductory price.
I’ve been using $100 billion as the price-tag in this article as that was in the range estimated by the 2011 study. The 2012 study said $114 billion. You may have noticed we’ve had some inflation since then. Big infrastructure projects are hard. The NBN is a great example. If it can be finished for under $500 billion it’ll be a miracle.
We would be so much better off decarbonising our electricity sector immediately.
Read the opposing argument by Megan Clement.