Charles Gutjahr

Melbourne, Australia

Cancelling bad projects is good policy

11 Sep 2014 — a 3 minute read on politics

I am very glad to see the Victorian Labor leader Daniel Andrews say today that he will stop the East West Link project, and would not honour contracts signed before the election (albeit with qualifications — Labor's rejection of the project is nowhere near as absolute as the more cogent Green policy). But he did say the words "We are not building this project", and that's pretty strong.

We need more governments to have the guts to dump bad projects.

If they don't, we end up with more fiascos like Myki: a project that was meant to cost $494 million but ended up costing over $1.5 billion. It was known to be in trouble for a long time, and there were several opportunities where the government could have said no, let's stop Myki and try again.

Take for instance when Kamco asked for more money to build Myki in December 2007. Our government had only committed to spending $500m at that point; if they'd cut their losses then and stopped the project the most we could have lost is $500m. Even if they paid out Kamco all $500m and got nothing in return, the $1000m they would have saved could easily have paid for a completely new ticketing system to be built by another company — probably with a few hundred million dollars spare change left over. With the benefit of hindsight we know that saying 'yes' to paying Kamco more was a bad decision.

The East West Link project is at a critical point where we can benefit by saying no. There is growing evidence that the East West Link is a dud project:

If we cancel it now, that money can be spent on something better. There are several transport projects proposed for Melbourne which have better expected cost-benefits ratios, higher priority on NICS, and more support from the people who will use it.

Cancelling a bad project doesn't necessarily mean wasting money. Sure, the money already spent is wasted; but the money not spent can be put to better use that makes up for that. For a dud project like East West Link, where the price is high, the benefits are low and we're still in early days, we should expect more than just break-even.

We should expect a real windfall by cancelling.

© 2023 Charles Gutjahr