Valuing the real impacts of rail
Making a compelling business case
While we have an unprecedented pipeline of rail investment in Australia, it can still be difficult to justify rail investment on economic grounds through the Government business case process.
In this bulletin we explore why this problem arises and consider a broader economic narrative that should underpin most urban heavy rail investment. The bulletin also outlines the importance of carrying forward a base case from the planning phase to post-completion evaluation in order to robustly observe the marginal impact of a rail project and strengthen the evidence base.
A previous bulletin on Value Capture looked at addressing the broader infrastructure needs and aspirations of Australia through alternative methods of funding.
Why it’s hard to justify rail projects
Rail investment is hard to justify. It requires a large upfront payment in order to create an uncertain, long-term benefit stream. However, the current investment approval process doesn’t do itself any favours. The key economic tool deployed to ascertain the economic merit of a potential public sector investment is a Cost-Benefit Analysis (CBA). As the name suggests, this analysis compares the benefits associated with a potential investment to the cost of the investment. The key issue for rail is that the benefits side of the equation focuses on the direct impacts of the rail journey itself with relatively little emphasis given to the flow on economic benefits catalysed by a rail trip.
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