Congratulations on killing the Commonwealth Games, now take the axe to the Rail Loop

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You’re cancelled! Sorry, Victoria, but the 2026 Commonwealth Games are going to have to be held somewhere else.

While the announcement from Victorian Premier Daniel Andrews has sparked disappointment and outrage for some, for others, it’s created a sense of relief that perhaps, this time, the grown-ups are in charge.

Tuesday’s announcement seemed to come out of nowhere. Less than 18 months on from announcing regional Victoria would host the 2026 Games in Geelong, Bendigo, Ballarat, Gippsland, and Shepparton at a cost of $2.6 billion, Andrews said he is pulling the plug because the cost of transport and infrastructure has blown out to as much as $7 billion without any corresponding increase in benefits for the regions.

Cost overruns on international sporting events are entirely normal. All Olympics, without exceptions, have cost overruns, and the average cost overrun is higher for Olympics than for any other type of megaproject. One of the biggest reasons for this is that it’s so hard to back out (the only city ever to reverse its decision to host was Denver in 1972) and almost impossible to delay the start date. This is how a government gets stuck and ends up throwing good money after bad.

The premier’s decision is difficult, but in cancelling the Games, he hasn’t fallen into this trap. His reasons are sound; the benefits to the community just aren’t big enough to justify the costs. At the end of the day, this should always be the criterion for assessing whether a project or an investment is worthwhile.

Of course, the Games would have benefited athletes, sports fans, regional host cities, and businesses – but not enough to justify a price tag of $7 billion-plus.

All too often, projects that fail on the criterion of net benefits to the community are still funded by taxpayers. The West Gate Tunnel, for instance, was agreed with an expected benefit of $1.10 for every dollar spent – but that was back when the project was only going to cost $5.5 billion, not the $7.4 billion taxpayers are now up for. The Inland Rail freight line from Melbourne to Brisbane is another case in point; it, too, was expected to yield $1.10 in benefits for every dollar spent, back when the cost was expected to be $9.9 billion. Now the costs have blown out to a figure of at least $31 billion, but the benefits have not.

On Tuesday, Victorian Premier Daniel Andrews announced he was cancelling the 2026 Commonwealth Games, slated to be held across Victoria. Credit: AAP

Last June, we saw the NSW government announce that it was indefinitely delaying three megaprojects on the advice of its independent advisory body, Infrastructure NSW. Then, in May this year, Victoria put two of its megaprojects on ice – the Airport Rail Link and Geelong Fast Rail. Around the same time, the federal Infrastructure Minister Catherine King announced a snap review of the entire 10-year, $120 billion federally funded pipeline.

Back in 2014, the East West Link was cancelled because the benefits weren’t enough to justify the costs, and the Commonwealth Games have been cancelled for the same reason. By the same logic, the Parliamentary Budget Office estimates the Suburban Rail Loop will yield 60-70 cents for every dollar spent, while the auditor general’s office puts it at even less – just 51 cents. Surely, if we’re cancelling projects based on being worthwhile, this should be next on the chopping block.

These decisions to delay or mothball major projects come against a backdrop of mounting public debt and capacity constraints in the construction industry. Victoria’s debt is expected to exceed $160 billion by the time the Games would have been held – far more than any other state or territory’s. The engineering construction industry has been facing soaring demand for skilled workers and key materials for several years now, to the point where it’s nominating hyper-escalation of construction costs as the biggest challenge the industry faces. With so much competition for scarce resources, now is a particularly expensive time to build.

Critics of the Premier’s decision – and there are plenty – are calling the cancellation a humiliation, a betrayal, a fiasco. But other premiers were also quick to rule out a rescue job, with WA labelling it “ruinously expensive”, NSW claiming the Games are “not a priority”, and South Australia being even more to the point, declaring, “costs would outweigh economic benefit”.

If and when you find yourself in a hole, it is surely better to stop digging than to carry on in denial. Now, the next step is to subject the whole infrastructure agenda to the same hard-headed discipline.

Marion Terrill is director of the Transport and Cities program at Grattan Institute.

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