What do Suburban Rail Loop, Inland Rail, and East Coast High Speed Rail have in common? A lenient discount rate that helps them appear to stack up on economic grounds.
What do Suburban Rail Loop, Inland Rail, and East Coast High Speed Rail have in common? Yes, they’re all rail; yes, they’re all massive; but what’s really distinctive is that all three have business cases assessed with a lenient 4 per cent discount rate rather than the standard 7 per cent.don’t do a great job of setting discount rates, it’s also true that cherry-picking favourable rates for particular projects just makes the situation worse. What’s needed is a total overhaul.
The type of risk that matters for discounting is the sensitivity of a project’s expected returns to the economy generally – the systematic risk. Most government transport infrastructure is still used whether the economy is booming or in the doldrums, because most people keep on travelling to work or school, and buying transported goods. Using a single discount rate for government transport investments may not be perfect, but it is simple, transparent, and difficult to manipulate.
East Coast High Speed Rail is a signature project of federal Labor, pursued when in office in 2013 andwith the creation of a High Speed Rail Authority and $500 million to kickstart the project.
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