"Private toll roads would not be financially viable without the huge government subsidies."
October 13, 2005
By Michael West
TAXPAYERS are subsidising the nation's biggest toll roads through billions of dollars of tax breaks to wealthy private investors in the projects.
The private toll roads would not be financially viable without the huge government subsidies, despite most being built on the premise they could be profitable on the basis of tolls alone, according to leading traffic expert John Goldberg.
Dr Goldberg says private toll roads in Sydney and Melbourne are critically dependent on government support through infrastructure bonds issued under the Howard Government's Infrastructure Borrowings Tax Offset Scheme.
"It is not the vehicle counts and the tolls alone which drives the share price (of the operators)," he says in a report released late last month.
"It is the additional interest revenue from the IBTOS and the increased borrowing."
Dr Goldberg says projects such as Melbourne's City Link and Sydney's M2 toll road would not be commercially viable without government subsidies.
Interest revenues from I-Bonds accounted for 35 per cent and 40per cent respectively of the income of the M2 and City Link projects, he says.
City Link, the nation's biggest toll road project, has $1.25 billion in capital support from I-Bonds, and the M2 gets an estimated $300million. Investors, in return for putting money into the infrastructure projects, get big tax breaks that reduce their tax bills from the top rate of 47 per cent, and return an estimated 17 per cent on the investment.
In effect, the I-bonds allow infrastructure operators such as Transurban, which runs the City Link route, and Macquarie Bank, which controlled the M2 before Transurban took it over earlier this year, to transfer their projects' tax losses to wealthy private investors.
The Government has announced it is phasing out the I-Bond scheme, but the billions of bonds still on issue continue to underwrite the toll roads.
Given the dependence on public funds, the operators are pressing for further assistance through tax schemes, sources said.
In NSW, the government under former premier Bob Carr subsidised the Macquarie Bank-operated M4 and M5 motorways by paying motorists a so-called "shadow toll" called "cash-back" through which motorists can claim back E-toll payments.
The NSW Government has also accepted up-front payments of $406.5 million from the private operators of the Cross City Tunnel, the Lane Cove Tunnel and the Westlink M7.
The shadow tolls on the M4 and M5, confirmed by NSW Roads Minister Joe Tripodi, mean that all taxpayers, and not just road users, cover the cost of major toll road projects.
The state Government will pay $83 million in support for the two toll roads this year. Since their inception in 1996, the Carr government has forked out $493million in subsidies on the M4 and the M5.
However, the Iemma Government has made it clear it would not bail out the consortium operating the recently completed Cross City Tunnel.
Copyright 2005 News Limited.