There’s a disquieting flippancy about the Government’s reactions to criticisms of the economics of its Macquarie Point stadium plan. From labelling opponents as negative to suggesting they are blind to many of the benefits, there’s a constant theme that it’s just a subjective quibble about a few numbers.
But it’s much more than that.
It’s a crucial matter of how we measure and rank projects and prioritise spending in our fiscally constrained world.
The Government is quite happy to trash existing peer accepted Infrastructure Australia (IA)’s guidelines to get its way. It’s a scary place to be.
Bold or reckless? That’s the question.
One of the reasons for the current fiscal hole Tasmania now finds itself in is the complete lack of regard by the Government for setting, monitoring and achieving fiscal targets.
The establishment of targets has been done but the government didn’t bother specifying how the targets would be achieved, and when the government found these targets to be heading off course, which most of them were, they took no remedial action.
The result as we all saw a few months ago was a Pre-Election Financial Outlook (PEFO) Report, a Treasury report prepared independently of the government, which revealed the State heading toward disaster with the odds of a sensible path to surplus as promulgated by the Premier, a mathematical impossibility.
The majority of the targets are reasonable and sound – if they were being achieved. One of the eleven targets, target number nine, related to a framework for assessing large infrastructure projects of more than $50 million undertaken by government businesses (GBEs and State Owned Corporations SOCs). The target was” to have a positive Net Present Value and/or positive Benefit Cost Ratio calculated as part of a Cost Benefit Analysis.”
However, that must have been a typo. It’s not ‘and/or’. It should be just ‘or’. The ratio must be greater than one not merely positive. A positive benefit cost ratio is hardly a worthy goal. If it was negative that would indicate negative benefits. The ratio has to be greater than one, benefits need to exceed costs, not simply be positive.
The strategic target first appeared in the 23/24 budget with the following comment:
“Work on the development of this framework will commence in 2023-24.”
That was in May 2023.
A year later in the 24/25 Budget the comment was:
“Work on the development of this framework is continuing and will be included in the 2025-26 Budget.”
But then in this year’s ill-fated 25/26 budget which ended up being binned in June 2025 this appeared:
“Measurement on this action will commence in 2025-26.” (my emphasis)
This is the framework which would have been used to measure the worthiness of the stadium. The Government gave no priority to developing the measure. They even misled us about doing so. They knew the stadium was going to struggle to satisfy any rigorous benefit cost analysis and they didn’t bother developing a measure.
When Nicholas Gruen produced his report on the stadium at the insistence of, and part of the deal with, the Lambies, based on Infrastructure Australia’s guidelines the government dismissed his findings and even tried to undermine his professionalism with a few snide comments. It wasn’t an edifying moment.
Infrastructure Australia has established rigorous guidelines for the appraisal of major infrastructure projects, ensuring that investment decisions are grounded in best-practice economic analysis. The government planned to develop a measure in accordance with the IA framework but failed to do so.
The public debate continued but there were no rules. The State government spouted as much nonsenses as anyone else, unrestrained by any guidelines because they’d conveniently failed to develop any.
Coordinator General (CG) John Perry was sufficiently disturbed by “the claims and counter claims, questionable inclusions and startling omissions with respect to the Tasmanian AFL club, Macquarie Point precinct and the economic impacts” that he decided to offer a simplified analysis.
The Coordinator General’s first task to educate and allay concerns should have been to set out what a CBA is intended to achieve, what’s wrong with the current debate, and how his analysis will address the shortcomings. He fails to do this, instead serving up claims of his own leaving readers with no means to compare the offerings.
It’s not as if the government has abandoned the IA framework as it still makes other submissions to IA using the guidelines. Even with shortcomings of any cost benefit study the IA framework still provides a framework to compare alternatives.
A fundamental principle in IA’s framework is the use of a transparent base case, often termed the “do-minimum” scenario. This base case serves as a reference point, allowing for the incremental costs and benefits of a proposed project to be measured accurately. In the CG’s analysis, there is a notable absence of a clearly defined base case for Macquarie Point without the inclusion of a stadium. Additionally, alternative options, such as the development of an alternative site or precinct renewal without a stadium, are not sufficiently explored or presented.
Coordinator General didn’t set out a base case. This omission is critical, as Infrastructure Australia expects all major options to be assessed against a consistent baseline.
IA requires that a cost-benefit analysis (CBA) be conducted, presenting results at multiple discount rates and comparing the proposed project to the base case and at least one credible alternative. While computable general equilibrium (CGE) models can provide insight into distributional and macroeconomic effects, and input–output (I-O) models may illustrate short-term activity in regions with slack labour markets, these methods are not substitutes for CBA. The CG relied heavily on a I-O model suggesting he was more interested in measuring economic activity and not societal benefits. To emphasis this point consider whether poker machines create economic activity. To which the answer is YES. Do they create overall benefits? The answer is emphatically NO.
The Coordinator General has relied on supplementary models in a manner not endorsed by Infrastructure Australia. Economic activity should not be conflated with increased societal benefits.
Another methodological flaw in CG’s appraisal is the aggregation of “economic activity” impacts derived from input–output multipliers with other effects and then comparing this total to the financing outlay. IA’s guidance is explicit: the primary test for project justification is the welfare-based CBA, with I-O analysis being limited and prone to overstatement. CGE analysis may be used as a supplement but must not be combined additively with CBA. Perry’s reporting of a single “$4.97 per $1” ratio conflates different economic concepts, thereby distorting the true value of the project.
Aggregating the results from various models is taboo. The sum of various measures of economic activity from difference sources looking at the same problem gives a distorted view. It is not a measure of overall benefits.
Best practice dictates that financial analysis – encompassing cashflows, affordability, and financing strategies – should remain analytically distinct from economic appraisal, which is focused on welfare impacts. It is inappropriate to equate measures of “economic activity” or “return on investment” (ROI) with welfare gain. The CG has a financial analyst’s background where narrower ROI measures are the norm rather than broader CBA measures used for large government infrastructure projects. In this instance the CG has gone a stage further considering only the interest costs of the required loan. Most ROI calculations include depreciation of the asset which provides cash for repayment of loan principle over the asset’s life.
Best practice should distinguish the economic analysis of a project – the costs and the benefits – from the financial analysis – how the project is financed. The Coordinator General blurs the two.
Proper appraisal methodologies require that resource (opportunity) costs, valued in real terms, are used in the analysis rather than the project’s financing profile.
Comparing “annual interest” payments to measures of “economic activity” does not constitute a valid CBA and misrepresents the project’s economic rationale.
IA’s guidelines emphasise the inclusion of all lifecycle costs – capital expenditure, operations and maintenance, renewals – discounted at standard real rates (typically 4, 7 and 10 per cent). Appraisals must account for the entire life of the asset, including ongoing operational costs, asset renewal, and terminal value. Additionally, sensitivity analyses for variables such as demand, pricing, cost overruns are required.
The Coordinator General’s appraisal does not incorporate all life cycle costs or sensitivity analysis for demand, prices and cost overruns, contrary to Infrastructure Australia’s guidelines.
A compliant CBA must assume a realistic asset life – stadiums typically require major renewal or replacement after 25–30 years – and include the depreciation or provision for renewal, as well as terminal (residual) value.
The Coordinator General’s omission of the stadium’s life and its residual value results in an upward bias in the reported benefits.
The ability of the State to service debt hinges on captured revenues such as taxes, rates, charges, and operating surpluses, rather than on gross measures of “economic activity”. Current Tasmanian fiscal advice, including Pre-Election Financial Outlook (PEFO) coverage and concerns raised by the Tasmanian Planning Commission (TPC), highlights that debt servicing costs are rising faster than revenue. This important context is absent from CG’s analysis, leading to a misleading representation of fiscal sustainability.
Currently the State government is on an unsustainable trajectory where servicing existing debt requires more borrowings. It is remiss for the Coordinator General to gloss over this reality.
The CG’s analysis nets the full $240 million Commonwealth grant against the stadium’s cost. However, this grant is intended for the broader renewal of the precinct, not solely the stadium itself which will require more borrowings. The amount the State must borrow for and should be accurately reflected in the appraisal.
It is misleading to attribute the full $240 million in Commonwealth funds against the cost of the stadium.
There is a risk of double-counting when both visitor spending and hotel output are included as separate benefits, as these may overlap. While CG acknowledges the need for adjustments, formal CBAs would explicitly avoid such double-counting and incorporate sensitivity tests to demonstrate the robustness of the results.
When aggregating benefits from various sources it is difficult to avoid double counting. It is not sufficient to acknowledge the difficulty without outlining the steps taken to lessen the impacts.
In its 2023/24 Budget delivered in May 2023 the government committed to developing a cost benefit measure in line with IA’s guidelines. It has failed to do so. The Coordinator General’s appraisal of the Macquarie Point proposal exhibits several methodological flaws when judged against IA’s best-practice guidance. Accurate and transparent economic appraisals are essential for informed decision-making, and adherence to IA’s standards ensures that investment in public infrastructure delivers genuine welfare benefits to the community.