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That very silly stadium in Hobart.

The saga of a billion-dollar football stadium encompasses tragedy and farce – and reveals familiar folly at the core of government policy-making.

It is not possible to satirise Tasmanian politics. The reality is more preposterous than anything a satirist could invent. All anyone can do it try to describe it.

Here is a case study. It’s about how the people of Australia’s smallest and poorest state will spend a billion dollars on a football team.

Like many port cities, Hobart used its waterfront for industry. It was ugly, smelly and noisy – and the ugliest, smelliest and noisiest bit of them all was Macquarie Point, a 9.3 hectare peninsula of land jutting out into the Derwent estuary not far from the famous Constitution Dock.

Macquarie Point in the 1950s
There was an abattoir, gasworks, sewage treatment works and the city’s major railway goods depot. But as city waterfront areas around the world were turned from obsolete industrial zones into attractive areas for living, leisure and arts, Hobart’s wharf region was also transformed.

The Salamanca warehouses on the other side of Sullivan’s Cove became restaurants, art galleries and boutique pubs. Another set of warehouses on Hunter Street, abutting Macquarie Point, hosted upmarket hotels and apartments.

The former Labor state government proposed building a new – and much-needed – replacement for the Royal Hobart Hospital on the site. But any development of Macquarie Point had to wait for the rail depot to be transferred to a new transport hub on Hobart’s outskirts. That didn’t open until 2014 and, by then, politics had moved on.

The Liberal opposition didn’t want the money spent on a new hospital, arguing that the existing hospital should be retained. The embattled Labor premier and treasurer, Lara Giddings – who had already run savage slash-and-burn budgets that tipped the state into recession – gave in. The hospital plan was over and by the time the transport hub opened the Liberals were in government, where they remain.

The new government was not interested in spending money on anything much, so this massively valuable piece of waterfront property remained idle. Preparation and remedial work dribbled on for the next decade as plan succeeded plan with no decision being made.

For decades, Tasmania has wanted an Australian Football League team of its own. And for decades, the AFL bosses had refused, saying Tasmania was too small to support a team. But in their push to turn their game into a lucrative national franchise, they awarded licenses to Fremantle, Adelaide, Port Adelaide, the Gold Coast and the western suburbs of Sydney.

Finally the AFL boss, Gillon McLachlan (pictured), said Tasmania could have a licence – but only if it built a brand-new stadium with a roof. The requirement for both the stadium and the all-covering roof went together: no stadium, no roof, no team.

McLachlan ... no stadium, no roof, no team
It was an odd demand. Of the 15 ovals on which AFL matches are played, only one – Docklands in Melbourne – has a roof. It’s retractable, which allows international cricket matches to be played as well as winter football.

Last year a stadium with a retractable roof and a capacity of 27,000 was proposed by the former premier, Peter Gutwein, on a nearby site at Regatta Point at a cost of $750 million. Architects plans were drawn up. But this plan, in the fashion of such things in Tasmania, was short-lived. A few months later the Macquarie Point proposal surfaced instead.

The new idea is for a stadium with a capacity of 23,000 and a fixed plastic roof 40 metres high. This would make it the city’s 18th tallest structure, only two metres shorter than the much-derided Grand Chancellor hotel. The announced cost is $715 million, with $325 from the state government, $240 million from the Commonwealth, $15 million from the AFL and $85 million from land sales and leases.

The Commonwealth’s $240 million is $10 million below the threshold which would require Infrastructure Australia to evaluate the project’s economic case and decide whether it should be a federal government priority for funding. It is highly improbable that this project would have survived such a process: instead, the funding decision was made by the Prime Minister.

COST OR BENEFIT?

The key element of the state government’s business case was a cost-benefit analysis commissioned from a consultancy firm, MI Global Partners, based in Sydney. The bottom line of this report is its benefit-to-cost ratio, or BCR, expressed on three modelled scenarios.

This figure shows whether, according to the model, the benefit to the community outweighs the cost, or whether it’s the other way round. A BCR of 1 means costs and benefits balance each other out. Proceeding with a project with a line-ball result would be risky, given that propensity of costs to blow out. If it’s more than 1, the community benefits; if it’s less than 1, costs outweigh any benefit.

The government’s own analysis shows that, according to the central base case, for every dollar spent on the stadium, Tasmanians would get 50 cents back. The best case is for 73 cents for every dollar; the worst case is for only 35 cents.

Despite this, the analysis looks optimistic.

Filling every seat in a 23,000-seat stadium would take 10% of the population of greater Hobart. But the analysis relies on massively inflated assumptions about average attendances to reach even the seriously gloomy conclusions it has produced.

The analysis assumes that there will be 572,438 attendances every year and that 113,153, or 19.8%, would come from interstate.

The experience at the existing Bellerive Oval – with a capacity of 19,500 that has never been full – is that a Tasmanian team would result in average AFL attendances tripling or quadrupling the 2022 result. That seems unlikely.

Average attendances for AFL matches in Hobart have consistently fallen, in line with a waning interest in Australian Rules football in Tasmania. More games have been played but crowds have halved in the past decade. And the past two seasons have not been affected by the pandemic.

Even the biggest-ever crowd, in 2016, left almost 2,000 seats empty in the existing stadium.

The smallest crowd left 16,500 seats empty. The worst crowds have all been since 2018.

Compare that with the rest of the country. Over the decade, average crowd numbers increased nationally by 20% but fell in Hobart by 51%.

Nor is cricket likely to rescue the project. The Big Bash League has a Tasmanian team, which explains its relatively high numbers – but even the best-attended recent game at Bellerive left 9,000 seats empty. And attendances at World Cup cricket would have to increase by over 500% to meet the assumptions in the government’s analysis.

Cricket Australia has confirmed that international cricket could not be played in a roofed stadium. And at Docklands, with a roof the same height as the one proposed for Hobart, cricket balls sometimes hit the roof when it’s closed.

The analysis calculates that the project’s overall cost would be $1.003 billion over 20 years, or $618 million in today’s dollars, with construction costs of $510 million.

The government’s cost estimate is $715 million, but what this is based on is unclear.

Typically, the ultimate cost of major construction projects is substantially higher than the initial announced estimates. Projects in Western Australia, Queensland, Victoria and New South Wales have blown out by between 20% and 300%. It is unlikely that the Macquarie Point project will be delivered for less than $1 billion, and possibly more. Any increases will have to be met by Tasmanian taxpayers.

 OPPORTUNITY COST

When you spend money on one thing, you can’t spend it on something else. This is opportunity cost at its simplest. Almost every decision forces a choice between two or more possibilities.

Governments never have enough money to satisfy all demands, so it’s important that informed and rational choices are made. Cost-benefit analyses are the key tool for doing that – and opportunity cost is at the very centre. Would doing this mean more benefit to the community than doing that? Or would it be the other way round?

In its guidelines for cost-benefit analyses, the New South Wales government stresses that opportunity costs must be addressed. “Committing resources to an initiative precludes their use elsewhere,” it notes. “The value of these resources in their most attractive alternative use is their opportunity cost.”

The Macquarie Point analysis does not mention opportunity cost.

Not mentioning it doesn’t make it go away. In this case, there are three aspects:

  • Whether transferring existing events to the new stadium will result in an expensive existing facility – Bellerive – being under-utilised or unused. In other words, wasted.
  • What other use could be made of that 9.3 hectares of the best real estate in Australia; and.
  • Whether the money would be more productively used elsewhere.

Most of the events projected for Macquarie Point will be transferred from Bellerive: they can’t be in two places at once. Any improvement in the ratio of benefits to costs will depend either on new events or on existing events to producing far higher revenue as a result of being transferred. Although the state’s investment at Bellerive will represent a sunk and irretrievable cost, there is no analysis – or even acknowledgment – of that.

Macquarie Point, though smaller, is potentially even more significant to Hobart than the Barangaroo harbourside development is to Sydney. Unlike Barangaroo (pictured), commercial pressures to overdevelop the site would be less intense and easier to control.

Commercial residential and hotel development, together with leisure facilities, cafes and restaurants, and open parkland, would improve community amenity and provide a very large financial gain for the government. But it’s incompatible with a stadium.

Even more significantly, a billion dollars of public money could be used to address two of the most pressing shortfalls in Tasmania’s public infrastructure: hospitals and housing.

In March 2019, the government unveiled its masterplan for the urgently needed redevelopment of the Royal Hobart Hospital. The centrepiece was to be a second campus at the former Repatriation Hospital that would relieve crippling bed shortages. In the four years since, there is still no sign of that promise being kept.

The scandal-ridden Launceston General Hospital is Australia’s most overstretched public hospital. Nowhere else comes even close. The LGH masterplan was released in October 2021, promising a major redevelopment of the site centred around new high-rise buildings. Again, there is no indication of when, or if, these will appear.

At both hospitals, new building and refurbishment has failed to make up for increasing demand. Waiting lists continue to lengthen. In Hobart, sick children have to wait for six years to have their diseased tonsils removed. Launceston has the worst bed-block in the country: people kept in the emergency department for too long because all the beds on specialist wards are full. Bed block increases someone’s existing risk of death by about 30%.

Homelessness has sharply increased in Tasmania as demand for affordable accommodation exceeds supply. Data from the past four census periods show what has happened in just 15 years:

Children are disproportionately affected by the inadequacy of housing supply, and particularly of social housing. The number of homeless children below 18 years old has doubled over the period:

It affects young children as well as teens.

 The supply of supported accommodation has declined since the present Liberal government came to power in 2014. There are more people sleeping rough and fewer in supported accommodation:

The figures show how the government has neglected social housing. in just eight years, the supply of new accommodation declined by 61%.

As we’ve seen, the government’s own cost-benefit analysis shows the stadium would return 50 cents for every dollar invested – that is, a benefit-to-cost ratio (BCR) of 0.5. As we have also seen, the real situation is greatly worse.

Typically, investment in health and housing provides a benefit-cost ratio over two and sometimes even better. All the examples in this table are for recent Australian initiatives.

When the need for new facilities is acute, BCR results are typically much higher. In Tasmania, hospital and housing infrastructure is so critically inadequate that we can reasonably expect BCRs to be substantially higher than those listed here.

ALBANESE’S DISAPPEARING DOLLARS

The federal government is giving Tasmania $240 million for its Macquarie Point stadium in Hobart. Or is it?

When it’s all worked out, Tasmania will not be better off by $240 million than it otherwise would be. In fact, that $240 million will shrink to only $4.8 million.

Apart from the $15 million promised by the AFL, and any money that can be raised from the private sector, the entire cost of this stadium will have to come out of the state budget.

It’s complicated, which is why both governments have been able to sell their highly questionable story. So let’s explain.

Because the federal government has most of the revenue-raising powers, and the states are responsible for most service delivery, the Commonwealth has for over a century topped up state budgets.

There are two broad categories of Commonwealth payments:

  • General purpose grants. That’s the GST. State governments can use this money any way they like
  • Specific-purpose grants, which Canberra uses to fund schools, hospitals, roads and so on. The stadium money is in this category.

The snag is that specific-purpose grants have to be made according to each state’s population share. That’s a stipulation of the Intergovernmental Agreement on Federal Financial Relations. Most people haven’t heard of it but, after the constitution, this is the second most important defining document of the federation.

No matter what specific-purpose payments are made, they all have to end up the same. Tasmania has two per cent of the population, so ours can’t exceed two per cent of all grants.

In any one year, the distribution is never precise. Some states end up with more than others, so the job of sorting it all out is given to the Commonwealth Grants Commission, which oversees the GST. They add up all the relevant payments and then adjust each state’s GST share so everyone ends up even.

The Prime Minister and the Premier
If the whole $240 million was paid this year, there’d be a lag of a year for the figures to come in and for the Commission to work it all out. Then our GST would be adjusted down by $78.4 million for each the three years following – in this hypothetical case, 2025 to 2027.

In theory, a state could get no specific-purpose funding at all and still, after four years, end up no worse off. There are exceptions to the rule but none seem likely to apply to the Macquarie Point stadium.

Money coming into a state for the federal government’s own projects isn’t subject to the evening-up process. Nor is any cash going straight to local councils. Funding for various big program items isn’t included either. For instance, the system of activity-based hospital funding wouldn’t work if it was included.

It would be theoretically possible for the Treasurer, Jim Chalmers to bend the rules for the stadium – but why should he? And the Tasmanian government is in no position to insist.

Under questioning from Labor, the Premier, Jeremy Rockliff, and the Treasurer, Michael Ferguson, both said Mr Chalmers will be asked to exempt this deal from redistribution. But usually, when exemptions are made, they form part of the negotiations. Trying to get one after a deal has been agreed is unlikely to be successful.

Cost blowouts are almost inevitable. Whatever they are, Canberra won’t be paying for those either. Tasmanians will.


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