Investment in local government roads in Tasmania

1.1 Introduction Since 1945, expenditure on roads has constituted the largest form of capital works expenditure in Australia. In 1980/81 road expenditure exceeded $2.1 billion, equivalent to about twenty five per cent of total capital expenditure by all public authorities. Expenditure on roads was far in excess of capital spending in such areas as education, health, or power. Expenditure on local roads in Australia in 1980/81 amounted to $347 million. Until the mid 1960's there was little attention paid to the economic efficiency of this substantial investment. While Commonwealth monies for the road system were allocated on a number of different bases, none were predicated on a desire to ensure efficient allocation of resources. Following the establishment of the Commonwealth Bureau of Roads (C.B.R.) a more conscious attempt was made to impose a measure of economic rationality into expenditure on roads. The C.B.R. were charged with advising the Commonwealth Government on the appropriate level of road investment consistent with the overall national interest. The reports of the C.B.R. and its successor, the Bureau of Transport Economics (BTE), have provided successive Commonwealth Governments with a basis upon which to allocate monies for expenditure on roads in Australia to this day. A consistent feature of the pattern of expenditure on roads has been that local road expenditure has been at a level that is higher than that iustified by normative economic analyses using C.R.R. This dissertation will investigate the levels of expenditure on local roads and attempt to draw some conclusions on the way monies are allocated to this category of road by both State and Commonwealth Governments and also of the demand for local roads by the ratepayers of the municipalities. The quantitative part of the investigation will be confined to Tasmania's local roads. In part, this is to make the problem more tractable, but it also allows the Author to use information supplied by the Department of Main Roads to assist in overcoming particular local anomalies. 1.2 Aim of this Dissertation The economic analysis of the CBR relied on a cost benefit analysis. A large scale survey of the Australian road network was undertaken to . determine physical deficiencies in the road system. Some 80,000 road construction projects were identified as being necessary for the improvement of the system and some 50,000 of these were subjected to economic analysis. While the emphasis of these studies conducted. in 1968, 1973, 1975 and 1979 were normative, there has been little examination of the behaviour of States and local government on a positive basis, that is, examining what they do rather than what they ought to do. One of the limitations of cost benefit analysis is the acceptance (at least in its normal application) of the income distribution and the lack of evaluation of the distributive effects of the benefits. Clearly, the large capital expenditures on roadworks have the potential to have significant distributive effects and this is likely to be an influential factor in the distribution of road funds. The aim of this dissertation is to investigate the demand for local government roads. There are a number of difficulties involved in this investigation and these are common to measuring the demand for other outputs of government. Conventional demand theory estimates the demand for a good using a readily definable output measure in terms of relevant economic variables such as the price of the goods and income of the purchaser. The most difficult problem in measuring the demand for local government roads Is that there is no readily defined market in which consumers may purchase the output of government roads. Accordingly, an attempt will be made to estimate the demand for local roads by the ratepayers of that municipality through a model of the political process. The model must take into account the effect on the local government electorate of the intergovernment grants which are made to assist the municipality. These grants will have the effect of expanding output beyond the level which the electorate would demand if it were the sole source of funding. It is hoped that the model that will be developed will provide an estimate of the demand for local roads in terms of the cost of their provision. The author has been unable to find any work on this topic undertaken in Australia using this form of model. Further, the model itself breaks new ground in one aspect of its development in providing a means of combining the different forms of grant provided by State and Commonwealth Government.