NSW public transport: how a new funding body drew accusations of safety risks and cooking the books

An inquiry into the state government’s transport system has heard of a $10bn budget blowout and claims of ‘professional attacks’ by officials

Sydney’s labyrinthine public transport system combining trains, light rail, metro and buses run by a smattering of private and government operators has made transport asset ownership in New South Wales a complicated and evolving question.

However, the NSW government’s latest attempt to restructure how public transport assets are funded – through the establishment of the Transport Asset Holding Entity (TAHE) – has been labelled “cooking the books on a grand scale”.

A parliamentary inquiry has heard allegations that Treasury officials pressured transport figures and independent assessors who raised concerns about the financial and safety implications of the new body into reevaluating their findings.

Now, the new NSW premier, Dominic Perrottet, has found himself defending his government’s plan to shift $40bn in public assets into an entity that has been called a “financial mirage” by a former NSW auditor general.

What is the Transport Asset Holding Entity (TAHE)?

In 2015, the NSW Coalition government, at the time led by premier Mike Baird, announced the creation of TAHE to manage the state’s transport assets “in a more commercial way”.

Prior to TAHE, rail assets in NSW, such as trains, rail infrastructure and property, were owned by RailCorp – an agency of the NSW department of transport.

While RailCorp initially operated services and maintained assets, in the years before the plan for TAHE was announced, structural changes meant that by 2015, RailCorp was essentially just the holder of rail assets in NSW.

RailCorp made its assets available to train service operators, including publicly-owned operators within the department of transport such as Sydney Trains, as well as to freight and third-party operators.

The NSW government paid RailCorp to manage its rail infrastructure expenses which were classified as recurrent grants in its annual state budgets.

The idea behind TAHE was to transfer the state’s $40bn in rail assets out of departmental ownership and into a state-owned corporation – which is a commercial business still owned by the state government but established to provide critical services.

Sydney Water, WaterNSW, and Essential Energy are other examples of state-owned corporations.

With TAHE as the dedicated asset manager, NSW government funding for future and current rail assets would be classified as “equity injections” into the state-owned corporation, because it was planned that TAHE would ultimately provide a commercial return over time.

Under the new model, TAHE would lease the rail assets, such as heavy rail rolling stock and property, back to the service operators, which would include state government and private operators.

What’s the benefit of the new structure?

By classifying funding for TAHE as “equity injections”, the money the state government spends on rail assets would not have a negative impact on the budget’s bottom line.

The NSW government has been upfront about the budgetary benefits of this new structure.

In its 2015-16 budget – spearheaded by then treasurer Gladys Berejiklian – the government said the establishment of TAHE would have “positive budget result impacts”.

“The establishment of the TAHE from 1 July 2015 improves the budget result by an estimated $1.8bn in 2015-16,” the budget papers stated, with similar annual budget benefits in the forward estimates. “Public transport assets will, in time, be managed on a portfolio basis, generating greater efficiencies and synergies.”

But the establishment of TAHE has triggered accusations that the NSW state government’s intention was to artificially inflate the state budget, with former NSW auditor general Tony Harris labelling the model a “financial mirage” and an “accounting gimmick”.

Why has TAHE been controversial?

TAHE began operating as a state-owned corporation from 1 July 2020, and its early existence coincided with leadership changes and alleged disagreements between the Treasury and the NSW department of transport.

A NSW parliamentary inquiry is currently examining the establishment of TAHE and whether it has a viable business plan, however, there were concerns raised in the years leading up to its conversion from RailCorp that preparations for the new entity had been delayed, as well as concerns for the safety of rail under the new model.

A cabinet in confidence document from 2016, prepared by Treasury and Transport for NSW – an agency of the department of transport – warned of “safety risks if maintenance of metropolitan rail track is separated from operations”.

They were concerned that the splitting of maintenance of rail assets from operations went against recommendations made by inquiries into fatal train accidents in the state in the late 1990s and early 2000s.

Commuters wear face masks at Central Station
The idea behind TAHE was to transfer the state’s $40bn in rail assets out of departmental ownership and into a state-owned corporation. Photograph: Mark Metcalfe/Getty Images

The department of transport had commissioned accounting firm KPMG in May 2020 to set up an operating model for TAHE, but by the time it became operational as a state-owned corporation in July that year, the NSW auditor general, Margaret Crawford, noted that it lacked a finalised operating model and statement of corporate intent.

In November 2020, KPMG released its report, with partner Brendan Lyon warning the budget would be $10bn worse off than Treasury had expected under the TAHE model once it started to charge fees for access to its rail assets. Lyon also found safety risks in letting TAHE begin operating as planned in July 2020.

Days after KPMG’s finding, the transport department’s secretary, Rodd Staples, was dismissed without reason, six weeks after a positive performance review from Berejiklian. Staples was notified by email from the then secretary of the department of premier and cabinet, Tim Reardon.

Through testimony and documents provided to the NSW parliamentary inquiry this month, it has emerged that frustrated Treasury officials pressured Lyon to change his report findings and that after he refused, Treasury told Staples the report had errors and needed to be amended.

Lyon has accused public servants of “professional, ongoing attacks” from Treasury officials over his findings.

Both the parliamentary inquiry and the auditor general are continuing to examine TAHE, with Crawford refusing to sign off on the state’s accounts due to concerns about its operations. Staples is set to appear before the parliamentary inquiry on Monday.

‘Cooking the books on a grand scale’

The NSW opposition leader, Chris Minns, last week characterised TAHE as “cooking the books but on a grand scale”.

“It has been happening for the past seven years and it’s hidden a multitude of sins when it comes to budget management by the NSW government. They’ve been able to say hand on heart here is our budget surplus … [but] they’ve been running deficits for a number of years and they’re now deep in the red as a result of these challenges.”

NSW Greens MP David Shoebridge, who chairs the parliamentary inquiry into TAHE, has voiced concerns about the timing of Staples’ dismissal and a possible clash of priorities between how the department of transport and Treasury view TAHE.

“The coincidence of the timing would raise concerns for any fair-minded and independent observer,” Shoebridge said.

Perrottet served as treasurer from the beginning of 2017 until October this year – during the years TAHE was being prepared as a state-owned corporation.

The premier, when asked by Labor during question time last week why the government continued to pursue TAHE despite the concerns from transport and KPMG, suggested the entity was set up in line with the same standards that saw transport management asset entities established in Victoria and Queensland.

Labor’s shadow treasurer, Daniel Mookhey, has disputed this comparison with entities in other states as a “furphy”, claiming that in Victoria, the state government was only charging private operators to use its railways, as opposed to the TAHE mode.

“It’s the government charging the government and that’s what’s creating the budget impact,” Mookhey said.

Contributor

Elias Visontay

The GuardianTramp

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