Article: Auditor questions $820m in rail grants

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Auditor questions $820m in rail grants

Auditor questions $820m in rail grants

Mark Davis Political Correspondent
February 19, 2008


THE former prime minister John Howard approved $820 million in "no strings attached" railway grants in a series of last-minute decisions designed to run down the Federal Government's budget surplus, says the Auditor-General.

An audit of three special grants approved by Mr Howard for the Australian Rail Track Corporation between 2004 and 2006 found they were structured to help the government-owned corporation minimise its tax liabilities. The Australian National Audit Office report also said the funds were handed over to the corporation years before it was ready to start work on railway construction projects, costing taxpayers $141 million in forgone interest.

The office also said the Transport Department had reported in 2004 that the first $450 million grant had "fully achieved" a three-hour reduction in Sydney-to-Brisbane rail transit times even though none of the money had been spent at that stage.

In the end this first $450 million grant was allocated to several different projects to those approved by Mr Howard.

The office suggested the former prime minister had authorised the $450 million despite inadequate analysis of the financial and operational merits of the projects originally chosen, which were for rail realignments in northern NSW.

The report comes after the Auditor-General found last year that the former government skewed regional partnerships grants to Coalition-held electorates. The latest report on grant spending examines three special payments made in 2004, 2005 and 2006 to the corporation. Each payment was made in the last week of the relevant financial year.

The office report showed that late in these financial years the government had asked Treasury and the Finance Department to come up with ways of making payments before the end of June. This was to reduce the budget cash surplus, which would otherwise be higher than forecast.

As a result funds were handed over to the corporation before it was needed for specific rail projects or had even identified proposed projects with the usual level of detail or modelling.

By last June less than $250 million of the funds had been spent.

The entire $820 million would not be spent until the middle of next year.

The office estimated that the Government could have earned $141.5 million for taxpayers if it had invested the funds until they were needed. Instead the corporation's cash holdings and investment earnings had ballooned. The office said the funds had also been handed over without the funding agreements that are normally negotiated for such grants.

The corporation had asked that the first $450 million be paid as an unconditional gift so it did not have to treat the funds as income for tax purposes.

The office quotes from written advice the corporation gave to the department on how it could minimise its tax liability.

"[It] is essential that the gift be absolutely unconditional to prevent the payment by the Commonwealth to ARTC being viewed as tied to a condition or obligation ? which would give rise to a risk that the payment would be subject to a 30 per cent income tax levy," the letter said.

The corporation eventually decided to spend the first $450 million grant not on realigning rail tracks on the northern NSW Coast, as approved by Mr Howard, but on passing lanes between Melbourne and Junee and on different works in northern NSW.