$820m rail grants questioned

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.

According to The Sydney Morning Herald’s political correspondent Mark Davis, 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.

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


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