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High Speed Rail Economic and Social Benefits for the Hume Region

Hume Regional Development Australia

December 2014


Liability limited by a scheme approved under Professional Standards Legislation. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © 2015 Deloitte Access Economics Pty Ltd

Contents Glossary ...........................................................................................................................................i

Executive Summary ........................................................................................................................ ii

1 Introduction ........................................................................................................................ 1

1.1 Objectives of the project ..................................................................................................... 1

1.2 Approach ............................................................................................................................ 1

1.3 Contents of this report ........................................................................................................ 1

2 Background ......................................................................................................................... 2

2.1 About the Hume Region ...................................................................................................... 2

2.2 The current HSR proposal for South East Australia (HSR scenario) ...................................... 4

2.3 Social and economic impacts identified in HSR experiences elsewhere .............................. 5

3 Project Approach ................................................................................................................ 9

3.2 Assumptions and Limitations ............................................................................................ 10

3.3 Base case (counterfactual) ................................................................................................ 11

4 Direct regional impacts of HSR ......................................................................................... 13

4.1 Construction and maintenance stimulus ........................................................................... 13

4.2 Patronage and modal shifts .............................................................................................. 17

4.3 Changes to relative accessibility ........................................................................................ 25

4.4 Business Productivity ........................................................................................................ 27

4.5 Household welfare gains ................................................................................................... 31

4.6 Population and human capital .......................................................................................... 31

4.7 Environmental changes and other impacts ....................................................................... 36

5 Total impacts for the Hume Region .................................................................................. 41

5.1 CGE model inputs .............................................................................................................. 41

5.2 Aggregate economic impacts on the Hume Region ........................................................... 43

5.3 Population growth impacts ............................................................................................... 45

5.4 Sub regional impacts ......................................................................................................... 46

6 Key findings ....................................................................................................................... 49

References ................................................................................................................................... 53

Appendix A : Regional CGE Model .............................................................................................. 55

Appendix B : Accessibility by town .............................................................................................. 60

Limitation of our work ................................................................................................................. 62

Charts Chart 2.1 : Population in the Hume Region’s LGAs ....................................................................... 3

Chart 4.1 : Construction and Operating Cost ($b) over time ...................................................... 17

Chart 4.2 : Trips by HSR (business and non‐business), Hume Region (policy case), 2009 to 206521

Chart 4.3 : Business Travellers v Non‐Business Travellers, Hume Region – base case versus HSR (policy case), 2009 to 2065 ......................................................................................................... 22

Chart 4.4 : Trips by Air, Hume Region – base case versus HSR (policy case), 2009 to 2065 ....... 23

Chart 4.5 : Trips by Car, Hume Region – base case versus HSR (policy case), 2009 to 2065 ...... 23

Chart 4.6 : Trips by Standard Rail, Hume Region – base case versus HSR (policy case), 2009 to 2065 24

Chart 4.7 : Trips by Coach, Hume Region – base case versus HSR (policy case), 2009 to 2065 .. 25

Chart 4.8 : User benefits over time: business and non‐business ................................................ 30

Chart 5.1 : Hume GRP – deviations ($ million) ............................................................................ 43

Chart 5.2 : Hume employment – deviations (FTE) ...................................................................... 44

Chart 5.3 : Hume household consumption – deviations ($ million) ........................................... 44

Tables Table 4.1 : Construction Cost (not risk adjusted) ........................................................................ 14

Table 4.2 : Construction Costs (risk adjusted) ............................................................................. 15

Table 4.3 : Operating Costs (risk adjusted) ................................................................................. 16

Table 4.4 : Breakdown of trips for each market by mode and purpose ..................................... 18

Table 4.5 : Number of trips to and from the Hume Region by year and destination (all transport modes) – Base Case (‘000 trips) .................................................................................................. 19

Table 4.6 : Number of trips to and from the Hume Region by year and destination (all transport modes) – HSR (policy case) (‘000 trips) ....................................................................................... 20

Table 4.7 : Relative accessibility .................................................................................................. 26

Table 4.8 : Proportion of Northbound and Southbound trips by origin ..................................... 29

Table 4.9 : Journey to work data, regional councils, 2011 .......................................................... 36

Table 4.10 : Construction emissions ........................................................................................... 37

Table 4.11 : Tourism statistics, Hume Region ............................................................................. 40

Table 5.1 : Summary of CGE inputs ............................................................................................. 42

Table 5.2 : Population impact ..................................................................................................... 46

Table 5.3 : LGA HSR impacts ‐ 2065 ............................................................................................ 46

Table 6.1 : Overview of HSR benefits to the Hume Region ......................................................... 50

Table B.1 : HSR station accessibility by town .............................................................................. 60

Figures Figure 2.1 : Hume settlement population ..................................................................................... 2

Figure 4.1 : HSR trips per annum ................................................................................................ 27

Figure 4.2 : Hume – Future urban growth .................................................................................. 33

Figure 5.1 : Regional GRP Impacts ............................................................................................... 47

Figure 5.2 : Regional population impacts .................................................................................... 48

Figure A.1 : Key components of DAE‐RGEM ............................................................................... 55


i Commercial‐in‐Confidence

Deloitte Access Economics

Glossary

ABS Australian Bureau of Statistics

CGE Computable General Equilibrium

DAE Deloitte Access Economics

DEDJTR Department of Economic Development, Jobs, Transport and Resources

GIS Geographic Information Systems

GRP Gross Regional Product

GSP Gross State Product

HSR High Speed Rail

LGA Local Government Area

NBN National Broadband Network

NPV Net Present Value

NSW New South Wales

VOC Vehicle Operating Cost


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Executive Summary Key Points

The main benefits to the Hume Region of HSR through the region are as follows:

Construction and maintenance expenditure: The Hume Region would experience $3.1 billion in construction expenditure between 2032 and 2040 (expressed as NPV), or $880 million per year over those nine years. Once HSR becomes operational, HSR related maintenance from the Hume Region would be approximately $500 million per annum.

Changes to relative accessibility: The average distance for the populations of the Hume Region to their nearest HSR station would be 47 kilometres. Of all LGAs within the Hume Region, the highest number of HSR trips per capita would be from Wodonga, followed by Indigo and Greater Shepparton.

Business productivity: HSR would result in travel time and costs savings to the value of $250 million per annum (or $3.5 billion NPV over 20 years). These business benefits attract more business activity to the region, and hence directly drive regional economic growth (see below).

Household welfare gains: Non‐business users would also experience a household welfare gain, to the value of $350 million per annum (or $4.9 billion NPV over 20 years).

Tourism impacts: HSR is expected to increase tourism numbers to the Hume region by 4%. Applied to current tourism volumes, this would represent an additional 265,620 domestic visitors coming to the region each year, with additional expenditure of $54.8 million per annum (or $775 NPV million over 20 years).

Population growth: HSR is likely to lead to population growth over and above baseline projections because of two main reasons: 1) a ‘commuter effect’, where new residents are attracted to live in the region and work elsewhere (principally Melbourne), and 2) an ‘employment effect’, where people move to the region because the Hume economy has grown and requires a bigger labour force. Collectively, the two effects would see the Hume population be 1.6% higher than it would be without HSR. Applied to the current population, this would represent an additional 4,464 residents in the Hume Region, or 6,010 by 2065.

Regional development impacts: There would also be a series of economy‐wide impacts: By 2065, HSR is estimated to increase the size of the Hume Region economy by 2.7% ($948 million per annum of gross regional product, or $13.4 billion NPV over 20 years), with an additional 844 FTE jobs (a 0.6% increase).

Regional benefits of this magnitude are very significant, especially given there are a range of other ancillary benefits, and that the impacts on the Hume region are likely to be replicated in other regional areas along the HSR route. As such, they should be duly considered as an important part of an overall assessment of the HSR proposal.


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Introduction

Hume Regional Development Australia (RDA) commissioned Deloitte Access Economics (DAE) to assess the economic and social benefits of High Speed Rail (HSR) for the Hume Region.

A strategic study on the implementation of a HSR network on the east coast of Australia between Brisbane, Sydney and Melbourne was undertaken by a consortium led by AECOM, and published in two reports in 2011 and 2013 respectively. The AECOM study presented a preferred HSR route between Brisbane and Melbourne. There are two proposed HSR stations in the Hume Region, in close proximity to the regional cities of Albury‐Wodonga and Shepparton.

The economic, social and environmental benefits analysis incorporated desktop review and data analysis to assess the impact of HSR. In order to comprehensively analyse the full suite of benefits, the analysis was broken up into two parts:

Analysis of the direct impacts of HSR, drawing heavily on the assumptions and approach used in the AECOM report and using small area GIS analysis focused on the Hume Region; and

Analysis of the total economic impacts on the Hume Region, using a Computable General Equilibrium (CGE) economic model.

The HSR proposal

The HSR proposal, as presented in the AECOM Phase 2 report, assumes the following:

Construction for HSR in the Hume Region occurs between 2032 and 2040.

Operation for HSR in the Hume Region begins in 2040.

There are three intermediate stops between Melbourne and Canberra: Shepparton, Albury‐Wodonga and Wagga Wagga, with the first two providing HSR access to the Hume Region.

The Shepparton and Albury‐Wodonga stations will be located outside the town areas (10 kilometres from Shepparton and 20 kilometres from Wodonga/25 kilometres from Albury).

Travel time from Albury‐Wodonga will be 1 hour 9 minutes to Melbourne, 1 hour 16 minutes to Canberra and 1 hour 55 minutes to Sydney. Travel time from Shepparton to Melbourne was estimated as 67% of the time taken from Albury‐Wodonga, i.e. 46 minutes.

The counterfactual (no HSR) assumes no change in accessibility to the Hume Region, i.e. current rail, road and air links are retained. This assumes no major upgrades to the existing infrastructure and unchanged level‐of‐service for road/rail/coach, with future infrastructure investment aimed at maintaining inter‐urban transport levels of service.

The counterfactual further assumes population and employment forecasts as per state and ABS projections, and economic projections as per the Australian Government’s Intergenerational Report 2010.


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Benefits identified

There are three broad types of benefits to flow to the Hume Region from the construction and operation of HSR:

the benefit flowing from construction and maintenance stimulus of the HSR;

the direct benefits to users of the HSR to the region’s householders and businesses; and

the regional economic growth benefits, comprising the direct benefits and the flow‐on economic development opportunities to the Hume Region economy, including increases in employment and population.

Construction and maintenance stimulus

Of the $33.7 billion net present value (NPV, risk adjusted1) of construction expenditure for the Brisbane‐Melbourne HSR network, Deloitte Access Economics estimated that between 2032 and 2040 $3.1 billion (expressed as NPV), or $880 million per annum, of the construction expenditure would be met by service provision from the Hume economy. This is based on the length of the route passing through the Hume Region and the construction costs by segment provided in the AECOM Phase 2 report.

The Hume Region would also receive $500 million per annum in maintenance expenditure from 2040 onwards.2 Between 2040 and 2085, this amounts to $3.61 billion (expressed as NPV), which represents 16% of the total Brisbane‐Melbourne HSR network.

The construction of the HSR network in the Hume Region would occur between 2032 and 2040, while operation of the HSR service is assumed to commence in 2040. Chart i illustrates the assumed timing of construction and operating costs. If the HSR project is brought forward to be earlier than what is specified in the AECOM Phase 2 report, the economic stimulus will also be brought forward accordingly as well.

1 NPV refers to the present value of a future stream of values. Risk adjustment places an additional value on uncertainty – hence, risk adjusted costs are higher than non‐risk adjusted costs.

2 The higher share of the Hume region in operating costs compared to construction costs reflects the fact that operating costs are evenly spread on a per route kilometre basis across the whole project, while construction costs reflect the terrain of the route, resulting in the Canberra‐Melbourne segment having the lowest construction costs per route kilometre.


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Chart i: Construction and Operating Cost ($b) over time

Note: Both construction and operating costs are shown in $2012, as net present value (NPV) and risk adjusted.

Patronage and modal shifts

The total number of HSR trips to/from the Hume Region is estimated to be 5.2 million in 2065, out of a total of almost 54 million total trips by all modes. The 5.2 million represents 6.2% of all trips on the Brisbane‐Melbourne network and 10% of all trips to/from the Hume Region (any mode of transport). It includes 4.3 million (82.7%) HSR trips by non‐business users and 0.9 million (17.3%) HSR trips by business users.

Approximately half, or 2.6 million, of the total number of HSR trips into and out of the Hume Region is from households or businesses located in the Hume Region. The other half is from visitors to the region3.

The majority of HSR trips in and out of the Hume Region represent a modal shift from another transport mode that would have been used in the absence of HSR. The most common modal shift is from car to HSR. The remainder of HSR trips represent induced demand, meaning trips that only occur because of HSR being an option.

The study does not explicitly account for the effects of continued growth, especially peri‐urban growth, of Melbourne, and the detrimental effect that this would have on road transport. By increasing road travel times to Melbourne, this peri‐urban growth would increase the relative attractiveness of HSR over road, meaning there would be higher patronage and more benefits than what is presented in this report.

3 Although visitors to the region provide a tourism benefit to the region, the use value of the visitor’s HSR trip is counted where the visitor’s household or business is located, and not for the Hume region. The Hume region benefits from visitors only when that visitor spends money in the region outside of their trip. By comparison, a trip from a household or business of the Hume region lies as a use value in the trip itself.

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Changes to relative accessibility

The average distance for residents of the Hume Region to the nearest HSR station would be 47 kilometres, with the average distance for the residents of each Local Government Area (LGA) of the Hume Region to the nearest HSR station ranging from just over 100 kilometres, for both Mitchell and Murrindindi, to 13 kilometres for Greater Shepparton, and 17.5 kilometres for Wodonga.

We estimate that of the trips from Hume households or businesses in 2065, 53.3% would be from the Albury‐Wodonga station, and 46.7% from Shepparton.4 A higher proportion of the trips from the Albury‐Wodonga station are southbound than from the Shepparton station, which reflects the relatively lower attractiveness of HSR from Shepparton to Melbourne over a road alternative, owing to its shorter driving time to Melbourne.

Of all LGAs within the Hume Region, the highest number of HSR trips per capita is from Wodonga, followed by Indigo and Greater Shepparton. The lowest come from Mansfield, Mitchell and Murrindindi, all LGAs where there is virtually no incentive to use HSR for a trip to Melbourne, versus alternatives. For those in the south of the region, the closest HSR station is in Melbourne.

The accessibility model considers not just the proximity to the nearest HSR station, but also proximity to destinations for other modes of transport. As such, HSR use from an LGA such as Towong is high, despite the populations of Towong mostly being relatively distant from their nearest HSR station.

Use benefits: business productivity and household welfare gains

HSR would result in travel time savings and travel costs savings, which – for business users – can be considered an increase in business productivity and thus a direct economic impact. Of all trips to/from the Hume Region, 0.9 million (17.3%) HSR trips per annum are estimated to be by business users. Business users would experience a benefit of $278 per trip or, in aggregate, $250 million per annum ($965 million expressed as NPV) – representing 40% of all benefits accruing to users of the Hume Region. This corresponds to 1.6% of the Hume Region’s current gross regional product (GRP).

For non‐business users, travel time and travel cost savings are considered benefits to households, but are not considered direct economic impacts. Of all HSR trips to/from the Hume Region, 4.3 million (82.7%) HSR trips per annum are estimated to be by non‐business users. Non‐business users would experience a benefit of $81 per trip or, in aggregate, $360 million per annum ($1.5 billion expressed as NPV) – representing 60% of all benefits accruing to users of the Hume Region.

Chart ii illustrates the timing of use benefits, which aligns with the operation of HSR and the number of HSR trips undertaken per year. On an annual basis, the use benefits (business and non‐business) reach approximately $600 per annum, by 2065.

4 It is noted that there would be trips from the Albury‐Wodonga Station from residents and businesses of southern NSW. They are not included in the Hume figures cited above.


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Chart ii: User benefits ($m) over time: business and non‐business

The spatial pattern of use benefits within the Hume Region largely follows the use patterns described earlier, with Wodonga, Indigo and Greater Shepparton experiencing the greatest per capita benefits, and Mansfield, Mitchell and Murrindindi the lowest.

The use value per trip (as distinct from per capita) benefits are typically highest in the local government areas (LGAs) from where the distance travelled on HSR is greatest and where alternative modes are much slower. The per trip benefits are greatest in Wodonga and Towong, for whom trips to destination on other modes would take them close to a HSR station, compared to other LGAs where the trip to the HSR station might be out of the way to the eventual destination.

Regional development impacts

In addition to the direct use values, HSR will attract businesses, jobs, population and other development such as infrastructure and services to the region. As such, improved accessibility through HSR can have significant benefits to a region.

However, empirical evidence on economic development effects of HSR is often mixed. That is because other factors, including policy design and complementary assets (such as high speed internet, education/health facilities, cultural/tourist and quality‐of‐life amenities), have been observed to influence whether a region can realise the potential that HSR provides. In other words, HSR offers potential for economic growth opportunities, but other activities from within the region also need to occur (e.g. station design to maximise benefits, early and careful planning to position local business for change, investment in complementary assets and supporting infrastructure such as regional public transport links and promotion of establishment of those high‐skilled service activities likely to benefit the most from HSR).

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Furthermore, there can be a significant time lag before regional impacts are being realised. However, regional centres with good transport links to capital cities can provide attractive alternatives to metropolitan areas. Given the characteristics of the Hume Region, the potential for benefits from HSR is strong, provided HSR stations are designed to maximise benefits and the right active local policies are in place to support regional development, for example interconnecting transport links such as public transport in the form of buses to the HSR stations.

Population growth

While international studies are mixed in their assessment as to whether HSR results in population growth, it is likely that HSR could lead to population growth over and above baseline projections for the Hume Region for the following reasons:

Being able to commute further to a workplace (e.g. Melbourne) provides more employment choices and makes staying in the Hume Region more attractive for the current population, hence the region maintains populations that would otherwise migrate out.

People working in Melbourne in particular might move to the Hume Region if they see the region as more desirable than Melbourne but continue to commute.

Regional development impacts associated with HSR are expected to result in employment growth in the region. This may result in more people from outside the region moving to the Hume Region.

Using current journey of work data for regional cities throughout Victoria, DAE estimated that the second point could lead to a 1% increase in the employed population of Shepparton and Wodonga – where people move to the Hume Region and commute to Melbourne. Applied to the 2013 population, this would be an additional 2,757 people (1,067 households), or approximately 3,707 additional people in 2065.

Environmental, safety and social impacts

Although HSR is associated with a significant reduction in greenhouse gas emissions and air pollution on a per passenger kilometre basis, induced demand and station construction are likely to result in an increase in greenhouse gas emissions and thus a negative environmental impact for the Hume Region overall.

HSR is associated with fewer traffic accidents than alternative modes of transport. For the Hume Region and based on the trip estimates for 2065, the reduction of traffic accidents as a result of HSR (compared to the no HSR scenario) is valued at $12.6 million per annum.

Experience with HSR in other countries has shown that HSR can result in social benefits such as workforce and community development, access to higher education, access to health and other public services and social inclusion. Considering the Hume Region’s current profile, it is well placed to experience those benefits.


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Impacts on tourism

Tourism to the region is likely to benefit from accessibility improvement associated with HSR. With 6.5 million domestic visitors (day and overnight) and tourism expenditure exceeding $1.3 billion per annum, tourism is already an important economic and employment growth sector for the Hume Region. HSR is likely to increase tourist numbers into the region, increasing regional expenditure in the sectors that support the tourism industry. If HSR was operational today, induced demand would result in an additional 265,620 domestic visitors coming to the region each year, with an additional value of $54.8 million per annum. This represents approximately 0.35% of current Hume Region GRP.

Aggregate economic impacts on the Hume Region (CGE model results)

To estimate total economic impacts on the Hume economy, Deloitte Access Economics used a custom‐built regional CGE model of the Hume economy, to calculate changes in macroeconomic aggregates such as gross regional product (GRP), employment, exports, investment and private consumption resulting from the additional construction and maintenance expenditure, increased business productivity and additional population. We estimate that by 2065, as a result of two HSR stations being based in the region, the total economic impact on the Hume Region would include:

an increase in GRP of $948 million (or 2.7%);

an increase in FTE employment by 844 (or 0.6%);

an increase in household consumption of $503 million (or 1.7%);

or an increase in total investment of $268 million (or 5.1%).

The CGE model also shows that regional economic development leads to greater demand for labour within the region, resulting in additional population growth of around 2,303 residents by 2065. This is additional to the population growth from the commuting effect, where people live in the region but commute elsewhere on HSR. The total impact of HSR on population is approximately 6,010 (or 1.6% of the estimated Hume population at that time).

LGA impacts

Although the spread of impacts within the Hume region is not equal, all LGAs within the Hume Region are set to benefit to some extent. This is illustrated in Figure i. Using one measure of economic development – the increase in gross regional product (GRP) per capita attributable to HSR – the greatest impacts are in the LGAs closest to the station, namely Wodonga, Indigo and Greater Shepparton. These are the LGAs where HSR has the highest direct use values.


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Figure i Regional GRP Impacts

Figure i also highlights how even those LGAs distant from the stations still stand to realise significant benefits of over $1,000 per capita. Unlike the LGAs proximate to the stations, the benefits in these other LGAs is driven more by flow on economic development opportunities more so than direct HSR use values. The level of tourism activity in the region is also a driver of the regional results, making the impacts in LGAs such as Alpine and indigo much higher than they would be based on use values for local residents and businesses alone.

Uncertainties

The findings outlined in this report are a best estimate description of what the impacts would be. This relies on various assumptions, including those made in the AECOM report. The main uncertainties include:

Construction costs: Infrastructure costings are often surrounded by a substantial degree of uncertainty. Given there is no experience with HSR construction in Australia, estimates vary considerably. The AECOM report uses conservative construction cost estimates, with other recent studies estimating construction costs to be only 56% to 75% of those estimates. This would alter the magnitude of the construction and maintenance stimulus estimated in this study and may have implication for ticket costs and, hence, service use.

Location of construction and maintenance expenditure: This study assumes that all expenditure associated with the HSR route passing through the Hume Region is spent in the Hume Region. However, in reality, some of the expenditure may be outside the


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region depending on where the companies involved in construction and maintenance are based.

Population growth: This study is based on the central case population growth estimates used in the AECOM report. To the extent that population patterns in the regions may be different to the estimates used in the AECOM report, demand for HSR may be more or less, as would the regional economic impacts.

Patronage: Demand for HSR depends on the fares charged for the HSR service. This study uses the fare and demand assumptions from the AECOM report. Variations in fares could significantly alter demand for, and use of, HSR which, in turn, could alter economic impacts.

Business location decisions: Business location decisions are driven by a variety of factors. Businesses locating to/from the region changes the size of the Hume Region’s economy and the impact that HSR may have on the Hume Region’s gross regional product.

The quality of other modes of transport: This study makes the same assumptions regarding quality and cost of other modes of transport as the AECOM report. Should the quality or cost of those other modes change, the benefits of using HSR instead of those other modes would also change.

Further research would be required to assess the impact of those uncertainties on the findings. A deeper understanding would be required for a more formal evaluation of HSR, e.g. in a business case.


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1 Introduction Hume Regional Development Australia (RDA) commissioned Deloitte Access Economics (DAE) to assess the economic and social benefits of High Speed Rail (HSR) for the Hume Region.

1.1 Objectives of the project This assessment of the benefits of HSR for the Hume Region is being undertaken in response to the potential for a proposed HSR route passing through the Hume Region, with two stations in the region near Albury‐Wodonga and Shepparton. This is based on previous analysis undertaken by a consortium led by AECOM, as published in the two HSR reports commissioned by the Commonwealth Department of Infrastructure: the 2011 ‘High Speed Rail Study – Phase 1 Report’ and the 2013 ‘High Speed Rail Study – Phase 2 Report’.

In order to contribute to the broader debate over HSR and to be prepared to realise the potential benefits, the region will need to first understand the nature and magnitude of the socioeconomic changes to the region that will arise with stops from HSR. Through a socioeconomic assessment of the impacts of HSR in the Hume Region, this project addresses this need.

1.2 Approach The economic, social and environmental benefits analysis incorporated desktop review and data analysis to assess the impact of HSR. In order to comprehensively analyse the full suite of benefits, the analysis was broken up into two parts:

Analysis of the direct impacts of HSR; and

Analysis of the total economic impacts.

1.3 Contents of this report The remainder of this report is structured as follows:

Chapter 2 provides some background to this study, outlining the main characteristics of the Hume Region, the details of the current HSR proposal and experiences with HSR overseas, particularly in terms of social and economic impacts;

Chapter 3 details the project approach, outlining key assumptions limitations and scenarios;

Chapter 4 describes the direct impacts of HSR to the Hume Region as estimated in this study, structured around construction and maintenance stimulus, patronage and model shifts, changes to relative accessibility, business productivity, household welfare gains, population and human capital, environmental benefits and other impacts;

Chapter 5 outlines the CGE model outputs and describes the total economic impacts of the HSR proposal to the Hume Region; and

Chapter 6 provides a summary of the key impacts and provides concluding remarks.



2 Background 2.1 About the Hume Region

The geographic scope for the project encompasses the 12 local government areas of the Hume Region, which include the shires of Alpine, Benalla, Indigo, Mansfield, Moira, Mitchell, Murrindindi, Strathbogie, Towong and the city councils of Shepparton, Wangaratta and Wodonga, as shown on Figure 2.1.

Due to the interdependence between Albury (NSW) and Wodonga, the discussion around the HSR impacts on the Hume Region extends to Albury where appropriate. However, the boundaries for the quantitative analysis are limited to the Hume Region as shown in Figure 2.1.

Figure 2.1: Hume settlement population

Source: Hume Regional Growth Plan

The region, which is bounded by the Victorian Alps in the south and east, the NSW border in the north, the Loddon Mallee Region in the west and the Northern and Western Metropolitan, Eastern Metropolitan and Gippsland Regions to the south, has a population of 272,390 residents. Major centres are Shepparton, Wodonga, Wangaratta and Benalla, accounting for just over half of the region’s population. Shepparton (60,449), Wodonga



(35,519) and Mitchell (34,638) are the LGAs with the largest population, as shown in Chart 2.1.5 Albury has a further 49,000 residents.

Hume is one of the fastest growing regions in Victoria. Over the next 20 years, the region’s population is expected to grow by 100,000 residents.6

Chart 2.1: Population in the Hume Region’s LGAs

The Hume Region currently has a working population of over 111,0007 and a gross regional product of approximately $16 billion8.

At present, the region is served by two regional train lines; one following the Goulburn Valley Highway route which terminates at Shepparton, and the other following the Hume which finishes at Albury. Both lines share the same Melbourne to Seymour route. In addition to the Victorian VLine services, the Sydney to Melbourne XPT services run along the North East Victoria line.

Defining characteristics of the Hume Region9 compared to other regions of regional Australia include:

5 http://www.communityprofile.com.au/humeregion

6 Victoria in Future (2014)

7 Hume Regional Growth Plan

8 Calculated by applying Victoria’s 2012‐13 GDP per capita to the population of the Hume region; inflated to $2014.

9 Hume Regional Growth Plan

Greater Shepparton (C)

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Wangaratta (RC)10%

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Strathbogie (S)4%

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A wide variety of settlement types ranging from Melbourne’s peri‐urban regions to regional cities such as Shepparton, Wangaratta and Wodonga (each with broader catchments), regional centres such as Benalla, townships and villages, rural residential areas and small and relatively isolated communities, including a number of alpine resorts.

A vibrant tourism sector, with attractions including historic towns, national parks, ski fields, abundant waterways, premium food and wines destinations and off road cycling paths.

An economy built on manufacturing, agriculture and food processing, health and human services and facilities, defence, tourism, retail, freight and logistics industries.

Much of the region’s economy is based on access to natural resources. All Local Government areas rated highly for net primary productivity, with relatively high rainfall, reliable and high quality water resources and fertile soil.

All LGAs, except Shepparton, rated highly for proximity to national parks.

Higher than average economic diversification, with some of the most diverse LGA economies outside of the metropolitan areas. Notable in the Hume Region are the diversified economies of the smaller towns. Major health and learning facilities, including universities, TAFEs, schools and libraries. Education is available at all levels of the learning spectrum. However, currently low levels of educational attainment and significant youth out‐migration.

A growing, culturally diverse population within engaged, connected, safe and inclusive communities.

2.2 The current HSR proposal for South East Australia (HSR scenario)

A strategic study on the implementation of a HSR network on the east coast of Australia between Brisbane, Sydney and Melbourne was undertaken by a consortium led by AECOM, as published in the two HSR reports commissioned by the Commonwealth Department of Infrastructure: the 2011 ‘High Speed Rail Study – Phase 1 Report’ and the 2013 ‘High Speed Rail Study – Phase 2 Report’.

HSR, generally defined as a purpose‐built, fixed‐track mode of transport, capable of moving people at speeds of at least 250 kilometres per hour (with a maximum operating speed of 350km), is expected to significantly reduce travel times to as little as 2 hours 44 minutes between Melbourne and Sydney, and 2 hours and 37 minutes between Sydney and Brisbane.

Aside from providing an inter‐capital express service, operating non‐stop between the capital cities, HSR would also provide for high speed travel to and from regional centres.

The AECOM study presented a preferred HSR route between Brisbane and Melbourne, which will pass through the Hume Region at Wodonga and divert towards Shepparton before moving south to Seymour. The two proposed stations for HSR access in regional Victoria will be located in the Hume Region in close proximity to the regional cities of Wodonga and Shepparton:



Albury‐Wodonga: The preferred station is located at Barnawartha North, southwest of Albury‐Wodonga. The preferred location would provide good access to the Hume Freeway via the Murray Valley Highway. Albury would be approximately 25 kilometres by road and Wodonga approximately 20 kilometres by road from the proposed HSR station location, between 15 and 20 minutes by vehicle via the Hume Freeway. A station in this area would also provide access to the Rutherglen and Murray Valley region to the west. The travel time from Albury‐Wodonga to Melbourne is estimated as 1 hour 9 minutes to Melbourne (284km), 1 hour 16 minutes to Canberra (366km) and 1 hour 55 minutes to Sydney (540km).

Shepparton: Land east of Shepparton close to the Midland Highway would be the preferred area for a station. Options for station locations in this area were assessed and a preferred location was identified north of the Midland Highway, west of Pine Lodge Road. This location would provide good road access on the Midland Highway from Shepparton, approximately ten kilometres by road from the proposed HSR station location. Travel time from Shepparton to Melbourne was estimated as 67% of the time taken from Albury‐Wodonga, i.e. 46 minutes.

Construction for HSR in the Hume Region is assumed to occur between 2032 and 204010; operation for HSR in the Hume Region is assumed to begin in 2040.11

International evidence, as outlined in Section 2.3, highlights that HSR can contribute to regional development given appropriate strategies and plans are put in place. The AECOM Phase 2 report presented a range of impacts of the HSR project. However, as the focus was on the Brisbane to Melbourne HSR project, the analysis did not specify how much of the impacts were associated with particular route segments, stations and surrounding regions.

This study is to fill this gap by looking at the specific impacts on the Hume Region.

2.3 Social and economic impacts identified in HSR experiences elsewhere

Improved accessibility through high speed rail can have significant benefits to a region. HSR can have significant benefits in relation to time saving, employment and productivity, but empirical evidence on economic development effects of HSR are often mixed. That is, because other factors, including policy design, determine whether a region can realise the potential that HSR provides.

10Construction of the HSR project is assumed to begin in 2027, with the Canberra‐Sydney segment to be built first.

11 Results in this report are based on the assumptions used in the AECOM Phase 2 report. Alternative modelling of HSR in Australia was undertaken by Beyond Zero Emissions et al. (2014). Their report titled Zero Carbon Australia: High Speed Rail suggests that construction for the total HSR network could be around $30 billion less than that proposed by AECOM, i.e. $84 billion compared to $112 billion. Furthermore, the report argued that the network could be operational by 2030.

Similarly, Aurecon (2014) suggests that construction costs could be significantly lower than estimates previously considered for Australia. Assuming internationally competitive rates of $35 million per km (rather than $65 million per km as assumed in the AECOM report), the study suggests that Australian HSR could be delivered for approximately $63 billion.



The international examples outlined in the AECOM HSR Phase 2 report (Chapter 9) illustrate the mixed urban and regional development impacts of HSR:

Spain: Two large intermediate cities (Cordoba and Zaragoza) on Spanish HSR lines to Madrid appear to have gained most in terms of accessibility to metropolitan areas as a result of having a HSR station – partly due to the fact these cities did not have air links to the capital. Those cities did not grow solely because of HSR access, but HSR reinforced their role as principal cities within a sub‐region, which already had universities with related infrastructure such as hospitals and government offices. Other impacts included:

• an increase in short‐term tourism, such as congress tourism (day return trips) and leisure tourism, but a reduction in overnight stays; and

• an expansion in some back office activities from larger centres to intermediate centres.

United Kingdom: Agglomeration benefits in London appeared to outweigh any advantages of regional centres with rail links (such as lower travel cost, land costs, congestion and competition). In the case of Birmingham, the improved rail link to London resulted in a reduction in business activity in Birmingham, highlighting the risk of negative regional development impacts for regional centres.

France: HSR in France showed that it can add impetus to regional development, but will not alone cause it. To derive a positive impact from HSR, a region needs certain attributes or competitive advantages prior to the implementation of an HSR system (e.g. a strong high‐end service sector including universities, hospitals, technology‐based services or research centres). In contrast, HSR had little impact on regions with industries that are not travel‐intensive (such as manufacturing, agriculture or mining). Active local policies are often seen as essential to HSR‐related development, though not all succeed.

Germany: The Frankfurt‐Cologne HSR link increased market access to regional cities with HSR stations, with Montabaur and Limburg showing a significant increase in GDP, GDP per capital and employment within a four‐year adjustment period. An increase in GDP of 2.7% in the two cities was indicated as a result of HSR when compared to the rest of the study area.

Taiwan: Taiwanese HSR resulted in accelerated development around five large intermediate HSR stations that were located close to regional centres with significant population density, local government land use and public infrastructure planning and the existence of flagship projects to attract population and employment. However, HSR was less successful in some regional areas, particularly where stations were located away from existing regional centres.

Other examples confirm the assertion that HSR can, but does not necessarily have, regional development benefits:

Vickerman (1997) analysed HSR experiences in France, Germany, Italy and Spain, concluding that evidence on the impacts is inconclusive. New accessibility reduced transport costs and improved competitiveness for all regions, but richer regions were more capable of maintaining their advantage. Effects on redistribution were difficult to predict. Completion of a HSR network in the European core could lead to greater core‐periphery divergences in accessibility, impacting future economic development and



location of economic activities. Careful planning and policies are thus required to stimulate poorer regions.

Givoni (2006) found that HSR can result in positive socio‐economic benefits, but depend on the particular set of circumstances. Construction or expansion of HSR stations often brings positive development impacts in surrounding areas, but this is not always the case. HSR is usually considered as the most environmentally friendly mode, and is significantly cleaner than air travel; however, HSR operations still have negative impacts on air pollution, climate change, noise, and land‐take. HSR may constitute a substitute to air travel for distances up to 1,000 km, offering competitive travel times due to station placement in city centres; but in other situations, HSR may constitute a complement to air travel.

Puga (2001) argued that it is unclear whether better transport links lead to convergence or divergence of regional inequalities. Improvements in the less developed region depend, not only on lower transport costs, but also on other economic factors such as mobility and wage rigidities and on characteristics of the transport project. However, it could also simply reinforce existing activity centres. It is unlikely to have much effect on the location of industry (as it unsuitable for freight), but may have larger effects on location of business and headquarters.

Loukaitou‐Sideris et al. (2013) deduce that first‐tier cities seem to more consistently realise benefits from HSR, but second‐tier cities can also benefit, especially if particular corollary public investments are made. The authors observe, “The time horizon for observing change is often distant. Full realisation of planning goals for station‐areas has seldom been observed within the first 20 years of rail station investments and may remain incomplete even at the 40‐year mark.” They conclude that there are both winners and losers in an investment of this magnitude, but typically a HSR development could be a key component in successful economic development (along with other tools).

Murakami (2012), looking at HSR examples across the world, conclude that HSR is likely to induce greater economic benefits in knowledge‐intensive businesses, though they are mostly limited to large, globally connected cities at the expense of small intermediate ones. The net economic impacts of HSR investments are likely negative unless public policies appropriately guide market shifts to station catchment areas that offer comparative business advantages. To mitigate this negative potential, they suggest four policy interventions: polycentric development as a global competition strategy; pro‐business state assistance as a regional development strategy; land value capture as an infrastructure financing strategy; or transit‐oriented development (i.e. good public transport linkages) as a community improvement strategy.

Overall, looking at the AECOM report and other recent studies, it can be concluded that:

HSR can both positively and negatively influence the economic and service relationships between small, intermediate and large cities;

the greatest impacts are typically felt in the main capital cities, although regional centres also benefit (partly as a result of redistribution of economic activity and at the expense of surrounding areas);

large intermediate cities do not grow solely because of HSR access;

regional centres within two hours’ travel by HSR have the capacity to provide less congested future growth options, with regional centres serving as secondary locations



for lower‐cost back office functions and new start‐up businesses requiring less frequent access to the major centres;

in stagnant or declining regional towns, HSR access can accelerate their demise;

the presence of an HSR station does not guarantee greater local economic development; and

it can take at least 10‐15 years, but perhaps 40+ years, for the regional impacts of HSR to be fully realised.

Particularly regional centres that have good transport links to capital cities are set to benefit, as they provide an attractive alternative to metropolitan areas. Housing, schools and social amenities are usually less expensive and more accessible in non‐metropolitan areas. Second, back office opportunities would likely increase in regional areas to take advantage of lower occupancy costs and wages. Complementary assets that were shown to generate a magnet effect, helping to ensure that HSR has a positive impact on regional development, included:

high speed internet (such as NBN);

universities and technical education facilities;

hospitals and bio‐medical research centres;

well‐developed and supportive public governance and business‐to‐business connections within a region and between a region and a major metropolitan centre;

cultural, recreational and tourist amenities that attract visitors from outside the region; and

quality‐of‐life amenities and cost‐of‐living benefits, such as a favourable climate, affordable housing choices, access to recreational and sporting opportunities and a less congested living environment.

Overall, there are benefits from having better connected centres, but how these benefits are spread between major cities and regional centres, and whether regional economic activity increases or decreases, varies. The benefits are higher for regions with knowledge‐intensive industries (or services generally), complementary investments and if there are no feasible transport options (e.g. roads within commuting time, or airports).

Given the characteristics of the Hume Region, as outlined in Section 2.1, the potential for benefits from HSR is strong, provided HSR stations are designed to maximise benefits and the right active local policies are in place to support regional development, such as early and careful planning to position local business for change, investment in complementary assets and supporting infrastructure such as regional public transport links and promotion of establishment of those high‐skilled service activities likely to benefit the most from HSR.



3 Project Approach 3.1 Framework for analysis

The economic, social and environmental benefits analysis incorporated desktop review and data analysis to assess the impact of having two HSR stations located in the Hume Region12. In order to comprehensively analyse the full suite of benefits, the analysis was broken up into two parts:

Analysis of the direct impacts of HSR in the Hume Region: This includes an assessment of the full range of direct social, economic and environmental impacts, including impacts to the users of HSR (i.e. patronage and model shifts, changes to relative accessibility, business productivity and household welfare gains) and other impacts (construction and maintenance stimulus, population and human capital as well as environmental and other impacts).

Analysis of the total economic impacts of HSR in the Hume Region: This is an analysis of how the overall Hume regional economy grows as a result of HSR. It starts with the direct use impacts outlined in part 1 above, but also the stimulus to the regional economy that would come with construction and maintenance and, most importantly, the flow‐on economic impacts in areas such as gross regional product (GRP, the main metric used to quantify the dollar values in a regional economy), employment and wages.

The flow‐on impacts are experienced by the broader population and economy, not necessarily just those who use the service. It includes not just the value of benefits flowing from HSR use by existing Hume residents and businesses but also, critically, the benefits flowing from increased population and business activity (including tourism) attracted into the region because of the HSR. The distinction between the direct and the total impacts is illustrated below.

Figure 3.1: Overview of HSR impacts

12 This study only looks at the benefits of HSR to the Hume Region. It is not an assessment of the viability of the HSR project overall (which would compare construction and operating costs to ticket revenue), but rather an assessment of the impacts associated with having the two HSR stations in the Hume Region.



The approach taken to analyse the various direct and flow‐on impacts is outlined in more detail in Chapters 4 and 5, where the impacts are discussed. A brief summary of the approach to the analysis is provided below:

Direct impacts such as construction and maintenance expenditure associated with HSR in the Hume Region were estimated by attributing the relevant share of total HSR construction and maintenance expenditure provided in the AECOM Phase 2 report to the Hume Region. Estimates were based on section‐specific HSR expenditure provided in that report and the length of the HSR network going through the Hume Region, versus the total length of the network in each segment.

A similar approach was taken for patronage, where HSR trips to/from the Hume Region were estimated by attributing the relevant share of total HSR trips for segments from the AECOM report to the Hume Region. This was based on relative modal share and induced demand assumptions from the AECOM Phase 2 report.

The relative accessibility and patronage at an LGA level was estimated using a geographical information system (GIS) based model.

Business productivity and household welfare gains were then estimated by applying value of time estimates from the AECOM Phase 2 report to the passenger profile determined as part of the patronage modelling.

Environmental and safety impacts were analysed by applying per route kilometre impacts derived in the AECOM Phase 2 reports to the estimated route kilometres travelled to/from the Hume Region using alternative modes of transport (as presented in the patronage modelling).

Social and population impacts were based on the analysis of HSR experiences overseas. Social impacts were discussed qualitatively, while the population impact was quantified. The population increase was determined by applying current commuter shares from Geelong and Ballarat to the working population of Shepparton and Wodonga – this represented the impact of additional commuters moving to the region. A second impact was from additional employment in the region as a result of increased economic activity in the region. This was estimated by using CGE model results on employment growth to derive likely population growth.

Tourism impacts were estimated by applying the induced demand assumption used in the patronage modelling to the current tourism expenditure by domestic visitors to the Hume Region.

Finally, the likely regional development impacts discussed qualitatively in Chapter 2 were quantified for the Hume Region using CGE modelling. Estimates of the flow‐on effects of the direct impacts of HSR in the Hume Region discussed above included impacts on GRP, employment and household consumption.

3.2 Assumptions and Limitations

The following set of assumptions was used in this study to estimate HSR economic and social benefits for the Hume Region. Assumptions were selected, where possible, to match the AECOM report:

A discount rate of 4% was used throughout the report.

The time via HSR from Shepparton to Melbourne was estimated as 67% of the time taken from Albury‐Wodonga to Melbourne via HSR.



The fare cost via HSR from Shepparton to Melbourne was estimated as 67% of the fare cost from Albury‐Wodonga to Melbourne via HSR.

The fare cost via HSR from Shepparton to Sydney was estimated by scaling down the fare cost from Sydney to Melbourne via HSR. This was scaled using the ratio of the distance between Shepparton and Sydney to the distance between Sydney and Melbourne.

Vehicle Operating Cost (VOC) in $/hr were derived from Transport for NSW (2013) Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives.

All dollar values in this report have been adjusted for inflation, and are therefore presented as real values in $2012.

Throughout this report, accumulative values have been reported as net present values (NPVs) as at 2012, the year in which the AECOM report was published. This results in a greater weighting placed on expenditures and revenues occurring closer to the present when compared to expenditures and revenues occurring in the distant future. This is necessary to calculate the overall benefit or cost of a particular stream of payments.

Recurring annual expenditures or revenues have been presented as undiscounted values where possible. This helps provide an understanding of the magnitude of expenditures in a given year.

3.3 Base case (counterfactual) When analysing the impacts of HSR, it is important to consider the counterfactual. A realistic counterfactual ‐ the base case for our analysis ‐ should describe the economic, environmental and social outcomes that have been observed in the region if HSR had been absent. To determine this, we have to ask what would happen to accessibility (and associated impacts) in the Hume Region without HSR.

For the purpose of this study, the base case assumes no change in accessibility to the Hume Region, i.e. current rail, road and air links are retained:

Two rail lines from/to Melbourne, which extend as a single corridor from Melbourne to Mangalore where the corridor splits to continue to Shepparton on one line (the Goulburn Valley line) and to Wangaratta and Wodonga on the North East line, continuing through to Sydney.

The Hume freeway, the major link from Melbourne to Sydney, provides a road corridor linking the Hume Region to the north and south. The Goulburn Valley Highway links Shepparton to Melbourne and to the Newell Highway for links to Brisbane and the north.

Regional Airport at Albury‐Wodonga with direct links to Melbourne and Sydney. Shepparton also has a small regional airport.

The analysis assumes that there would not be any major upgrades to the existing infrastructure. This is in line with the AECOM assumption that outside the metropolitan areas, transport level‐of‐service by road, rail and coach is assumed unchanged from 2009,



presuming that future infrastructure investment will maintain inter‐urban transport levels of service.13

Other base case assumptions, as per the AECOM Phase 2 report, include:

Population and employment forecasts based on state and ABS projections (as outlined in more detail in Chapter 4.6).

Economic projections based on the Australian Government’s Intergenerational Report 2010. The methodology assumes that trend growth rates over the forecast horizon to 2065 are a function of population, productivity and labour force participation, as determined by ABS demographic assumptions and state treasury economic assumptions. Victorian real gross state product (GSP) per capita is forecast to grow an average 1.5% per annum.

13 AECOM Phase 2 report, Appendix 1 F, p.5.



4 Direct regional impacts of HSR

4.1 Construction and maintenance stimulus

The most obvious impact of the HSR project is the construction of the rail infrastructure required for a system capable of a maximum operating speed of 350 kilometres per hour.

The cost of constructing the HSR network, as presented in the AECOM Phase 2 report included the physical components of capital cost (land, earthworks, structures, track, equipment and facilities), as well as design, program and construction management, and asset renewal when it would fall due. Cost components were developed from Australian unit costs and benchmarked against international HSR systems to ensure the robustness of the estimates. Tunnelling was assumed to be used where the terrain requires it and where no dedicated surface route could be created without unacceptable community dislocation and/or environmental costs. Hence, per route kilometre construction costs varied by HSR segment: the Canberra‐Melbourne segment had the lowest construction costs per route kilometre, while the Newcastle‐Sydney segment had the highest due to the terrain north of Sydney requiring a significantly higher proportion of tunnels and bridges.

The capital costs in the AECOM report were reported as risk‐adjusted (increasing capital costs by about 10.8%) to reflect uncertainty and expressed in $2012. The estimated capital cost for the full HSR system, excluding the cost of train sets, is $114.0 billion in $2012 (NPV, risk adjusted). The capital costs for the total HSR project when undiscounted and not risk adjusted are $84.8 billion.

Estimation strategy

In order to determine the HSR construction costs for the Hume Region, DAE looked to generate a scaling factor that could be applied to the discounted, NPV estimates for the construction and operating costs for Canberra to Melbourne segment of the HSR project, as presented in the AECOM report.

Scaling Factor

To establish a scaling factor, DAE looked at the undiscounted cost of construction associated with the relevant sections of the Canberra to Melbourne segment of the HSR line14:

Albury‐Wodonga to Shepparton; and

Shepparton to Melbourne.

The undiscounted capital costs for the Hume Region were estimated as the sum of the undiscounted capital costs for the ‘Albury‐Wodonga to Shepparton’ and ‘Shepparton to

14 AECOM Phase 2 report, Appendix 4, Table 5 ‘Indicative capital cost estimates – Canberra to Melbourne’.



Melbourne’ segments less 10% of the undiscounted costs for ‘Seymour to Craigieburn’15 and ‘Craigieburn to Melbourne’16 and amounted to $6.66b ($2012, undiscounted).

This value was compared to the construction cost for the Canberra to Melbourne segment of the HSR project, which is estimated as $20.4b ($2012, undiscounted).

Table 4.1: Construction Cost (not risk adjusted)

Segment Total construction cost (undiscounted)

($b, $2012)

Annual cost ($b, $2012)

Albury‐Wodonga to Shepparton 2.62 0.29Shepparton to Melbourne 7.60 0.84

Less 10% Seymour to Craigieburn 0.16 Less Craigieburn to Melbourne 3.40

Hume Region Total (2032 to 2040) 6.66 0.74 Canberra to Melbourne Segment Total 20.4 2.27 Scaling Factor 0.33

The scaling factor is thus the ratio between the undiscounted construction cost for the Hume Region when compared to the undiscounted cost for the entire Canberra to Melbourne segment, in this case calculated as 0.33.

Thus, the undiscounted construction expenditure within the Hume Region was estimated as 0.33 of the construction cost for the Canberra to Melbourne segment of the HSR line. It is important to note that the Canberra to Melbourne segment is considered to be the most expensive segment in terms of capital costs per kilometre.17 The construction expenditure within the Hume Region is therefore disproportionately large when compared to the proportion of track that is actually located within the Hume Region.

The report also provided a proposed construction and operating schedule, which showed the proposed timing for the construction of each segment.18 Using this information, the construction costs were then apportioned over the proposed construction period for those segments, all of which run from 2032 to 2040 inclusive.

15 AECOM Phase 2 report, Appendix 3, Table 48 ‘Seymour to Craigieburn comparison of short‐listed alignments’.

16AECOM Phase 2 report, Appendix 3, Table 18 ‘Assessment of short‐listed urban access alignments, Melbourne’.

17AECOM Phase 2 report, Appendix 4B Indicative capital cost estimates, Table 1 ‘Total lengths and costs of alignment – HSR major segments’.

18AECOM Phase 2 report, Sub Appendix 5G.4 Construction operations and timings, Table 14 ‘Proposed construction and operation schedule’.



Construction stimulus

Table 4.2: Construction Costs (risk adjusted)

Cost Estimate NPV (in 2012) of Construction Cost

($b, $2012)

Annual Construction Cost (2032‐2040)

($b, $2012)

Construction cost for Canberra to Melbourne Segment

9.50 2.69

Construction cost for Hume Region 3.10 0.88

The risk‐adjusted NPV of construction costs for the entire Sydney to Canberra and Sydney to Melbourne stages were specified in the AECOM report.19 The difference between these two values was used as the cost of the Canberra to Melbourne segment. When discounted to 2012, the risk‐adjusted NPV amounted to $9.50 billion.

The aforementioned scaling factor was then used to scale down the Canberra to Melbourne construction costs to the construction costs that will relate to the Hume Region. These costs were then used to generate a constant stream of expenditure over the period from 2032 to 2040, to create an estimate of the annual construction expenditure in the Hume Region.

This resulted in an estimate of $3.10 billion for the risk‐adjusted NPV of the construction cost for the Hume Region. When apportioned into a constant expenditure over the years 2032 to 2040, this amounted to an annual expenditure of $880 million per annum. This represents a significant boost to the Hume economy, which has a current GRP of approximately $16 billion per annum.

The construction cost for the Hume Region accounts for 9.19% of $33.7 billion that constitutes the risk‐adjusted NPV of the entire HSR project.20 The relatively high proportion of the NPV that is accounted for by the Hume Region is likely to be driven by the fact that construction in the Hume Region occurs at one of the earliest points in the project.

The difference between the estimates of annual expenditure from the undiscounted and NPV assumptions reflects the risk‐adjustment undertaken as part of the AECOM report.

19AECOM Phase 2 Report, Chapter 7, Table 7‐2 ‘Summary risk‐adjusted capital costs, revenues, operating costs and asset renewals over the evaluation period (PV, $billion, 4% discount rate)’

20This differs from the $114b cited in the AECOM report in several ways. The AECOM figure is an undiscounted sum of expenditures, whereas the figure in this report is a discounted NPV. The AECOM figure also includes “development costs” which are costs associated with pre‐phase, planning, construction oversight and commissioning. See AECOM Phase 2 Report, Chapter 7, Section 7.3.2



Maintenance stimulus

Table 4.3: Operating Costs (risk adjusted)

Cost Estimate NPV (in 2012) of Operating Costs ($b,

$2012)

Annual Operating Costs ($b, $2012)

Operating cost for Canberra to Melbourne Segment 11.05 1.53

Operating cost for Hume Region 3.61 0.50

Note: The AECOM Phase 2 report did not present undiscounted figures for operating costs (as was the case for detailed construction costs). Annual operating costs were derived by DAE using a 4% discount rate.

For the maintenance stimulus, the net present value (NPV) for the Canberra to Melbourne segment of the route was estimated as the difference between the risk‐adjusted maintenance costs of the Sydney to Melbourne route and the risk adjusted maintenance cost of the Sydney to Canberra route, as specified in the AECOM report.21

The aforementioned scaling factor was then used to scale down the Canberra to Melbourne operating costs to the operating costs that will relate to the Hume Region. These costs were then used to generate a constant stream of expenditure over the period from 2040 to 2085, to create an estimate of the annual construction expenditure in the Hume Region.

This resulted in an estimate of $3.61 billion for the risk‐adjusted NPV of the operating cost for the Hume Region. When apportioned into a constant expenditure over the years 2040 to 2085, this amounted to an annual expenditure of $0.50 billion per year.

The risk‐adjusted NPV of the operating expenditure in the Hume Region accounts for 16.01% of the $42.2 billion that constitutes the risk‐adjusted NPV of the total operating expenditure for the project. This is likely to be accounted for by the fact that the Hume Region rail line is operational for a time period, (45 years, compared to 27 years for the final portion of the HSR line) and the fact that the Hume Region rail line is open relatively early on in the evaluation period.

Timing of construction and maintenance stimulus

Chart 4.1 illustrates the assumed timing of construction and operating costs. The construction of the HSR network in the Hume Region would occur between 2032 and 2040, while operation of the HSR service is assumed to commence in 2040. A response in the economy to construction expenditure starts in 2032 (although with a lag), while operating revenue starts from 2040. Earlier activation of the HSR project than what is assumed here will bring forward economic stimulus.

The indirect impact of the construction and maintenance expenditure is presented in Chapter 5.

The construction and maintenance stimulus to the Hume Region, as presented here, assumes that all expenditure associated with the part of the track that is located in the

21AECOM Phase 2 Report, Chapter 7, Table 7‐2 ‘Summary risk‐adjusted capital costs, revenues, operating costs and asset renewals over the evaluation period’ and Table 7‐13 ‘Total risk-adjusted operating costs ($2012, $billion)’



Hume Region is on goods and services from the Hume Region. This may be a slight overestimate as, in reality, some of the costs (e.g. planning, design, management) may be located in capital cities rather than the Hume Region. At the same time, construction on the HSR track outside the Hume Region may utilise inputs from the Hume Region, which would partially offset the use of inputs from outside the Hume Region for the HSR track in the Hume Region.

Chart 4.1: Construction and Operating Cost ($b) over time

Construction expenditure is thus modelled to start in 2032 and ends in 2040, while operating expenditures are modelled to start from 2040 and continue to 2085.

While these values have been modelled as constant expenditures over time, they will more realistically involve some degree of ramping up from an initially low base. Thus, construction expenditures are likely to in fact begin in 2032 from a lower value and end in 2040 on a lower value, with greater expenditure during the intervening period. Similarly, operating costs are likely to begin from a lower level and increase over time as the rail network becomes more heavily used.

On the one hand, these values overestimate the impact on the Hume Region, as the entirety of construction expenditure is unlikely to be spent on purchases in the Hume Region. On the other hand, these expenditures only reflect the direct expenditures as part of the HSR construction and do not include indirect expenditures in the Hume Region by business and workers employed by the HSR rail project. Furthermore, construction on other segments of the HSR line may result in additional direct and indirect expenditure in the Hume Region.

4.2 Patronage and modal shifts

An HSR system would significantly increase long and medium‐distance transport capacity on the east coast of Australia and would provide an alternative mode of transport to air, car and standard rail travel. The AECOM Phase 2 report estimates that, if the complete HSR

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network was fully operational, it could attract approximately 83.6 million passenger trips by 2065 (with an estimated range of between 46 million and 111 million passenger trips, depending on a change in underlying population and economic growth assumptions).

The estimate of the 2009 east coast travel market is approximately 152 million trips per year. Approximately 35 million trips were made between Melbourne and the intermediate area between Melbourne and Canberra, but this is not further broken down into current trips made from the Hume Region.

4.2.1 Base case (no HSR)

Using the AECOM estimates, and measured values for, the number of trips and a breakdown by mode of transport (Air, car, rail and coach) and purpose (business v non‐business) in a future without HSR, a breakdown of trips for each market by mode and purpose was calculated as shown in Table 4.4, for the whole HSR project. These percentages were applied to the Hume Region in our analysis.

Table 4.4: Breakdown of trips for each market by mode and purpose

Market Purpose Air Car Rail Coach Total

Long regional

Business 7% 9% 0% 0% 17%Non‐business

12% 63% 3% 4% 83%

Short regional

Business 0% 8% 1% 0% 9%Non‐business

0% 82% 6% 3% 91%

The number of trips in the years 2009, 2035, 2050 and 2065 were provided in the AECOM report.22 This included a breakdown in the origin and destination for trips by geography. The segment of the HSR line between Canberra and Melbourne will be referred to as ‘Intermediate 4’.

The number of trips to and from ‘Intermediate 4’ was then calculated, for the years 2009 to 2065. Estimates for years where data was not provided were created by interpolating from the data provided using a constant growth rate in travel for each year.

Trips per year to/from ‘Intermediate 4’ by destination/origin and split into business/non‐business and mode were then apportioned based on the AECOM data and the distinction between long regional and short regional travel applied in the AECOM report.

To estimate the number of trips per year to/from the Hume Region, a scale factor of 56% was applied, reflecting the traffic that originates/stops between Canberra and Melbourne that will stop in the Hume Region.

22AECOM Phase 2 report, Chapter 2, Table 2‐1 ‘Total travel market for 2009 (‘000 trips per year)’, Table 2‐11 ‘Total travel market forecast for 2035 without HSR (‘000 trips per year), Table 2‐12 ‘Total travel market forecast for 2050 without HSR (‘000 trips per year)’ and Table 2‐13 ‘Total travel market forecast for 2065 without HSR (‘000 trips per year)’.



Under these assumptions, the overall number of trips to/from the Hume Region is expected to reach 51.4 million trips by the year 2065, up from 22 million in 2009 (as shown in Table 4.5).

Table 4.5: Number of trips to and from the Hume Region by year and destination (all transport modes) – Base Case (‘000 trips)

From/to Hume Region to/from

2009 2035 2050 2065

Brisbane 280 543 739 941

Gold Coast 190 381 510 638

Newcastle 78 129 151 174

Sydney 1,042 1,686 2,106 2,498

Intermediate 3* 90 134 157 179

Canberra 627 935 1,109 1,254

Melbourne 19,701 32,665 40,320 45,730

Total 22,008 36,473 45,091 51,414

* Intermediate 3 represents stops between Canberra and Sydney Source: AECOM Report

Note: These figures include visitors to the Hume Region, as well as householders and businesses of the Hume Region. The snapshot data presented in this table varies slightly from the time series data used to create the charts due to rounding.

4.2.2 HSR scenario

Starting from the assumptions for the base case, the number of trips per annum for the Hume Region under the HSR scenario was calculated using the following assumptions:

Distribution of trips with HSR by mode of transport (HSR/air/car/rail/coach) and purpose (business/non‐business) for inter‐city, long regional (>250km) and short regional (<250km) as per AECOM Phase 2 report23; and

Number of trips (’000 per year) for the years 2009 to 2065 to/from Intermediate 4 by origin/destination with HSR as per AECOM Phase 2 report24. A scale factor of 56% was applied to estimate the proportion of those trips that originated/stopped in the Hume Region.

It is important to note that these trip estimates do not include commuter trips. The AECOM report assumes that commuter services will be provided for by third parties, and is

23AECOM Phase 2 report, Chapter 2, Table 2‐20 ‘Distribution of east coast travel market by mode of transport and purpose for 2065 (person travel kilometres)’

24The AECOM Phase 2 report provides travel market size in ‘000 trips per year for 2009 and 2065 with HSR: AECOM Phase 2 report, Chapter 2, Table 2‐3 ‘Distribution of east coast travel market by mode of transport and purpose for 2009 (trips)’ and Table 2‐17 ‘Total travel market matrix for 2065 with HSR (‘000 trips per year)’. The number of trips for the years 2009 to 2065 to/from Intermediate 4 by origin/destination with HSR were calculated as follows: For years/station combinations before they are connected to the HSR network, the same numbers as without HSR were used; for years/station combinations after connection to HSR, the annual growth rate in passengers between 2064 and 2065 was calculated, with the growth rate then applied to scale 2065 travel numbers back to the year in which that station was first connected to the HSR network.



accounted for by a nominal access charge that is paid by a third party provider to the HSR network.25

Using those assumptions, all trips to/from the Hume Region – on all modes of transport combined – amount to 53.7 million in 2065, this represents a 4.5% increase in trip numbers as a result of HSR.

Table 4.6: Number of trips to and from the Hume Region by year and destination (all transport modes) – HSR (policy case) (‘000 trips)

Destination 2009 2035 2050 2065

Brisbane 280 543 739 1,103

Gold Coast 190 381 510 756

Newcastle 78 129 190 218

Sydney 1,042 1,686 2,502 2,968

Intermediate 3* 90 134 172 196

Canberra 627 935 1,262 1,428

Melbourne 19,701 32,665 41,485 47,051

Total 22,008 36,473 46,860 53,721

* Intermediate 3 represents stops between Canberra and Sydney. Note: Under these assumptions, the overall number of trips to/from the Hume Region is expected to reach trips 53.7 million by the year 2065, an increase of 2.3 million trips over the base case. Source: AECOM Report

Note: The snapshot data presented in the table varies slightly from the time series data used to create the charts due to rounding.

In total, there are 5.2 million of HSR trips to/from the Hume Region in 2065 (10% of all trips to/from the Hume Region). This includes 4.3 million (82.7%) HSR trips by non‐business users and 0.9 million (17.3%) HSR trips by business users. Chart 4.2 illustrates the number of HSR trips to/from the Hume Region over time.

In line with the AECOM Phase 2 report assumptions, 50% of trips (2.6 million) are by households and businesses in the region, while the remaining 50% of trips (2.6 million) are from visitors to the region.

The 5.2 million HSR trips to/from the Hume Region represents 6.2% of all HSR trips on the Brisbane‐Melbourne HSR network in 2065.

Approximately 96% of these HSR trips reflect a modal shift from another transport option, such as road, rail (non HSR) or air. The other 4% of HSR trips reflect an increase in induced demand – where the trip was made because of the existence of HSR. However, the 5.2 million trips are an underestimate of actual trips, as they do take into account any commuter trips (these were excluded from the AECOM demand forecasts as they would not contribute to the financial performance of HSR due to likely subsidies in line with conventional commuter services).

25 AECOM Phase 2 report, Chapter 7, Section 7.3.1 ‘HSR program financial results’



In particular, HSR provides an alternative to road transport for commuting to capital cities with increasing congestion on road networks. With increasing congestion it may become more time efficient for commuters in the southern part of the Hume Region to travel to a regional HSR station and travel by HSR to Melbourne CBD than to commute by car.

Chart 4.2: Trips by HSR (business and non‐business), Hume Region (policy case), 2009 to 2065

Chart 4.3 to Chart 4.7 illustrates the impact of HSR on trips to/from the Hume Region by purpose and mode of transport. Chart 4.3 shows that HSR slightly increases business travel in the segment. Chart 4.4 to Chart 4.7 illustrates the modal shift in more detail, showing the reduction in other modes of transport once HSR becomes available.

As can be seen from Chart 4.3, the travel to/from the Hume Region is dominated by non‐business travel. The AECOM report indicates that non‐business travel via HSR becomes extremely popular at shorter distances. Given the Hume Region’s proximity to Melbourne, a large share of trips to/from the Hume Region are therefore non‐business trips into and out of Melbourne.

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Chart 4.3: Business Travellers v Non‐Business Travellers, Hume Region – base case versus HSR (policy case), 2009 to 2065

Chart 4.4 shows that the predominant impacts on air travel into/out of the Hume Region occur in two stages:

The first occurs in 2040, when the Hume Region is connected to Sydney, Melbourne and Canberra via the HSR network. This results in a sharp decline in the number of trips by air and reflects the substitution of air trips to HSR for travellers heading to Melbourne and Sydney.

The second impact also results in a decline in the number of air trips and occurs in 2058 when Brisbane and the Gold Coast are connected to the HSR network, which induces another round of substitution of air trips for HSR trips.

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Chart 4.4: Trips by Air, Hume Region – base case versus HSR (policy case), 2009 to 2065

The introduction of the HSR reduces the number of car trips into and out of the Hume Region (Chart 4.5). As the impact of the HSR is not sufficient to completely avoid growth in the number of cars, the net result under the HSR (policy case) scenario is a slower growth in car trips into and out of the Hume Region.

Chart 4.5: Trips by Car, Hume Region – base case versus HSR (policy case), 2009 to 2065

The impact of HSR on standard rail occurs at two major points, as illustrated in Chart 4.6:

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There is a dramatic decline in the number of standard rail trips in 2058, corresponding to the connection of Sydney, Canberra and Melbourne to the Hume Region via HSR. The magnitude of this shock reflects the large share of rail trips into and out of the Hume Region come from or go to those three destinations.

There is a second decline in the number of standard rail trips that occurs in 2058 and corresponds to the connection of Brisbane and the Gold Coast to the Hume Region via HSR. The large distances between Brisbane and the Hume Region make the journey between these two locations relatively unpopular by rail travel, thus producing the more muted impact seen in the chart.

Chart 4.6: Trips by Standard Rail, Hume Region – base case versus HSR (policy case), 2009 to 2065

Chart 4.7 shows that the number of trips by coach is affected by two shocks both of which lead to declines in the number of trips by coach:

The first shock occurs in 2040 with the connection of Hume to Sydney, Canberra and Melbourne via HSR. The relatively modest mode share of coach for journey to those three destinations, results in a relatively muted response.

There is a second shock occurs in 2058, when Brisbane and the Gold Coast are connected to the HSR network. Both shocks represent a substitution away from coach travel towards HSR travel.

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Chart 4.7: Trips by Coach, Hume Region – base case versus HSR (policy case), 2009 to 2065

The net result of the introduction of HSR is a substitution away from all other modes of travel. The magnitude of this substitution increases over time in line with the overall increase in the overall number of trips.

4.3 Changes to relative accessibility Relative accessibility has been assessed by using a geographical information system (GIS) based model, which determines the relative attractiveness of different modal options throughout the Hume Region26.

The accessibility to the nearest regional HSR station is identified in Table 4.7.

The average distance for the populations of each LGA to their nearest HSR station ranges from just over 100 kilometres, for both Mitchell and Murrindindi, to 13 kilometres for Greater Shepparton and 17.5 kilometres for Wodonga. This compares to the average distance for the populations of the Hume region to their nearest HSR station of 47 kilometres.

The relative accessibility also varies greatly by town and city. The closest are Shepparton East and Barnawartha, both within 5 kilometres of the planned Shepparton and Albury Wodonga stations respectively. Accessibility for all towns and cities of the Hume Region is identified in Appendix B.

26The GIS based accessibility assessment was undertaken at a mesh block level, of which there are 4,994 within the Hume Region. The accessibility and modal attractiveness of each mesh block were then added up, population weighted, for each town and LGA in the Hume Region.

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Table 4.7: Relative accessibility

LGA Name Closest Station#

Population (2013)

Average proximity to nearest HSR station (population)

Trips

Alpine (S) Albury 12,044 69.1 218,290 Benalla (RC) Shepparton 13,719 45.3 249,075 Greater Shepparton (C) Shepparton 62,784 13.2 1,424,401 Indigo (S) Albury 15,372 25.5 398,492 Mansfield (S) Shepparton 8,185 89.8 71,004 Mitchell (S) Shepparton 37,366 102.2 313,597 Moira (S) Albury 28,675 49.1 567,200 Murrindindi (S) Shepparton 13,494 102.4 118,219 Strathbogie (S) Shepparton 9,706 43.7 129,427 Towong (S) Albury 5,889 70.2 128,351 Wangaratta (RC) Albury 27,197 48.5 526,501 Wodonga (RC) Albury 37,345 17.5 1,054,445

Source: DAE own calculations

# ‐ note that the closest HSR station varied within some LGAs. In these cases, the closest station identified here is the closest station for a majority of the LGA population. Distances are straight lines.

The relative accessibility to HSR, versus other modes of transport, directly drives the LGA patronage. Of all LGAs within the Hume Region, the highest number of HSR trips per capita is from Wodonga, followed by Indigo and Greater Shepparton. This is identified in Table 4.7, and mapped in Figure 4.1. The lowest come from Mansfield, Mitchell and Murrindindi, all LGAs where there is virtually no incentive to use HSR for a trip to Melbourne, versus alternatives. For those in the south of the Hume Region, the closest HSR station is in Melbourne. As such, the only HSR trips from those LGAs are northbound.

The accessibility model considers not just the proximity to the nearest HSR station, but also proximity to destinations for other modes of transport. As such, HSR use from an LGA such as Towong is high, despite the populations of Towong mostly being relatively distant from their nearest HSR station.



Figure 4.1: HSR trips per annum

4.4 Business Productivity Business productivity is estimated through a combination of a bottom up approach and a top down approach.

User benefits include travel time savings and travel cost savings, expressed in monetary terms. For business users, such savings can be considered an increase in business productivity, which is a direct economic impact. This section will only examine user benefits that flow to users of the HSR and does not estimate the secondary benefits of decongestion for business users using other modes of transport.

The strategy used in this section first estimates the utility from representative trips for business and non‐business users. The user benefits from the AECOM report and the patronage data determined in section 4.2 are then used to determine the user benefits for HSR passengers from the Hume Region. These benefits are then apportioned to business and non‐business users on the basis of the differential utility estimated through representative trips.



4.4.1 Representative Trips

The AECOM Phase 2 report involved the creation of a stated preference survey, which was used to estimate willingness to pay and utility for users of the HSR line. The survey produced a set of values of time ($2012/hr) by trip purpose and market type.27

Travel times and costs were then calculated for a set of representative HSR trips. These trips had two possible origins (Albury‐Wodonga and Shepparton) and two possible destinations (Melbourne CBD and Sydney CBD). Costs in both time and expenses were calculated for each combination of origin‐destination and purpose.

The total cost for each trip was thus broken down into access time, access cost, wait time, in‐vehicle time, egress time, egress cost and fare cost:

Access times were derived using GIS data to estimate the average travel time that residents in each origin area would take to reach a terminal for modes that required access to a terminal (e.g. HSR). Access costs were estimated using the Vehicle Operating Cost (VOC) of driving to a given terminal.

Wait times were determined by reference to example scenarios provided in the AECOM report and were estimated to be approximate to the situation in Wagga Wagga.28

In vehicle travel times were derived either from values found in the AECOM report29. This was replicated for all origin‐destination combinations.

Fare costs were derived from the AECOM report30, while VOC were derived from Transport for NSW benchmark estimates.31

Combining this data created an estimate for the total travel cost of HSR in dollar terms, for different trip purposes and destinations.

4.4.2 Estimating Northbound and Southbound Trips

Population and geographical information were used as inputs into a gravity model to generate an estimate for the proportion of trips from Albury‐Wodonga and Shepparton that would be Northbound and Southbound.

From the Albury‐Wodonga station, we estimate that 50.3% of the Hume originated trips would be southbound on the HSR route. The equivalent figure for the Shepparton station is 49.7%. The lower figure for Shepparton largely reflects the relatively lower attractiveness of

27AECOM Phase 2 Report, Chapter 2, Table 2‐14 ‘Derived values of time ($2012/hr)’ and Appendix 1D, ‘Stated Preference Survey’

28AECOM Phase 2 Report, Chapter 8, Table 8‐6 ‘Generalised cost comparison – Wagga Wagga to Sydney CBD air/car versus HSR (in minutes)’

29AECOM Phase 2 Report, Chapter 2, Table ES‐2 ‘Typical HSR travel times and distances between selected stations on Sydney‐Melbourne line’

30 AECOM Phase 2 Report, Chapter 2, Table 2‐9 ‘Selected reference case fares for 2065 ($2012 price levels)’

31Transport for NSW (2013) Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives



HSR from Shepparton to Melbourne over a road alternative, owing to its shorter driving time to Melbourne.

Table 4.8: Proportion of Northbound and Southbound trips by origin

Origin Southbound Northbound

Albury‐Wodonga 50.30% 37.70%

Shepparton 49.70% 62.30%

For each origin, Northbound trips were therefore assumed to involve the same costs as the representative trips to Sydney. Southbound trips were assumed to be to Melbourne.

4.4.3 Disaggregating into business and non‐business benefits

As trip costs are derived using estimates of utility for each trip, the ratio of benefits between business and non‐business trips is derived using the estimates from section 4.4.1.

The estimated ratio between the benefits to business users and non‐business users is thus estimated to be the same as the ratio between the total costs for business users and the total costs for non‐business users. This is performed for each destination along the HSR line.

4.4.4 Overall use benefits

The total user benefits estimated in the AECOM report for users departing from the Hume Region in 2065 are scaled to provide user benefits for each year and for each destination along the HSR line.32

For each year, the destinations where the HSR does not yet connect to the Hume Region, have a user benefit of 0 assigned. For years in which the destination has been connected to the HSR, the user benefit is scaled from the estimate for user benefits in 2065 using the number of trips taken to that destination as per section 4.2.

4.4.5 Rescaling the overall benefits

The estimated benefits from section 4.4.4 are rescaled between business and non‐business benefits for each destination along the HSR line using the ratios from section 4.4.3.

4.4.6 Business User Benefits

The total user benefit to the Hume Region, to 2065, was estimated as having an NPV of $2.43 billion, which represents 1.73% of the user benefit of the total HSR project ($140.7 billion).

The majority of use benefits are to non‐business users. For example in 2065, 17% of HSR trips are for business purposes while 83% of HSR are for non‐business purposes.

32AECOM Phase 2 Report, Chapter 8, Table 8‐10 ‘User benefits by production and attraction sectors, 2065 (undiscounted, $2012, $billion)’



However, as a result of the higher value of time associated with business trips, a disproportionate share of the use benefits accrues to business users, as shown in Chart 4.8. In 2065, 42% of the user benefits from HSR accrue to business users while only 58% of the benefits accrue to non‐business users. In that year, the annual business use benefit was estimated as $250 million in $2012. This corresponds to 1.6% of the Hume Region’s current gross regional product (GRP).

Overall, 40% of the use benefit was associated with business users, calculated as an NPV of $965 million.

Chart 4.8: User benefits over time: business and non‐business

To understand the scale of the benefits on an individual level, it is worthwhile to look at user benefits in the year 2065 for individuals residing in the Hume Region.

In 2065, the total benefit accruing to business users is $250 million, spread out across 896,000 business trips. This translates into an average benefit per trip of $278 for business users from the Hume Region in 2065.33,34

33This compares to an average user benefit of $208 per trip for all users (business and non‐business) across the total HSR network in 2065. The difference in these values is driven primarily by the fact that business users are afforded a higher value of time than non‐business users. The comparable average user benefit for the Hume region for all users (business and non‐business) is $115. The smaller average benefit per trip for the Hume region reflects the difference in the relative share of business to non‐business trips and the shorter trips, on average, than for the whole HSR route.

34The average benefit per trip relates to the differential between the (combined travel and time) cost of an alternative mode of transport and the cost of HSR and thus can be considered a gain in consumer surplus. The user benefits depend on the HSR ticket price. The user benefit estimates in this report are based on the ticket price assumptions in the AECOM Phase 2 Report. If ticket prices were lower than assumed there, business user benefits would be higher; if ticket prices were higher, business user benefits would be lower. The

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The spatial pattern of use benefits within the Hume Region largely follows the use patterns described earlier, with Wodonga (and Albury), Indigo and Greater Shepparton experiencing the greatest per capita benefits, and Mansfield, Mitchell and Murrindindi the lowest.

The per trip (as distinct from per capita) benefits are typically highest in the LGAs from where the distance travelled on HSR is greatest and where alternative modes are much slower. The per trip benefits are greatest in Wodonga and Towong, for whom trips to destination on other modes would take them close to a HSR station, compared to other LGAs where the trip to the HSR station might be out of the way to the eventual destination.

The benefits from HSR may be an underestimate as the analysis was based on current accessibility estimates and did not consider the impact of future population growth on travel times. For instance, with significant population growth forecast for metropolitan Melbourne, travel times to Melbourne CBD are likely to increase significantly compared to current estimates. Increased congestion in metropolitan Melbourne makes HSR an even more attractive mode of transport compared to car travel.

Furthermore, the analysis did not consider how the region might adapt to HSR. For instance, it is possible that bus services would be provided to the HSR stations. The availability of public transport could reduce the cost associated with getting to the HSR station (if travel times on a bus are comparable to travel times in a car), thus increasing use benefits.

4.5 Household welfare gains The household welfare gains are represented by the benefits to non‐business users of the HSR system. Using the estimation set up earlier, the non‐business use benefits were calculated. While travel time and travel cost savings are benefits to households, they are not considered direct economic impacts.

The benefit for non‐business users of the HSR was calculated as having an NPV of $1.464 billion, which represents 60% of the benefit accruing to users departing from the Hume Region. In 2065, the annual non‐business use benefit was estimated as $350 million.

Similarly, to understand the scale of the benefits on an individual level, it is worthwhile to look at user benefits in the year 2065 for individuals residing in the Hume Region. Performing a similar calculation as above, in 2065 non‐business users receive a total benefit of $350 million spread out across 4,303,000 trips. This translates into a per trip benefit of $81.

4.6 Population and human capital

In addition to the direct use values, it is also likely that HSR will attract both businesses and population to the region. This will be modelled in a CGE environment (as outlined in Chapter 5). However, to inform this analysis, this chapter provides a review of population

revenue from ticket sales is not considered to be benefit to the region, with the operator assumed to be based outside the Hume Region.



migration effects of HSR overseas and some conclusions on the likely benefits for the Hume Region.

The AECOM Phase 2 report suggests that HSR could attract a different mix of residents and higher order employment opportunities given appropriate policy responses.

However, regional population forecasts for centres along the preferred HSR alignment were based on ABS and state government data35 only and did not consider the impact of HSR on population growth in those areas that are set to benefit from HSR. Using those projections, the AECOM report describes population trends were as follows:

The City of Greater Shepparton had a population of approximately 60,449 people in 2011, which is projected to grow to 80,400 in 2036 and 88,200 in 2056 (ABS data).

Of the population of Albury‐Wodonga, 42% (35,355 people, i.e. the population of Wodonga) are located in the Hume Region. However, the population overall was 83,329 in 2011, which is projected to grow to 106,700 in 2036 and 113,500 in 2056 (ABS data).

Although Shepparton and Wodonga are major growth centres in the region (with Albury also set for above average regional growth36) – as shown in Figure 4.1 – other LGAs, such as Mansfield, Mitchell, Moira and Murrindindi, are expected to grow significantly over time with growth rates above the regional average37. The regional town of Benalla and the regional city of Wangaratta are also expected to grow, but at somewhat smaller rates (shown as ‘medium to high growth locations’ in Figure 4.1).

35Forecast derived using a combination of ABS data (ABS, Population Projections Australia 2006 to 2101, catalogue no. 3222.0 (mid‐range projections)) and state projections. Beyond the state forecast horizon, the growth rate from the corresponding ABS ‘balance of state’ population projection was used to extrapolate SLA populations to 2056. Trends in balance of state growth rates to 2056 were extrapolated to 2065 and then controlled to the ABS national forecast growth in this period.

36 NSW Department of Planning (2009) Draft Murray Regional Strategy.

37 Victorian government (2014) Hume Regional Growth Plan



Figure 4.2: Hume – Future urban growth

Source: Victorian government (2014) Hume Regional Growth Plan

It is likely that HSR will lead to population growth over and above the baseline projections, although the effect is likely to be most pronounced in the LGAs closest to the HSR stations. Furthermore, there is uncertainty around the magnitude of this increase.

In international studies on HSR, population growth impacts are often inconclusive, as outlined in the discussion around regional development impacts presented in Chapter 2.

Stanke (2009), reviewing studies on the residential effect of HSR, for instance, shows that HSR services that provide a travel time of less than an hour to a major employment centre can attract long‐range commuters. However, the effects of HSR services on a labour market are twofold:

It allows current residents of the cities to commute to another city, eventually leading many of them to move to the city they work in.

Residents who live and work in the same city may move to a more distant location they find more desirable that is now HSR accessible.

Stanke’s analysis of population growth patterns in French cities with HSR stations showed that HSR can lead to a re‐concentration of population, slowing population dispersal and increasing population density especially in the central part of the urban areas, if HSR stations are centrally located. Overall, HSR is more likely to affect growth patterns than overall growth rates. However, the direction in which population redistribution occurs can be difficult to predict.

In the case of the Hume Region, the following population trends are likely to occur:



Existing residents being able to commute further to a workplace helps with population retention: With HSR, people based in the Hume Region can commute to a workplace that is further in distance from their place of residence but commutable in terms of travel time. In particular, Melbourne will become an option for a place to work without having to move there. This makes staying in the Hume Region more attractive for the current population.

Very few people leaving the Hume Region after having commuted for some time: While some people might move to the place where they work (as was suggested in the international literature), this is less likely to be the case here. Significant differences in real estate prices between the Hume Region and capital cities such as Melbourne may limit people’s ability to do so. Hence, the negative effect on population in the Hume Region is expected to be small.

People moving to the Hume Region but continuing to commute leads to population growth: The reverse effect is expected to be significantly bigger: HSR is likely to result in people moving away from Melbourne to a more distant location in the Hume Region as a result of that location being seen as more desirable (due to lower real estate prices, reduced congestion or for other lifestyle reasons). Such a scenario is most likely to occur in Shepparton, which would be located less than an hour from Melbourne on HSR and thus considered commutable on a daily basis. While the same is true for Albury‐Wodonga, the fact that it is over an hour to either Melbourne or Canberra means that the effect would be less pronounced.

Regional economic development leads to greater demand for labour within the region, further attracting new residents: Regional development impacts associated with HSR are expected to result in employment growth in the region. This may result in more people based outside the Hume Region commuting to a workplace in the Hume Region (e.g. on HSR) or, ultimately more likely, people from outside the region locating to the Hume Region.

Considering the various factors affecting population growth, the Hume Region is likely to experience population growth over and above its projected growth as a result of HSR.

Looking at the ABS Census 2011 Journey to work data (Table 4.9) for the share of residents in regional centres commuting to metropolitan Melbourne, this suggests that with Melbourne becoming commutable from Shepparton and Wodonga, the share of residents commuting to Melbourne using public transport could be as high as the current share of commuters using public transport from Ballarat or Geelong.

Assuming that the share of public transport users in Shepparton is as high as the current share in Geelong (3.1%) and the share of public transport users in Wodonga is as high as the current share in Ballarat (1.7%), HSR would increase the number of commuters in Shepparton by 796 (from 16 to 812) and in Wodonga by 270 (from 10 to 280). We can further assume that these additional commuters currently reside in metropolitan Melbourne and move to the Hume Region as a result of HSR. Hence, the additional commuter population in those two regional cities alone would amount to 1,067. Assuming every commuter represents one household (at an average size of 2.6 persons), this results in an increase in population of 2,757 people (a 2.7% increase relative to



current population of Shepparton and Wodonga, or a 1.0% increase relative to the current population of the total Hume Region).38

Assuming five return trips (i.e. 10 single trips) per commuter per week for 48 weeks a year, this would lead to an extra 512,160 trips per annum.

This estimate is based on Shepparton and Wodonga only and does not include population impacts from surrounding LGAs in the Hume Region, for which the share of commuters using HSR would be somewhat lower depending on their distance to the HSR stations. The overall number of commuters would be somewhat larger than estimated here.

The data also supports the assertion above that the share of people living in Melbourne and commuting to a regional centre is significantly lower than the reverse.

38Extending this analysis of Wodonga to Albury (which currently has 21,293 employees), means that HSR could increase population by 362 (an increase of 0.9% from currently 50,243).



Table 4.9: Journey to work data, regional councils, 2011

Number of Employees

Commuting time (to Melbourne LGA)

Journey to work to metropolitan LGA (Number of employees, % of all employees)

Journey to work to metropolitan LGA using public transport

Journey to work from metropolitan LGA (Number of employees, % of all employees)

Journey to work from metropolitan LGA using public transport

Greater Dandenong

53,956 30min (car)

1h (train)

Melb: 3,807 (8%)

Other metro: 9,801 (20%)

Melb: 2,539 (4.7%)

Other metro: 1,490 (2.8%)

17,808 (26%) 612

Frankston 59,989 45min (car)

1h (train)

Melb: 2,925 (6%)

Other metro: 10,275 (20%)

Melb: 1,753 (4.9%)

Other metro: 771 (1.3%)

3,332 (11%) 161

Greater Geelong

94,522 1h (car)

1h (train)

8,546 (11%) 2,911 (3.1%) 1,999 (3%) 229

Ballarat 42,077 1h15min (car)

1h20min(train)

1,690 (5%) 695 (1.7%) 495 (2%) 63

Seymour (Mitchell LGA)

15,860 1h15min (car)

1h30min (train)

2,789 (21%) 631 (4.0%) 443 (6%) 34

Greater Bendigo

45,234 1h47min (car)

2h (train)

1,021 (3%) 220 (0.5%) 468 (1%) 56

Greater Shepparton

26,381 2h (car) 258 (<1%) 16 (0.1%) 165 (<1%) 3

Wodonga 16,964 3h30min (car) 117 (<1%) 10 (0.1%) 102 (<1%) 12

Source: http://www.transport.vic.gov.au/research/statistics/victorian‐transport‐atlas/regional‐councils

4.7 Environmental changes and other impacts

4.7.1 Environmental and decongestion impacts

According to the AECOM Phase 2 report (Appendix 5), the diversion of trips to HSR results in a reduction in passenger kilometres travelled on existing modes (i.e. car, rail, aviation and coach) and an increase in passenger kilometres by HSR. The change in passenger kilometres by mode results in the following external impacts:

A reduction in air pollution and noise pollution: High speed rail produces less greenhouse gas emissions for a given transport task than existing transport modes (i.e. aviation, car, bus and conventional rail). As a result, a shift in demand for HSR away from existing modes results in a net reduction in greenhouse gas emissions, generating a benefit of around $2 billion over the appraisal timeframe (not taking into account the specific environmental impacts associated with the Sydney corridor). The impact of the future HSR program on air pollution and noise pollution is relatively minimal, generating an estimated present value net benefit of $29 million for air pollution and $13 million for noise pollution.



Decongestion: a reduction in urban and non‐urban road network congestion: A future HSR program would lead to a reduction in urban motor traffic by serving the city centre, which is the ultimate destination for many travellers (who would no longer need to travel there from the airport; instead their trip would consist of HSR plus public transport or a short taxi ride). It would also divert travel from cars (whose journeys include an urban component) to HSR plus public transport. The reduction in urban car travel is likely to result in a reduction in congestion.

The AECOM Phase 2 report makes the following assumptions to estimate those environmental externalities, which are shown to be significantly lower for HSR than alternative modes of transport:39

Monetary impact associated with greenhouse gas emission (in $ per 1000 passenger km) are $2.50 for HSR – compared to $4.90 for aviation, $0.80 for coach, $7.20 for car (business), $4.20 for car (leisure) and $1.90 for conventional rail, i.e. compared to air and road, HSR reduces emissions by around 50%

Air pollution costs (in $ per 1000 passenger km) are $0.00 for HSR – compared to $0.07 for aviation, $0.04 for coach, $0.08 for car (business), $0.04 for car (leisure) and $0.76 for conventional rail (i.e. diesel trains), i.e. HSR is assumed to eliminate air pollution

Noise pollution impacts (in $ per 1000 passenger km) are $0.02 for HSR – compared to $0.14 for aviation, $0.06 for coach, $0.30 for car (business), $0.18 for car (leisure) and $0.11 for conventional rail.

However, although HSR is associated with a significant reduction in negative externalities on a per passenger kilometre basis, HSR is also associated with induced demand, which results in an increase in the total passenger kilometres travelled.

In the case of greenhouse gas emissions, the benefits from reduced emissions as a result of mode shift are outweighed by the increase in passenger kilometres travelled, so that HSR is estimated to be associated with an increase in greenhouse gas emissions in the case of the Hume Region. This increase in greenhouse gas emissions from travel are additional to the environmental impacts associated with construction (Table 4.10) and any emissions resulting from the commute to the HSR stations.

Table 4.10: Construction emissions

Scope 1 emissions

Scope 2 emissions

Total emissions

Albury‐Wodonga to Shepparton 164,912 8,424 173,336

Shepparton to Melbourne 259,340 685,715 945,055

Total t CO2‐e (Brisbane to Melbourne) 3,895,867 7,520,248 11,416,115

Note: Construction assumed to commence in 2032.

In the case of air pollution, HSR is considered to bring some environmental benefits to the Hume Region. The benefit of reduced air pollution up to 2065 as a result of HSR is estimated to be $668,000 (NPV, in $2012). The annual benefit in 2065 is around $230,000.

39 AECOM Phase 2 Report, Appendix 5B, p.18.



Other externalities, such as decongestion and noise pollution, are more closely linked to densely populated areas and are thus considered to be of lesser relevance to the Hume Region. However, for residents close to transport corridors, HSR is expected to have significant benefits in relation to those externalities.

Overall, while HSR is generally associated with significant environmental and decongestion benefits, the externality impact for the Hume Region may be negative due to a combination of increase travel, construction and some of the benefits applying mostly to densely populated areas.

4.7.2 Safety impacts

HSR is also associated with improved safety and a reduction of traffic accidents (as measured by the cost associated with fatalities and serious injuries). The AECOM Phase 2 report assumes an accident unit cost rate (in $ per 1000 passenger km) of $0 for HSR, compared to $9.30 for road (weighted by road type), $6.10 for conventional rail and $0.40 for aviation.40

Using the same approach as for the environmental impacts, safety benefits from HSR for the Hume Region are estimated to be $30.6 million by 2065 (NPV, in $2012). The annual benefit in 2065 is around $12.6 million.

Hence, HSR – as the safest mode of transport – is expected to be significant in the reduction of transport accident costs. Even an increase in passenger kilometres is still associated with a reduction in road accident costs for the Hume Region. However, while the benefit is significant, the value presented may be a slight overstatement, as it does not take into account the road accident costs associated with the commute to HSR stations.

4.7.3 Social impacts

In addition to the household welfare gains (associated with travel time savings) discussed in Section 4.5, the AECOM Phase 2 report notes a series of likely social impacts from HSR, including:

workforce and community development;

access to higher education;

access to health and other public services; and

social inclusion.

Workers in regional Victoria are less likely to hold post‐school qualifications, with a significant share of residents not having any post school qualification. In fact, the Hume Region has consistently underperformed in the area of education compared to Melbourne, with Hume having the lowest Year 7‐12 school retention rates.41

40 AECOM Phase 2 Report, Appendix 5B, p.20.

41 http://www.rdv.vic.gov.au/regional‐development‐australia/committees/hume/education and http://www.rdv.vic.gov.au/regional‐development‐australia/committees/hume/workforce‐development



HSR can enhance higher education and technical training opportunities in the Hume Region, as it promotes resource sharing and rationalisation of university resources, by allowing universities to provide advanced degrees in more areas by moving academic staff quickly and easily within the corridor. This allows more students to pursue advanced degrees in non‐metropolitan settings where living costs are generally lower than in capital cities, and for companies to provide upgraded training to staff in distant locations. In this context, the AECOM Phase 2 report notes Albury‐Wodonga is already home to two universities, Charles Sturt University and La Trobe University, although only a limited selection of subjects is currently provided by those universities.

More higher education opportunities in the region and improved access to higher education and employment opportunities in capital cities can also support youth retention in the Hume Region. Demographic groups that would traditionally leave are maintained, as HSR means that they are now within commuting distance to a wide range of opportunities.

HSR can also link the region to improved health services. An ageing population will place significant structural demographic pressure on Australia’s metropolitan and regional health systems to meet the growing needs of populations. HSR can provide increased access to those people in the Hume Region served by HSR that will require health services, but cannot effectively access them due to current private and public transport arrangements. In particular access to specialist health care services can be improved.

Finally, the AECOM Phase 2 report notes that HSR can also assist in closing the physical, social and economic distances separating socially disadvantaged people in regional areas, such as the Hume Region. Better transport linkages have the potential to benefit the elderly, disabled and other mobility impaired people in regional station locations as ‘many in this group feel socially excluded because they have lost an important means of maintaining their independence and connection with their community.

4.7.4 Tourism impacts

Tourism in the Hume Region is driven by the region’s proximity to Melbourne, its natural attractions and a diversity of events and festivals on offer throughout the year. In addition to winter visitation focussed on the snowfields, there is significant summer tourism based along the Murray River corridor and in the valleys and historic townships of the Upper Hume and Central Hume sub regions. High quality food and wine products are substantial contributors to the region’s economy. A number of towns have large water based activity areas with a constant water supply available.42

Tourism is an economic and employment growth sector for the Hume Region, with 2.5 million domestic overnight visitors and 4 million domestic day visitors to the region annually (Table 4.11). Tourism expenditure amounts to more than $1.3 billion per annum from domestic tourists alone.43

42 http://www.rdv.vic.gov.au/regional‐development‐australia/committees/hume/tourism

43The NSW Murray tourism region (which includes Albury) receives 2.2 million domestic visitors per annum (1.2 million day visitors, 1 million overnight visitors), which could add another 90,000 visitors trips into the region.



Table 4.11: Tourism statistics, Hume Region

Expenditure($ million)

Visitor numbers ('000)

Visitor nights ('000)

Domestic day 400 4,057 n/a

Domestic overnight 970 2,586 7,357

Source: http://www.tra.gov.au/statistics/Regional‐overview.html. Note: The Hume Region consists of the following tourism regions: High Country, Goulburn, Central Murray, Murray East and Upper Yarra. International tourism statistics were not available at the regional level. However, for Victoria the ratio of domestic tourists to international tourists is 33:1, while the expenditure ratio is 3.23:1.

HSR can have significant impacts on tourism: reduced transport costs (through travel time reductions or other cost savings) and improvements in the level of services do not only improve accessibility to the Hume residents, but also open the region to tourists.

International studies, which looked at the impact of HSR on tourism, note that HSR can significantly change the travel pattern: the AECOM report, for instance, notes that HSR in Spain led to an increase in short‐term tourism, such as congress tourism (day return trips) and leisure tourism, but a reduction in overnight stays.

Other studies were either mixed or showed a clear positive impact: Tanaka and Monji (2009), looking at the impact of HSR on tourism in the US, concluded that tourism impacts were inconclusive. However, Chen and Haynes (2012) argued that HSR is likely to provide a significant impact on boosting tourism in China, e.g. provinces with HSR services are likely to have 20% additional numbers of foreign arrivals and 25% greater tourism revenues than provinces without such systems. Masson and Petiot (2009) conclude that the effects of HSR on tourism are selective and depend on existing tourism resources; the destinations with the highest tourism potential are set to benefit the most from HSR.

If we assume that the tourism trips in the Hume Region increase by the same amount as total trips increased due to induced demand (an increase of just over 4%) then there would be an additional 265,620 domestic visitors coming to the region each year, with a value of $54.8 million per annum.44 This represents approximately 0.35% of current Hume Region GRP.

44 This does not include international tourists.



5 Total impacts for the Hume Region

5.1 CGE model inputs

To quantify how HSR is expected to affect the Hume regional economy over time, DAE undertook Computable General Equilibrium (CGE) modelling, which allowed us to quantify the regional economic impacts of HSR to the Hume Region overall, and to its Local Government components ‐ both during and following construction ‐ by comparing the HSR scenario (as specified in Section 2.2) with the base case or counterfactual of no HSR (as specified in Section 3.3).

For this analysis of the economy‐wide impacts resulting from having two HSR stations located in the Hume Region, we custom‐built a version of the CGE model with each of the 12 LGAs in the Hume Region as units in the model, in their full state, national and global context. Details on DAE’s Regional CGE model are provided in Appendix A.

The model was used to analyse the flow‐on impacts to the regional economy over time resulting from the four types of direct benefits of HSR estimated in Chapter 4:

construction and maintenance expenditure, which acts as a stimulus to some industries of the Hume Region;

business use benefits, which represent the direct cost saving that the HSR provides for the business of the region;

tourism expenditure from additional visitors to the region as a result of HSR; and

increased population from commuters moving to the region, which increases demand for industries serving the bigger population.

The four types of direct benefits provided the inputs into the CGE model, with the time series of the inputs shown in Table 5.1.



Table 5.1: Summary of CGE inputs

Year Construction cost ($million)

Maintenance Cost ($million)

Business Use Benefits ($million)

Tourism expenditure ($million)

Extra population(in number of households) from commuters (Wodonga & Shepparton only)

2012 0.00 0.00 0.00 0.00 02013 0.00 0.00 0.00 0.00 02014 0.00 0.00 0.00 0.00 02015 0.00 0.00 0.00 0.00 02016 0.00 0.00 0.00 0.00 02017 0.00 0.00 0.00 0.00 02018 0.00 0.00 0.00 0.00 02019 0.00 0.00 0.00 0.00 02020 0.00 0.00 0.00 0.00 02021 0.00 0.00 0.00 0.00 02022 0.00 0.00 0.00 0.00 02023 0.00 0.00 0.00 0.00 02024 0.00 0.00 0.00 0.00 02025 0.00 0.00 0.00 0.00 02026 0.00 0.00 0.00 0.00 02027 0.00 0.00 0.00 0.00 02028 0.00 0.00 0.00 0.00 02029 0.00 0.00 0.00 0.00 02030 0.00 0.00 0.00 0.00 02031 0.00 0.00 0.00 0.00 02032 879.15 0.00 0.00 0.00 02033 879.15 0.00 0.00 0.00 02034 879.15 0.00 0.00 0.00 02035 879.15 0.00 0.00 0.00 02036 879.15 0.00 0.00 0.00 02037 879.15 0.00 0.00 0.00 02038 879.15 0.00 0.00 0.00 02039 879.15 0.00 0.00 0.00 02040 879.15 498.14 150.60 121.54 1072041 0.00 498.14 152.09 113.80 2132042 0.00 498.14 153.60 106.11 3202043 0.00 498.14 155.13 98.46 4272044 0.00 498.14 156.67 90.86 5342045 0.00 498.14 163.18 84.52 6402046 0.00 498.14 164.80 76.99 7472047 0.00 498.14 166.43 69.50 8542048 0.00 498.14 168.08 62.06 9602049 0.00 498.14 169.75 54.66 1,0672050 0.00 498.14 171.43 47.30 1,0672051 0.00 498.14 173.13 47.32 1,0672052 0.00 498.14 174.85 47.34 1,0672053 0.00 498.14 176.59 47.35 1,0672054 0.00 498.14 178.34 47.37 1,0672055 0.00 498.14 180.11 47.39 1,0672056 0.00 498.14 181.90 47.40 1,0672057 0.00 498.14 183.71 47.42 1,0672058 0.00 498.14 230.94 54.32 1,0672059 0.00 498.14 233.50 54.39 1,0672060 0.00 498.14 236.09 54.45 1,0672061 0.00 498.14 238.71 54.52 1,0672062 0.00 498.14 241.36 54.58 1,0672063 0.00 498.14 244.04 54.65 1,0672064 0.00 498.14 246.76 54.71 1,0672065 0.00 498.14 249.50 54.78 1,067

Note: Construction expenditure was not an explicit input into the CGE model. Rather the CGE model automatically assumes that there is maintenance expenditure associated with the construction expenditure in the years following construction.



5.2 Aggregate economic impacts on the Hume Region

Using the inputs outline above, the CGE model then calculates changes in macroeconomic aggregates such as GRP, employment, exports, investment and private consumption. Those macroeconomic outcomes for each scenario were compared to the base case, with deviations from the base case illustrated in Chart 5.1 to Chart 5.3.

By 2065, when the HSR network is assumed to be fully operational, the Hume Region’s GRP is expected be $948 million higher as a result of having the two HSR stations located in the region than under the base case (no HSR), as shown in Chart 5.1. The increase in GRP represents a 2.7% increase in the size of the economy of the Hume Region relative to the base case. In comparison, the Hume Region’s current GRP is around $16 billion.

The chart also shows that the impact from construction expenditure (around $880 million up to 2040) is relatively minor compared to the benefits from the increase in business productivity, tourism, population and ongoing maintenance spending (from 2040 to 2065 and beyond).

Chart 5.1: Hume GRP – deviations ($ million)

HSR is also estimated to have a significant impact on employment: by 2065, HSR is estimated to increase full‐time equivalent (FTE) employment in the Hume Region by 844, as shown in Chart 5.2. This represents a 0.63% increase relative to the base case of no HSR. While construction of the HSR line has some impact on employment up to 2040 (resulting in almost 300 additional FTEs), the more significant impact comes again from the combination of maintenance, business productivity and increased population. In comparison, the Hume Region currently has around 100,000 FTEs.

‐

100

200

300

400

500

600

700

800

900

1,000

2030 2035 2040 2045 2050 2055 2060 2065

GDP ‐ deviations $AU2013/14 million



Chart 5.2: Hume employment – deviations (FTE)

HSR is also expected to increase household consumption, investment, exports and wages in the Hume Region. Household consumption is estimated to be $503 million (or 1.7%) higher under the HSR scenario relative to the base case of no HSR, as shown in Chart 5.3, while investment in the region is an estimated $268 million (or 5.1% higher).

Chart 5.3: Hume household consumption – deviations ($ million)

The CGE modelling results presented here only quantify the impacts on the Hume Region of the stations in the Hume Region. The modelling also suggests some leakage of benefits to adjoining regions from stations in the Hume Region. This would be most apparent for southern NSW, whose households and business near the state border would be users of the

‐

100

200

300

400

500

600

700

800

900

2030 2035 2040 2045 2050 2055 2060 2065

Employment ‐ FTE

‐

50

100

150

200

250

300

350

400

450

500

2030 2035 2040 2045 2050 2055 2060

Household Consumption ‐ deviations $AU2013/14 million



Albury‐Wodonga station, and whose functioning economy is linked very closely to that of the northern part of the Hume Region. Hence, the flow on economic developments opportunities from the Albury‐Wodonga station spill over the border.

The reverse is also true, and economic development in southern NSW also spills south into northern Victoria. To the extent that the modelling does not capture the flow on impacts from southern NSW back into the Hume Region, this modelling understates the total economic impacts.

A final consideration in interpreting these regional benefits is that they are not merely a proportion of the national benefits outlined in the AECOM report. This is because some of the benefits articulated here for the Hume region come at the expense of activity for other areas – as economic activity and population is attracted into the Hume region and away from somewhere else. While these types of relocated benefits within a nation are a net gain to the region where the benefits flow to, there is no net effect for the nation as a whole. However, relocated benefits are only part of the total benefits to the Hume region, and some of the benefits to the Hume region are indeed net benefits to the nation.

5.3 Population growth impacts

HSR has a number of regional economic development impacts, as discussed earlier. The growth of the regional economy, as analysed through the CGE model, leads to an increased demand for labour within the region. This employment growth results in more people based outside the Hume Region commuting to a workplace in the Hume Region, but is also expected to lead to people from outside the region locating to the Hume Region.

Assuming a constant ratio between employment and population45, the CGE employment growth results can be used to estimate the additional population as a result of additional employment in the region. In line with the increase in employment discussed in Section 5.2, population is expected to increase by 0.6% relative to the base case of no HSR.

Based on current population figures, this would equate to an additional 1,707 residents in the Hume Region now. In 2065 terms (and taking into account population growth), this would represent an additional 2,303 residents. This is the additional population resulting from the additional employment in the region.

In addition to the additional employment in the region, there will also be the additional commuting effect in the region (Section 4.6) – 2,757 people who will live in the region but commute elsewhere for work.

In terms of today’s population in the Hume Region, the sum of the two types of population increases equates to 4,464 people, or 1.6% of the current Hume population of 271,776. This would the effect of HSR if it existed today. Applied to the 2065 population, the population increase is 6,010 (Table 6.1).

45 Calculations were based on 99,586 FTEs relative to a population of 271,776, i.e. a ratio of 0.37.



Table 5.2: Population impact

Present % 2065

Impacts of commuting effect 2,757 1.0% 3,707

Impacts of employment effect 1,707 0.6% 2,303

Total impacts on population growth 4,464 1.6% 6,010

5.4 Sub regional impacts

All LGAs within the Hume Region are set to benefit, as identified in 5.2 and mapped in Figure 5.1.

Table 5.3: LGA HSR impacts ‐ 2065

LGA Name Household benefits (A$2013 million)

Business productivity (A$2013 million)

Additional tourism expenditure (A$2013 million)

Additional population

GRP Impacts (A$2013 million)

GRP impacts per capita ($A)

Alpine (S) 15 11 7 97 42 2,557Benalla (RC) 17 12 2 110 46 2,497Greater Shepparton (C)

96 68 10 3,403 257 3,036

Indigo (S) 27 18 4 334 67 3,235Mansfield (S) 5 4 4 31 17 1,548Mitchell (S) 21 16 3 139 64 1,269Moira (S) 38 27 6 251 102 2,633Murrindindi (S) 8 6 3 52 25 1,389Strathbogie (S) 9 6 2 57 25 1,945Towong (S) 9 6 1 57 23 2,875Wangaratta (RC) 35 25 5 233 98 2,666Wodonga (RC) 71 49 7 1,247 182 3,616Total 350 250 55 6,010 948 2,587

Using one measure of economic development – the increase in gross regional product (GRP) per capita attributable to HSR – the greatest overall economic impacts per capita are experienced in Wodonga, Indigo, Greater Shepparton and Towong. These are the LGAs where HSR has the highest direct use values. This is illustrated in Figure 5.1.

Not only is the Indigo population located close to the station, it is also an area with a strong tourism sector. In fact, on a trips per capita basis, Indigo is second only to Alpine for its tourism dependency. With an already strong tourism sector, and with the tourism attractions of Indigo close to the Albury‐Wodonga station, it is the LGAS that stands to benefit most from the tourism benefits of HSR. The same tourism effect also drives much of the impact on Alpine LGA.

By comparison, the large impacts in Wodonga and Greater Shepparton result more from the direct use values to household and business HSR users, the additional population from commuters migrating to the region, and the economic flow on impacts.



The results also highlight that even those LGAs distant from the stations still stand to realise significant benefits of over $1,000 per capita, driven more by flow‐on economic development opportunities more so than direct HSR use values.

Figure 5.1: Regional GRP Impacts

Another important measure of regional socioeconomic impact is population – from either people moving into the region because of HSR, or people who would have otherwise moved out but are retained because of HSR.

The impacts of HSR on population follow broadly similar patterns to GRP, but with some subtle differences. The greatest impacts on population are in Greater Shepparton, both in absolute and proportional terms. The proportional impacts on population are illustrated in Figure 5.2.

Of all LGAs, Greater Shepparton experiences a bigger population increase through the commuting effect – additional people living in the Hume Region and working elsewhere. The commuting effect leads to more modest increases in Wodonga and Indigo, but both of those LGAs enjoy more population growth from the regional economic development than they do from commuters.

In all other LGAs, the population comes exclusively from the regional economic development effect which, naturally, is stronger the closer to the HSR stations the LGAs populations are. These are LGAs that do not gain any additional commuters because of HSR (the commute would be too long even on HSR to make it viable), but where people move to the LGA because of the growth in the economy generating more jobs. Unlike commuters,



these additional people both live and work in the region, unlike commuters who only live in the region.

Figure 5.2: Regional population impacts



6 Key findings The analysis of the HSR proposal for the Hume Region was based on a framework that categorised three broad types of benefits to flow to the Hume Region from the construction and operation of HSR:

the benefit flowing from construction and maintenance stimulus of the HSR;

the direct benefits to users of the HSR to the region’s householders and businesses; and

the regional economic growth benefits, including new jobs, higher population and economic growth opportunities flowing to the Hume economy.

Based on a HSR proposal for the Hume Region that is modelled on the proposal specified in the AECOM Phase 2 report46, DAE estimated that the Hume Region would experience the following main benefits from HSR:

Construction expenditure: During construction of the HSR network, the Hume Region would experience $3.1 billion in construction expenditure between 2032 and 2040 (expressed as NPV), or around $880 million per year over those nine years. The construction expenditure in the Hume Region represents 9.2% of the HSR project total. Construction expenditure would act as an economic stimulus to the region, resulting in additional regional development impacts.

Maintenance expenditure: Once HSR becomes operational, the Hume Region would also receive around $500 million in maintenance expenditure per annum. The maintenance expenditure in the Hume Region represents 16% of the HSR project total. Maintenance expenditure would also act as an economic stimulus to the region, resulting in additional regional development impacts.

Patronage and modal shifts: The introduction of HSR is expected to result in a modal shift from other transport options (such as road, non‐HSR rail and air) and induced demand. In 2065, when the full network is assumed to be operational, there would be 5.2 million trips to/from the Hume Region per annum. This represents 6.2% of all trips on the HSR network and 10% of all trips to/from the Hume Region using any mode of transport. This does not include trips by commuters.

Changes to relative accessibility: The average distance for the populations of the Hume Region to their nearest HSR station would be 47 kilometres, ranging from 13 kilometres for Greater Shepparton to just over 100 kilometres, for both Mitchell and Murrindindi. Of all LGAs within the Hume Region, the highest number of HSR trips per capita would be from Wodonga, followed by Indigo and Greater Shepparton.

Business productivity: HSR would result in travel time savings and travel costs savings, which – for business users – can be considered an increase in business productivity and thus a direct economic impact. Of all HSR trips to/from the Hume Region, 0.9 million (17.3%) HSR trips per annum are estimated to be by business users. Business users

46The benefits described here are based on a construction start year of 2032. Should the project timing change, it would not materially change the proportional size of the regional benefits reported here, but it would change their timing. Any NPVs reported here would be higher if the project starts sooner, but this is the effect of discounting rather than any change to the size of annual benefits.



would experience a benefit of $278 per trip or, in aggregate, of $250 million per annum.

Household welfare gains: For non‐business users, travel time and travel cost savings are considered benefits to households, but are not considered direct economic impacts. Of all HSR trips to/from the Hume Region, 4.3 million (82.7%) HSR trips per annum are estimated to be by non‐business users. Non‐business users would experience a benefit of $81 per trip or, in aggregate, of $350 million per annum.

Environmental impacts: Although HSR is associated with a significant reduction in greenhouse gas emissions and air pollution on a per passenger kilometre basis, induced demand and station construction are likely to result in an increase in greenhouse gas emissions and thus a negative impact for the Hume Region overall.

Safety impacts: HSR is associated with fewer traffic accidents than alternative modes of transport. For the Hume Region and based on the trip estimates for 2065, the reduction of traffic accidents as a result of HSR (compared to the no HSR scenario) is valued at $12.6 million per annum.

Social impacts: Experience with HSR in other countries has shown that HSR can result in social benefits such as workforce and community development, access to higher education, access to health and other public services and social inclusion. Considering the Hume Region’s current profile, it is well placed to experience those benefits.

Tourism impacts: HSR can have significant impacts on tourism through reduced transport costs and improvements in the level of services, which open the region to tourists. If HSR was operational today, the induced demand (an increase of just over 4%) would result in an additional 265,620 domestic visitors coming to the region each year, with an additional value of $54.8 million per annum.

Population growth: HSR is likely to lead to population growth over and above baseline projections because (1) people move to the Hume Region but continue to commute out for work and (2) regional economic development leads to greater demand for labour within the region, further attracting new residents. If HSR was operational today, there would be an additional 4,464 residents in the Hume Region as a result of HSR, a 1.6% increase relative to the current Hume population. Applied to the 2065 population, the population increase is 6,010.

Regional development impacts: In addition to the direct impacts discussed previously, there would be a series of economy‐wide impacts resulting from having the two HSR stations located in the Hume Region. By 2065, HSR is estimated to increase the Hume Region’s GRP by $948 million (a 2.7% increase relative to the base case of no HSR), the Hume Region’s employment by 844 (a 0.63% increase relative to the base case of no HSR) and the Hume Region’s household consumption by $503 million (a 1.7% increase relative to the base case of no HSR).

A summary of the impacts is presented in Table 6.1. The impacts, totalling almost $1 billion by 2065, are not a one‐off hit to the economy. Rather, they are realised every year from when HSR becomes operational. Aggregating benefits over a 20‐year period shows how significant these impacts are.

Table 6.1: Overview of HSR benefits to the Hume Region

Impact Value Benefits over 20 years

Construction expenditure $880 million per annum (2032 to 2040) ‐



Maintenance expenditure $500 million per annum (from 2040) ‐ Patronage and modal shift 5.2 million trips to/from the region per

annum (by 2065) 104 million trips

Changes to relative accessibility

Positive ‐

Business productivity $250 million per annum (by 2065) $3.5 billion NPVHousehold welfare gains $350 million per annum (by 2065) $4.9 billion NPVEnvironmental impacts Negative ‐ Safety impacts $12.6 million per annum (by 2065) $178 million NPVSocial impacts Positive ‐ Tourism impacts $54.8 million (4% increase) per annum

(if operational today) $775 million NPV

Population growth 4,464 additional residents (1.6% increase) if operational today, or 6,010 additional residents by 2065

‐

Regional development impacts

$948 million (2.7%) increase to GRP (by 2065) 844 additional FTEs (0.63% increase) to employment (by 2065) $503 million (1.7%) increase in household consumption (by 2065)

Additional $13.4 billionNPV to GRP ‐ Additional $7.1 billion NPV in household consumption

Amongst the dollar figures identified above, the most significant ongoing benefits to the region are those relating to the use of the HSR services by households and businesses of the Hume Region ‐ including those that would exist in the region regardless of HSR and those that are additional to the region because of HSR. The GRP increase of 2.7% (by 2065) is mostly driven by the 1.7% population increase, the benefits flowing from greater business productivity, and from tourism. Although the household welfare gains do not directly affect GRP, they are an important component of the value proposition for HSR, and can be considered an additional benefit to the region.

One impact not explicitly captured above is that of property price escalation for properties in the Hume Region as a result of increased demand for land from the increased economic growth. This value is already reflected in the benefits discussed above and thus cannot be considered an additional impact (e.g. people are willing to pay more for a property near a HSR station because its location represents savings elsewhere (e.g. travel time saving), those benefits, however, have already been captured in the benefits assessment above). To include them again would be double counting. In other words, in a benefits study such as this, the reasons why property prices might increase are the main interest, not the property price itself. In any case, a higher property price represents a transfer rather than a net gain from a whole‐of‐region perspective ‐ it is beneficial to the seller, but a cost to the buyer.

Any single project that can simultaneously grow an economy by over 2.5% and lead to significant employment and population decentralisation shows great promise as a driver of socioeconomic objectives and represents a transformational shock to the Hume economy. Very few infrastructure projects have, historically and on their own, had such a significant and ongoing impact upon a regional economy as large and diverse as the Hume Region.

Although the benefits to regions where HSR stops between capital cities are only one consideration in the overall viability of the HSR project, the regional economic growth



opportunities identified here are significant, especially as they would likely be replicated along other regions along the HSR route.

Uncertainties

The findings outlined in this report are a central case description of what the impacts are. This relies on various assumptions, including those made in the AECOM report. The main uncertainties are:

Construction costs: Infrastructure costings are often surrounded by a substantial degree of uncertainty. Given there is no experience with HSR construction in Australia, estimates vary considerably. The AECOM report uses conservative construction cost estimates, with other recent studies estimating construction costs to be only 56% to 75% of those estimates. This would alter the magnitude of the construction and maintenance stimulus estimated in this study.

Location of construction and maintenance expenditure: This study assumes that all expenditure associated with the HSR route passing through the Hume Region is spent in the Hume Region. However, in reality, some of the expenditure may be outside the region depending on where the companies involved in construction and maintenance are based.

Population growth: This study is based on the central case population growth estimates used in the AECOM report. However, population patterns in the regions may change, which may significantly affect demand for HSR.

Patronage: Demand for HSR depends on the fares charged for the HSR service. This study uses the fare and demand assumptions from the AECOM report. Variations in fares would significantly alter demand for HSR.

Business location decisions: Business location decisions are driven by a variety of factors. Businesses locating to/from the region changes the size of the Hume Region’s economy and the impact that HSR may have on the Hume Region’s gross regional product.

The quality of other modes of transport: This study makes the same assumptions regarding quality and cost of other modes of transport as the AECOM report. Should the quality or cost of those other modes change, the benefits of using HSR instead of those other modes would also change. There is particular uncertainty over travel time by car so far into the future, especially in and out of the capital cities. Of most relevance to this study is population growth to Melbourne’s north, and effects it may have on travel times in and out of Melbourne on the Hume corridor.

Further research would be required to assess the impact of those uncertainties on the findings.



References AECOM et al. (2011) High Speed Rail Study – Phase 1 report, report prepared for the

Commonwealth Department of Infrastructure.

AECOM et al. (2013) High Speed Rail Study – Phase 2 report, report prepared for the Commonwealth Department of Infrastructure.

Aurecon (2014) The Potential Impacts of High Speed Passenger Rail to Eastern Australia, discussion paper prepared for the Australian Railway Association (ARA).

Beyond Zero Emissions, Melbourne Energy Institute, The University of Melbourne, German Aerospace Centre (2014) Zero Carbon Australia: High Speed Rail.

Chen, Z. and Haynes, K.E. (2012) Tourism Industry and High Speed Rail – Is there a linkage: Evidence from China’s High Speed Rail Development. GMU School of Public Policy Research Paper No. 2012‐14.

Givoni, M. (2006). Development and Impact of the Modern High‐Speed Train: A Review. Transport Reviews 26:593–611, September

Loukaitou‐Sideris, A., et al. (2013). Tracks to Change or Mixed Signals? A Review of the Anglo‐Saxon Literature on the Economic and Spatial Impacts of High‐Speed Rail. Transport Reviews: A Transnational Transdisciplinary Journal 33:617‐633.

Masson, S. and Petiot, R. (2009) Can the high speed rail reinforce tourism attractiveness? The case of the high speed rail between Perpignan (France) and Barcelona (Spain). Technovation 29: 611‐617.

Murakami, J., & Cervero, R. (2012). High‐Speed Rail and Economic Development: Business Agglomerations and Policy Implications. University of California Transportation Center, UCTC‐FR‐2012‐10.

NSW Department of Planning (2009) Draft Murray Regional Strategy.

Regional Development Victoria – Hume Region (2013) Hume Strategy Regional Plan.

Puga, D. (2001). European Regional Policies in Light of Recent Location Theories. Center for Economic Policy Research, Discussion Paper Series No. 2767, London, UK.

Stanke B (2009) High Speed Rail’s Effect on Population Distribution in Secondary Urban Areas – An Analysis of the French Urban Areas and Implications for the California Central Valley. Planning Report Presented to The Faculty of the Department of Urban and Regional Planning, San Jose State University.

Tanaka, Y. and Monji, M. (2009) Post‐Assessment of the Kyushu Shinkansen Network in Reference to the Proposed United States High‐Speed Railway Project. Transportation Research Board Annual Conference, Session 212, Paper No. 10‐1092.



Vickerman, R. (1997). High‐Speed Rail in Europe: Experience and Issues for Future Development. The Annals of Regional Science, 31, pp. 21‐38.

Victorian Government (2014) Hume Regional Growth Plan.



Appendix A: Regional CGE Model The Deloitte Access Economics – Regional General Equilibrium Model (DAE‐RGEM) is a large scale, dynamic, multi‐region, multi‐commodity computable general equilibrium model of the world economy. The model allows policy analysis in a single, robust, integrated economic framework. This model projects changes in macroeconomic aggregates such as GDP, employment, export volumes, investment and private consumption. At the sectoral level, detailed results such as output, exports, imports and employment are also produced.

The model is based upon a set of key underlying relationships between the various components of the model, each which represent a different group of agents in the economy. These relationships are solved simultaneously, and so there is no logical start or end point for describing how the model actually works.

Figure A.1 shows the key components of the model for an individual region. The components include a representative household, producers, investors and international (or linkages with the other regions in the model, including other Australian States and foreign regions). Below is a description of each component of the model and key linkages between components. Some additional, somewhat technical, detail is also provided.

Figure A.1: Key components of DAE‐RGEM

DAE‐RGEM is based on a substantial body of accepted microeconomic theory. Key assumptions underpinning the model are:

The model contains a ‘regional consumer’ that receives all income from factor payments (labour, capital, land and natural resources), taxes and net foreign income from borrowing (lending).

Representative household

Producers

InvestorsInternational



Income is allocated across household consumption, government consumption and savings so as to maximise a Cobb‐Douglas (C‐D) utility function.

Household consumption for composite goods is determined by minimising expenditure via a CDE (Constant Differences of Elasticities) expenditure function. For most regions, households can source consumption goods only from domestic and imported sources. In the Australian regions, households can also source goods from interstate. In all cases, the choice of commodities by source is determined by a CRESH (Constant Ratios of Elasticities Substitution, Homothetic) utility function.

Government consumption for composite goods, and goods from different sources (domestic, imported and interstate), is determined by maximising utility via a C‐D utility function.

All savings generated in each region are used to purchase bonds whose price movements reflect movements in the price of creating capital.

Producers supply goods by combining aggregate intermediate inputs and primary factors in fixed proportions (the Leontief assumption). Composite intermediate inputs are also combined in fixed proportions, whereas individual primary factors are combined using a CES production function.

Producers are cost minimisers, and in doing so, choose between domestic, imported and interstate intermediate inputs via a CRESH production function.

• The model contains a more detailed treatment of the electricity sector that is based on the ‘technology bundle’ approach for general equilibrium modelling developed by ABARE (1996).47

The supply of labour is positively influenced by movements in the real wage rate governed by an elasticity of supply.

Investment takes place in a global market and allows for different regions to have different rates of return that reflect different risk profiles and policy impediments to investment. A global investor ranks countries as investment destinations based on two factors: global investment and rates of return in a given region compared with global rates of return. Once the aggregate investment has been determined for Australia, aggregate investment in each Australian sub‐region is determined by an Australian investor based on: Australian investment and rates of return in a given sub‐region compared with the national rate of return.

Once aggregate investment is determined in each region, the regional investor constructs capital goods by combining composite investment goods in fixed proportions, and minimises costs by choosing between domestic, imported and interstate sources for these goods via a CRESH production function.

Prices are determined via market‐clearing conditions that require sectoral output (supply) to equal the amount sold (demand) to final users (households and government), intermediate users (firms and investors), foreigners (international exports), and other Australian regions (interstate exports).

For internationally‐traded goods (imports and exports), the Armington assumption is applied whereby the same goods produced in different countries are treated as imperfect substitutes. But, in relative terms, imported goods from different regions

47Australian Bureau of Agricultural and Resource Economics (ABARE), 1996, MEGABARE: Interim Documentation, Canberra.



are treated as closer substitutes than domestically‐produced goods and imported composites. Goods traded interstate within the Australian regions are assumed to be closer substitutes again.

The model accounts for greenhouse gas emissions from fossil fuel combustion. Taxes can be applied to emissions, which are converted to good‐specific sales taxes that impact on demand. Emission quotas can be set by region and these can be traded, at a value equal to the carbon tax avoided, where a region’s emissions fall below or exceed their quota.

The representative household

Each region in the model has a so‐called representative household that receives and spends all income. The representative household allocates income across three different expenditure areas: private household consumption; government consumption; and savings.

Going clockwise around Figure B, the representative household interacts with producers in two ways. First, in allocating expenditure across household and government consumption, this sustains demand for production. Second, the representative household owns and receives all income from factor payments (labour, capital, land and natural resources) as well as net taxes. Factors of production are used by producers as inputs into production along with intermediate inputs. The level of production, as well as supply of factors, determines the amount of income generated in each region.

The representative household’s relationship with investors is through the supply of investable funds – savings. The relationship between the representative household and the international sector is twofold. First, importers compete with domestic producers in consumption markets. Second, other regions in the model can lend (borrow) money from each other.

Some detail

The representative household allocates income across three different expenditure areas – private household consumption; government consumption; and savings – to maximise a Cobb‐Douglas utility function.

Private household consumption on composite goods is determined by minimising a CDE (Constant Differences of Elasticities) expenditure function. Private household consumption on composite goods from different sources is determined is determined by a CRESH (Constant Ratios of Elasticities Substitution, Homothetic) utility function.

Government consumption on composite goods, and composite goods from different sources, is determined by maximising a Cobb‐Douglas utility function.

All savings generated in each region is used to purchase bonds whose price movements reflect movements in the price of generating capital.

Producers

Apart from selling goods and services to households and government, producers sell products to each other (intermediate usage) and to investors. Intermediate usage is where



one producer supplies inputs to another’s production. For example, coal producers supply inputs to the electricity sector.

Capital is an input into production. Investors react to the conditions facing producers in a region to determine the amount of investment. Generally, increases in production are accompanied by increased investment. In addition, the production of machinery, construction of buildings and the like that forms the basis of a region’s capital stock, is undertaken by producers. In other words, investment demand adds to household and government expenditure from the representative household, to determine the demand for goods and services in a region.

Producers interact with international markets in two main ways. First, they compete with producers in overseas regions for export markets, as well as in their own region. Second, they use inputs from overseas in their production.

Some detail

Sectoral output equals the amount demanded by consumers (households and government) and intermediate users (firms and investors) as well as exports.

Intermediate inputs are assumed to be combined in fixed proportions at the composite level. As mentioned above, the exception to this is the electricity sector that is able to substitute different technologies (brown coal, black coal, oil, gas, hydropower and other renewables) using the ‘technology bundle’ approach developed by ABARE (1996).

To minimise costs, producers substitute between domestic and imported intermediate inputs is governed by the Armington assumption as well as between primary factors of production (through a CES aggregator). Substitution between skilled and unskilled labour is also allowed (again via a CES function).

The supply of labour is positively influenced by movements in the wage rate governed by an elasticity of supply is (assumed to be 0.2). This implies that changes influencing the demand for labour, positively or negatively, will impact both the level of employment and the wage rate. This is a typical labour market specification for a dynamic model such as DAE‐RGEM. There are other labour market ‘settings’ that can be used. First, the labour market could take on long‐run characteristics with aggregate employment being fixed and any changes to labour demand changes being absorbed through movements in the wage rate. Second, the labour market could take on short‐run characteristics with fixed wages and flexible employment levels.

Investors

Investment takes place in a global market and allows for different regions to have different rates of return that reflect different risk profiles and policy impediments to investment. The global investor ranks countries as investment destination based on two factors: current economic growth and rates of return in a given region compared with global rates of return.

Some detail

Once aggregate investment is determined in each region, the regional investor constructs capital goods by combining composite investment goods in fixed



proportions, and minimises costs by choosing between domestic, imported and interstate sources for these goods via a CRESH production function.

International

Each of the components outlined above operate, simultaneously, in each region of the model. That is, for any simulation the model forecasts changes to trade and investment flows within, and between, regions subject to optimising behaviour by producers, consumers and investors. Of course, this implies some global conditions must be met such as global exports and global imports are the same and that global debt repayments equal global debt receipts each year.



Appendix B: Accessibility by town Table B.1: HSR station accessibility by town

Towns in time name LGA 2011 pop Distance to nearest HSR station in the Hume Region

Nearest HSR station in the Hume Region#

ALEXANDRA Murrindindi (S) 2,245 89 Shepparton

ARCADIA DOWNS Greater Shepparton (C) 284 14 Shepparton

AVENEL Strathbogie (S) 762 60 Shepparton

BARANDUDA Wodonga (RC) 1,650 26 Albury Wod

BARNAWARTHA Indigo (S) 489 4 Albury Wod

BEECHWORTH Indigo (S) 2,795 32 Albury Wod

BELLBRIDGE Towong (S) 365 33 Albury Wod

BENALLA Benalla (RC) 9,077 45 Shepparton

BETHANGA Towong (S) 189 36 Albury Wod

BRIGHT Alpine (S) 2,294 77 Albury Wod

BROADFORD Mitchell (S) 3,342 98 Shepparton

BUNDALONG Moira (S) 312 48 Albury Wod

BUXTON Murrindindi (S) 234 114 Shepparton

CHILTERN Indigo (S) 1,079 12 Albury Wod

COBRAM Moira (S) 5,370 55 Shepparton

CORRYONG Towong (S) 1,044 109 Albury Wod

DINNER PLAIN Alpine (S) 698 117 Albury Wod

DOOKIE Greater Shepparton (C) 233 17 Shepparton

EILDON Murrindindi (S) 678 99 Shepparton

ELDORADO Wangaratta (RC) 212 31 Albury Wod

EUROA Strathbogie (S) 2,668 39 Shepparton

GLENROWAN Wangaratta (RC) 289 58 Albury Wod

Glenrowan Wangaratta (RC) 289 61 Albury Wod

Harrietville (L) Alpine (S) 285 97 Albury Wod

HAZELDENE Murrindindi (S) 250 109 Shepparton

KATAMATITE Moira (S) 218 39 Shepparton

KATANDRA WEST Greater Shepparton (C) 215 20 Shepparton

KIALLA WEST Greater Shepparton (C) 203 13 Shepparton

KIEWA Indigo (S) 291 34 Albury Wod

KILMORE Mitchell (S) 6,189 111 Shepparton

KINGLAKE Murrindindi (S) 1,031 126 Shepparton

KINGLAKE WEST‐PHEASANT CREEK

Murrindindi (S) 818 120 Shepparton

MANSFIELD Mansfield (S) 3,151 89 Shepparton

MARYSVILLE Murrindindi (S) 246 125 Shepparton

MERRIGUM Greater Shepparton (C) 396 34 Shepparton

MILAWA Wangaratta (RC) 217 48 Albury Wod

MOUNT BEAUTY Alpine (S) 1,725 85 Albury Wod

MURCHISON Greater Shepparton (C) 737 35 Shepparton

MYRTLEFORD Alpine (S) 2,686 54 Albury Wod

NAGAMBIE Strathbogie (S) 1,513 53 Shepparton

NATHALIA Moira (S) 1,434 47 Shepparton

NUMURKAH Moira (S) 3,745 35 Shepparton

OXLEY Wangaratta (RC) 333 50 Albury Wod

POREPUNKAH Alpine (S) 557 73 Albury Wod

PYALONG Mitchell (S) 439 98 Shepparton

RUTHERGLEN Indigo (S) 2,085 21 Albury Wod

SAWMILL SETTLEMENT Mansfield (S) 365 108 Shepparton

SEYMOUR Mitchell (S) 5,871 76 Shepparton

SHEPPARTON Mooroopna Greater Shepparton (C) 42,408 11 Shepparton

SHEPPARTON East Greater Shepparton (C) 218 3 Shepparton



STRATHMERTON Moira (S) 477 53 Shepparton

TALLANGATTA Towong (S) 917 46 Albury Wod

TALLAROOK Mitchell (S) 204 84 Shepparton

TALLYGAROOPNA Greater Shepparton (C) 252 19 Shepparton

TANGAMBALANGA Indigo (S) 422 36 Albury Wod

TATURA Greater Shepparton (C) 3,574 25 Shepparton

TAWONGA Alpine (S) 287 80 Albury Wod

TOOLAMBA Greater Shepparton (C) 289 18 Shepparton

TUNGAMAH Moira (S) 282 42 Shepparton

VIOLET TOWN Strathbogie (S) 661 32 Shepparton

WAHGUNYAH Indigo (S) 861 28 Albury Wod

WALLAN Mitchell (S) 7,643 121 Shepparton

WANDILIGONG Alpine (S) 280 82 Albury Wod

WANDONG‐HEATHCOTE JUNCTION

Mitchell (S) 1,618 115 Shepparton

WANGARATTA Wangaratta (RC) 17,285 47 Albury Wod

WATERFORD PARK Mitchell (S) 201 107 Shepparton

WODONGA Wodonga (RC) 31,503 17 Albury Wod

WUNGHNU Moira (S) 239 28 Shepparton

YACKANDANDAH Indigo (S) 928 30 Albury Wod

YARRAWONGA Moira (S) 6,824 61 Albury Wod

YEA Murrindindi (S) 1,087 90 Shepparton

Source: Population data from Towns in time, Department of Transport, Planning and Local Infrastructure. Accessibility calculations from DAE.

# ‐ figure refers to the nearest Hume HSR station, population weighted for the mesh blocks within the town or city. For some of the towns in the south of the Hume Region, the nearest HSR station would be in Melbourne.



Disclaimer

General use restriction

This report is prepared solely for the internal use of DEDJTR, Regional Development Victoria and Hume RDA. This report is not intended to and should not be used or relied upon by anyone else and we accept no duty of care to any other person or entity. The report has been prepared for the purpose of analysing the economic and social benefits of High Speed Rail for the Hume Region. You should not refer to or use our name or the advice for any other purpose.

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