Myki cost to top $1 billion!

It seems the Auditor General has worked out that Myki is going to cost more than $1 billion, not the already exorbitant $494 million the government had been claimed. I am honestly lost for words – it’s absolutely unbelievable. On top of that, the head of the Transport Ticketing Authority is Victoria’s highest paid public servant ($550 000 per annum) and Myki is going to be two years late anyway. Just consider this though, $1 billion could build the Doncaster line twice. It looks like no-one running the show has heard of opportunity cost…

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9 Responses

  1. Neither have I.. (opportunity cost)?

    Does anyone know why we didn’t just port Oyster or Octopus to Melbourne?

  2. Sorry Dave, I probably should have explained myself on this one. Wikipedia has a good article on opportunity cost – explains it far better than I can!
    http://en.wikipedia.org/wiki/Opportunity_cost

    I don’t know why we didn’t go for an established system. I read allegations in the papers that the tendering process was less than rigorous, but I don’ know how much truth there is to that. I’ll have a look around and report back if I find anything.

  3. Holy camoly. Y’know, I’ve got a barcode printer and laminator at work that they’re welcome to borrow…but seriously, come on! $1 billion AND two years late? There better be some complementary cheese sticks or something…

  4. Has anyone calculated the return on investment? How much revenue is the system expecting to collect?

    $1b to collect $500 million each year? Covers in 2 years…but what if the system is obsolete in 10 years?

    Pretty poor in my book.

  5. It does seem like Melbourne goes through a ticketing system about every decade and that gross ticket revenue is about $500 million per year. The return on investment isn’t good – just consider a situation in which $1 billion went in the bank for 10 years and we kept metcard.

    $1 billion in the bank for 10 years @ 8% interest with daily compounding sees it grow to $2.25 billion (or just under $1.7 billion adjusted for inflation @ 2.75%pa). Building myki nets $4 billion in current dollars over the same period (assuming $500 million revenue per year minus the cost of myki).

    So the bottom line is that after 10 years when myki is fully depreciated, the government would net $4 billion from ticket sales in current dollars. If myki wasn’t built, Victoria would have $1.7 billion in the bank PLUS $5 billion from ticket sales. I’m making two assumptions here – firstly that myki will have no effect on demand and secondly that the costs of keeping metcard going are negligible.

    Now these are pretty basic numbers with some big and perhaps unreasonable assumptions (like metcard costing nothing to keep going). Furthermore, I don’t support the government just putting money in the bank to earn interest. This is because the rate of return to society is generally higher from investing in industries beset by market failure – like health, education and transport.

    Nevertheless, it demonstrates that implementing myki is probably worse than the government putting the money in the bank. I haven’t even got into the need to spend money on projects with the highest marginal benefit. Some of these projects (like north-south rail) would have a far greater marginal benefit than the 8% from the bank which is itself far better than myki.

    Sorry Riccardo I don’t think I’ve answered your question though…

  6. When looking at the benefit of myki don’t we have to check how much better it is than Metcard? ie the $1,000,000,000 gets us not $500,000,000 per year but its savings compared to the current system, which (I imagine) would be far lower than that.

    ie. Say Metcard gets $500 million per year at a cost of $50 million per year. Now say that Myki is much better and gets $550million at $20 million per year. So over a ten year period we’ve got Metcard at $4.5 billion and Myki at $5.3 billion. This means that Myki would save $800 million. At a cost of $1 billion for a total loss of $200 million. This is even worse when compared to getting interest where at 2% a year $200 million would have been made.

    For that example all numbers are made up and inflation is ignored. Unless myki really is amazing (and real interest rates drop a lot) I imagine the reality will be worse.

  7. I can’t honestly see them maintaining the existing system, no matter what, but these simple calculations make you realise what this is all costing and how much they think the benefit is worth.

    It would undoubtedly be cheaper to put the staff back in stations, scrap most of the validators and just run the machines as plain, simple ticket printing machines, and get the staff to check they’re valid.

    Did anyone read my blog on Section 92?

    One conclusion of the Workchoices judgement is that the government now has direct control over wages setting (no longer needs the AIRC) and given the unions are weaker than ever (and read thepipingshrike.blogspot.com on how the unions are being destroyed by Rudd), it would be best just to set the wage for ticket collectors fairly low, “encourage” the Centrelink crowd into the job (or refugees on TPVs) and go back to the old ways, at least until some decent management is found for the railways.

  8. […] A conspiracy theorist might think that the bike ban debacle was just a distraction so that the Government could take a dump over the estimated blowout in costs for Myki. (Have a look in the comments here for some interesting—and no doubt highly inaccurate—rough calculations.) […]

  9. I wouldn’t be surprised at the link you’ve drawn being true.

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