Why Treasury Keeps Getting Roads Wrong
Key Takeaways
- Non-transport economists often support road-widening because they don’t know what they don’t know.
- Induced demand means suppressed trips, shifted travel times, and forgone jobs all return once new capacity opens, refilling the road within years.
- The claim that roads are unsubsidised while public transport isn't doesn't hold up: roughly half the true cost of driving is paid through general taxation, just hidden in budgets like healthcare and emergency services.
- Predict-and-provide planning treats current car dependency as fixed and builds for it, guaranteeing continued car dependency as a self-fulfilling prophecy.
- Of the three options considered for Fifteenth Avenue in Western Sydney, a transit-only lane is likely the cheapest, requires the least land, could operate with the lowest ongoing subsidy and is the most economically beneficial option.
- A dedicated transit lane creates an immediate incentive to switch to public transport/transit, because the remaining congested general lane makes transit the faster option from day one.
- We need to educate treasury economists in vision-led planning, the hidden subsidies on roads and induced demand so they can provide better advice on transport infrastructure projects.
What Next?
How can we educate general economists, such as those in treasury departments, on transport economics?
Introduction
Ask a transport planner how to fix congestion, and you'll get a nuanced answer about induced demand, mode shift and pricing.
Ask a treasury economist, and you'll often get one word: widen.
Within governments, some of the strongest support for building more and wider roads comes not from transport agencies, but from economists sitting outside them, in treasuries. Their advice carries weight. It shapes budgets. And it rests on a simple assumption: roads mean growth, jobs and prosperity, so more roads mean more of all three.
Are they right? If we stopped widening roads tomorrow, would growth, jobs and prosperity stall with it?
The answer is no. Non-transport economists are making an error of assumptions that break down badly when applied to transport. To show why, I want to walk through a real decision facing a real corridor, right now, in Western Sydney.
The Fifteenth Avenue
A new major airport and precinct is about to open in Western Sydney. The nearest major centre is Liverpool, whose CBD lies some 25-30 km away.
Start with a thought experiment. If no road connected Liverpool to the airport at all, building one, even a single lane, would almost certainly deliver major economic benefits. People could live in Liverpool and reach the jobs and opportunities growing around the airport. Goods and people could move both ways. A rail line couldn't match a road's flexibility here: the range of times people can travel, the range of goods that can move, the ability to serve a dispersed and still-developing precinct. In this scenario, building the road is the obvious right answer.
But that's not the situation on the ground. A road already exists: Fifteenth Avenue. And it is already delivering real economic value. The problem is that it's a rural two-lane road, one lane each way, already heavily congested, and set to get busier as the airport precinct grows.
Tackling that congestion would unlock further economic benefits. The real question is which approach maximises it.
Two options can be set aside quickly: a rail line, likely too expensive for this stage of the corridor's development, and road pricing, politically unpalatable for now. That leaves three realistic infrastructure choices:
- Widen the road for general traffic
- Widen the road for general traffic, plus a dedicated public transport/transit lane
- Widen the road, but dedicate the additional capacity entirely to public transport/transit
Option 1 - Widen the road for general traffic
This means taking the road to two lanes in each direction, the standard response to congestion, and, just as standardly, one that doesn't work for long.
To a non-transport economist, this looks like the obvious choice. Widening eases congestion and lifts productivity. And unlike public transport, it carries no ongoing government cost, so it looks like better value for taxpayers.
Both assumptions are wrong.
Congestion has already reshaped behaviour on this corridor. Sydney research suggests roughly a quarter of drivers have some flexibility over when they travel, and many will already be shifting trips outside peak hours to avoid the queues. Others avoid the trip altogether, or have turned down jobs that would require using the road, or are using alternative routes, such as the nearby motorways. Widen it, and all of that suppressed demand returns at once, compounded by the wave of new jobs the airport precinct is expected to create.
The benefits of widening are real, but short-lived. Widening changes the very behaviour that made those benefits possible. Traffic climbs, congestion returns, only now with an extra lane in place, and the economic gains start unwinding as people again avoid the road and freight costs climb.
Local Council modelling suggests the road could be congested again within ten years of completion. I can't vouch for the modelling itself, but the mechanics are familiar. Given what we know about induced demand and growth in this corridor, congestion returning is not really in doubt. The only open question is when.
The idea that roads are unsubsidised while public transport is a drain on the public purse doesn't survive scrutiny either (I've written about this at length here). Roughly half the true cost of driving is typically met through general taxation rather than driver-paid taxes and charges, hidden in budgets like emergency services and healthcare rather than shown as a transport cost.
So for AU$1.4bn, this option buys the corridor around a decade before congestion returns.
The State Government's current plans do preserve a transit corridor for future use. But will a future government actually use it for transit, or simply widen the road further? Precedent points to the latter, especially once so few people are using transit that transit becomes politically easy to deprioritise. The votes are in the wider road, not the empty lane reserved for a bus that isn't running yet.
And the same trap resets: the new general lane fills up too, and, following the pattern, government promises another one.
Option 2 - Widen the road for general traffic and a dedicated public transport/transit lane.
This option adds four lanes, two each way, with one lane in each direction reserved for public transport.
It's the option the local Council favours. The Council argues, reasonably, that building the transit lane now is far cheaper than retrofitting it later, which is why the State Government's current plans preserve that corridor.
A non-transport economist would likely see this differently: a high upfront cost for a transit lane that, in a heavily car-dependent area like Western Sydney with historically low public transport use, will sit mostly empty. Why take the bus when there's a shiny new road to drive on, at least until it congests again? That means real subsidy is required to keep the service running, until congestion eventually pushes people toward the faster transit option.
There's a further risk. If the road becomes congested while the bus remains empty, the political pressure to convert the transit lane back to general traffic will be real and hard to resist.
Given the scale of subsidy this option requires, many non-transport economists, and quite a few transport economists too, would hesitate to call it the best economic option.
Option 3 — Widen the road and dedicate the new lane to public transport/transit only
The third option widens the road but gives the new lane exclusively to public transport/transit.
This option has a lot going for it.
It's cheaper to build and needs less land than either of the other two. And because the single general lane stays congested, there's an immediate, strong incentive to switch to transit, provided first- and last-mile connections work well.
Get the fare pricing and service frequency right, and high patronage could keep the required subsidy low, potentially close to zero.
There are added benefits too: better outcomes for people with disabilities, and fewer road crashes, since transit is safer than private vehicles. And because some drivers shift to transit, the remaining general lane sees a genuine balance emerge. Traffic speeds improve, even if the lane never runs free-flowing.
The Treasury Economists Preferred Option
To be clear, I don't actually know which option NSW Treasury economists backed on Fifteenth Avenue. But the pattern in similar decisions around the world points to some structural problems worth naming.
Based on my admittedly crude analysis above, the strongest economic case may well be for Option 3, the transit-only lane. It's the cheapest to build, transit demand could be high enough to keep subsidies low, and a meaningful number of people save real time by switching to public transport. This is not a claim about political viability. Politically, it may be the hardest sell of the three; current drivers want their extra lane, not someone else's bus lane.
Even so, I doubt Option 3 is what non-transport economists would actually recommend. Three problems stand in the way.
Problem 1 — Predict and Provide Planning
Western Sydney is heavily car-dependent today. Predict-and-provide modelling takes that as the baseline and projects it forward: car-dependent now, so car-dependent later, so build for cars. It's a self-fulfilling prophecy.
Vision-led planning, which starts from the outcome you want and works backward, is slowly gaining ground among transport economists. Non-transport economists, working further from the discipline's internal debates, are likely even further behind in picking it up.
Problem 2 — Ignoring Induced Demand
The local Council's own modelling shows that growth and induced demand together will push the road back into serious congestion. Yet induced demand is still poorly incorporated into modelling even inside transport agencies that specialise in this. Economists sitting outside those agencies are less likely still to be accounting for it properly.
Problem 3 — The Subsidy Problem
Around 80% of public transport costs in New South Wales are met by taxpayers. A state government already short on money has reasons to be cautious about expanding a service it funds directly, especially while the equivalent, but far less visible, subsidies flowing to drivers go unaccounted for.
As I've argued before, when non-transport economists compare the "cost" of public transport to the "cost" of roads, they are usually comparing a visible subsidy to an invisible one, and roads look artificially cheap as a result.
None of this is to say political considerations are irrelevant to why the transit-only option hasn't been adopted on Fifteenth Avenue. The wider-road option is likely the most electorally popular in a corridor running through marginal seats. But political popularity is a separate question from what non-transport economists should conclude is the best economic answer, and it's the latter this piece is concerned with.
What to do about it
I've deliberately avoided detailed economic modelling here. The point wasn't to prove Option 3 is correct down to the dollar, but to show the pattern that stops alternatives to road-widening from getting a fair hearing in treasuries in the first place.
I could be wrong about the specifics of Fifteenth Avenue. I know people read this blog who have worked on the corridor in far more depth than I have, and I'd genuinely welcome being corrected on the details. But the corridor was never really the point. It's an illustration of a structural problem that shows up wherever roads and treasury economists meet.
If transport economists, people who specialise in this exact terrain, are still working through vision-led planning, induced demand and the true location of subsidies, it's not hard to see why general economists in treasury departments, several steps further removed, would struggle even more.
So what can actually be done about it?
One idea: a book, written by transport economists for general economists, that walks them through the field's idiosyncrasies before they start advising on it. Not a textbook. Something short and practical enough that a transport economist could hand it to a newly arrived treasury economist as an onboarding gift, a way of saying: here's what you need to learn before you can get this right.
Conclusion
When it comes to transport, general treasury economists don’t know what they don’t know: vision-led planning, induced demand and hidden subsidies all have major impacts.
Widen a road, and the road fills back up. Subsidise driving indirectly, and you get more of it. Model the future using today's car dependency, and you guarantee tomorrow's car dependency. None of this is obvious unless you have spent time inside the transport system watching it happen.
A dedicated transit lane on Fifteenth Avenue could plausibly deliver more economic benefits, for less money, than a wider road that congests again within a decade. But that option is invisible to anyone applying the usual economic assumptions to the transport system.
This is an argument for giving general treasury economists the right model of the system before they start. Get the induced demand, the subsidies and the planning approach right, and hopefully treasury economists will arrive at good transport recommendations.
Until someone writes that book for treasury economists, they will keep recommending that roads like Fifteenth Avenue keep getting widened, congestion will keep returning, and we will continue to waste billions (trillions globally) of taxpayers' money.