The Albanian government’s announcement that it will allocate $240 million for a new stadium in Hobart has not been as well received as it had hoped.
Those concerned about the proper functioning of the federal system may point out that this type of funding is the concern of state and local governments.
Concerns about the process are heightened by the sad history of “sports stories.” Both Labor and Liberal federal governments have funded sports facilities to gain political favour.
To be honest, it’s hard to see this project as targeting a particular seat, but presumably the aim was to gain support in Tasmania as a whole. Even compared to the dubious economics of sporting events such as the Formula 1 Grand Prix and the Olympics, stadium developments stand out as boondoggles.
Extensive research in the US is summarized in the conclusion that building sports stadiums has been a profitable business for major sports teams for the past 30 years at the expense of the general public.
While there are some short-term benefits, the inescapable truth is that the economic benefit of these projects to local communities is minimal. Indeed, they can be a hindrance to real development.
Read more: Devils in detail: An economist calls for a Tasmanian AFL team – and a new stadium
Making the business case
The economic case for the Hobart Stadium is surprisingly thin. The only clear benefit attributable to the project is that the new Tasmanian AFL team will play their home games there, replacing the small number of AFL rounds played at Hobart’s existing stadium, Bellerive Oval.
2022, eight AFL men’s matches were played in Tasmania – four at Bellerive, four at UTAS Stadium in Launceston. A local AFL team plays 11 home games.
The state government’s business case estimates that 5,000 interstate visitors will attend seven games per year. It seems safe to assume that some fly in and out on the same day, and few stay longer than two nights.
If we allow one night per visitor on average, that would be 35,000 bed nights, or an increase of approximately 0.3% in current visitor nights for Tasmania (approximately 11 million a year 2022).
This must be contrasted with the Tasmanians who travel to Melbourne and elsewhere for away games.
What about housing?
All this is part of this kind of project. The big problem for both the state and federal governments is that it comes at a time of a housing crisis.
that of the federal government press release contains some vague references to housing projects associated with the project. But this is little more than the kind of PR spin we’d expect from, say, the proponents of a new coal mine.
The numbers here are pretty shocking. The centerpiece of the federal Labor Party election platform was a $10 billion fund for housing, providing $500 million annually to support social housing. (Labour’s bill is currently being blocked in the Senate, with the coalition opposing it, and the Greens are demanding stronger action.)
Read more: Labor’s proposed $10 billion social housing fund isn’t as big as it looks, but it could work
If this $500 million were allocated proportionally to the population, Tasmania would get about $10 million a year. The $240 million Commonwealth contribution to the stadium would cover these expenses through nearly 2050. Total public expenditure on Hobart Stadium (with $375 million from the Tasmanian government) would cover most of this century.
In a time of extreme fiscal strictness, such a huge outlay on a luxury project is very difficult to justify.
What about job creation?
No serious benefit-cost analysis of this project has been made. Instead, supporters have relied on the announcement of the number of jobs it will create – 4,200 jobs during construction and 950 jobs when operational.
Such figures are questionable. To make them bigger, governments typically rely on the “multiplier effect” of work created for suppliers of different types. This is a long-standing tradition that has been taken to new heights by the Albanian government. For example, the announcement of the AUKUS submarine project was all about the jobs it would create.
Read more: $18 million per job? The AUKUS subscription will cost Australia much more than that
But hold on. At the same time as trumpeting job creation for construction workers, the government is trying to solve Australia’s “skill shortage” caused by historically low unemployment.
Tasmania’s unemployment rate is 3.8%, slightly above the average for Australia, but lower than at any time since the economic crisis of the 1970s. This low rate represents a situation of full employment, where the number of unemployed and vacancies are approximately equal.
In such circumstances, creating a job means luring one employee away from another. If the new job is on a major construction project, it means one less worker is available to build homes.
As I argue in my book, Economics in two lessons (Princeton University Press, 2019) The true cost of wasteful government spending is opportunity cost – the missed alternatives.
Multiplier effects make opportunity costs even greater. The project distracts the directly employed workers and takes up all sorts of resources that could otherwise be used for socially beneficial purposes. This misuse of necessary resources is the truly pernicious aspect of publicly subsidizing projects like the AFL stadium.
Tasmania, like the rest of Australia, does not need government intervention to create more jobs, particularly in construction. It should ensure that skilled workers are deployed where they can be most valuable.