Compensate the businesses – it’s a formula

The business effected by the light rail construction should be compensated for the losses forced on them by the government. But how much?



The proposed compensation, as outlined further below, would be between $6m and $12m. The light rail extension to Commonwealth Park is 1.7kms long and cost is expected to exceed $1.46b. That is a cost of almost $1m per metre. The compensation proposed would be equivalent to the construction of between 6 metres and 12 metres of track. This compensation seems reasonable.

It has been well documented that many small businesses along London Circuit and other construction corridors are suffering from severe downturns in trade.

We see plenty of pretend sympathy and some real sympathy. Sympathy doesn’t pay the bills or wages. What’s missing is fair compensation.

If government activity directly disrupts a business’s ability to trade, compensation should be based on something simple and objective - the revenue that business has lost. The principle is straightforward. Compare a business’s turnover during the construction period with what it would reasonably have earned under normal conditions. If the difference is a loss. That loss should be compensated.

This is not radical policy. It is the same logic often applied in disaster recovery and during the pandemic. The only difference here is that the disruption is not a bushfire or a virus, it is government decisions and actions.

Of course, real business life is more complex than a single formula. New businesses won’t have years of historical data, so their performance should be compared to similar businesses nearby or within the industry sector. Growing businesses should have their expected turnover adjusted upwards to reflect their trajectory. Declining businesses shouldn’t be artificially propped up beyond where they were heading anyway. And broader economic conditions should be factored in to help separate construction impacts from general downturns or upturns.

Independent accountants - local or mid-tier firms, not the Big Four - could assess claims using standard financial records and agreed benchmarks. It would be practical, credible and far less bureaucratic than many existing support schemes.

The obvious question is the final cost to the government. If we assume 50 affected businesses, each losing an average of $10,000 per month over a year of disruption, the total compensation bill comes to about $6 million. Even if the losses are higher, say $20,000 per month, the figure rises to $12 million. If the disruption is less the total amount is less.

For a project that runs into the hundreds of millions, and ultimately billions of dollars, this is a small fraction. It is an amount that would barely register in the contingency line of a major infrastructure budget.

Which brings us to an uncomfortable comparison. The ACT governments routinely accepts high costs for major projects. This includes premium wages for construction labour, then substantial profit margins for large contractors. These extra costs come from the ongoing relationships with powerful industry players, including discredited groups like the CFMEU.

The ACT Integrity Commission estimates that the pressure from the union adds at least 8% to construction costs. In Victoria it has been estimated at 30%. Yet when it comes to small business people - the café owner, the retailer, the bar operator - there is still a reluctance to engage in meaningful compensation.

That reluctance is not driven by economics. It is a matter of government or Labor Party priorities.

Infrastructure inevitably creates winners and losers in the short term. The long-term public benefit is the justification. But that argument only holds if the short-term costs are shared fairly. At the moment they aren’t. Instead, a relatively small number of small business owners are being asked to absorb losses for a project that is of benefit to government friends and eventually to some parts of our city.

A transparent, independently assessed compensation scheme would not eliminate all frustration. But it would restore a sense of fairness. It would acknowledge that these businesses are not obstacles to progress, but participants in it, who deserve to be treated with the same seriousness as any other stakeholder.

If we can find the money to build the tram, we can find a small fraction more to ensure that the people most directly affected by building it are not left to carry the burden alone.

If the government says they can’t afford it, try not to laugh too much – because this is a serious issue. Instead, ask why they can afford the extra costs of construction but not the fair compensation for those negatively impacted?

It’s equivalent to few metres of construction – do it.