Nobody measures ‘Bandidos kickbacks’: How construction costs took CFMEU centre stage

The Victorian government’s claims that corruption has not significantly driven up costs in its $100 billion Big Build program rely on a dubious assumption: that inflationary pressures from global events can be easily separated from the influence of union misconduct and organized crime. Premier Jacinta Allan has repeatedly assured taxpayers and voters that the culture of graft within the construction industry is merely “rotten” but not costly to taxpayers, a claim that strains credulity.

Economists Saul Eslake and David Hayward have been cited as credible voices supporting this narrative, with Hayward arguing that changes in project scope and other factors are more likely responsible for cost blowouts than corruption. However, their work has been deployed by the government and building unions to discredit estimates of multibillion-dollar losses due to CFMEU misconduct, raising questions about the motivations behind its use.

The Australian Bureau of Statistics calculates construction inflation through the Producer Price Index for Non-Residential Construction, tracking changes in prices as goods and services leave production facilities. This number represents a complex aggregation of various factors, including material supply costs, labor shortages, energy volatility, financing expenses, and sustained high demand. The way these factors interact is not easily quantifiable, making it challenging to isolate the impact of corruption on construction costs.

The ABS survey does not ask contractors to break down their price increases by specific factors, leaving a murky picture of what drives inflation in Victoria’s Big Build projects. Economists contacted by this masthead have acknowledged that non-residential construction sector inflation numbers shed little light on the nature or extent of corruption in the building industry.

To downplay the significance of corruption in its Big Build program, the Victorian government has leaned on economists whose work was never intended to address this specific question, attempting to shift attention away from concerns about union misconduct and organized crime. This effort is symptomatic of a broader failure to confront the rot that has taken hold within the construction industry.

The debate surrounding Victoria’s Big Build costs will continue to be contentious, with both sides trading blows over estimates of losses due to corruption. Without a more nuanced understanding of how inflationary pressures interact with corrupt practices within the construction industry, it will be impossible to hold anyone accountable for the multibillion-dollar cost blowouts that have plagued this program.

The stakes are high in this election year, particularly for Premier Allan who faces a battle to retain her regional electorate. The way she and her government choose to address these questions will determine their electoral prospects and have far-reaching implications for the future of Victoria’s construction industry.