Working Papers

Crowding Out and the BER

Crowding out effects were built-in to the BER:

BUILDERS and architects tendering for work under Julia Gillard’s school stimulus program were told to include a “cost escalation” of up to 10 per cent to cover the expected inflationary impact of the scheme.

The hidden cost of the Building the Education Revolution, revealed in documents submitted to a Victorian parliamentary inquiry, suggests that as much as $250 million of taxpayers’ money could have been spent to cover a surge in building material and labour costs created by the state’s $2.5 billion share of the stimulus program.

Contract details provided by an architecture firm reveal it was required by the Victorian Education Department to provide a 7 per cent “contingency fee” and a 10 per cent “cost escalation” in the tenders it submitted for work on four primary schools in Melbourne’s east.

Government sources confirmed last night the department specifically included escalation costs in BER projects “because the stimulus was going to be a significant injection into the market/economy and prices could be expected to increase with greater levels of work being undertaken”.

posted on 29 July 2010 by skirchner in Economics, Fiscal Policy

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