The issue of infrastructure investment perfectly illustrates the problems of our current political model. However, it is also the issue which is closest to being addressed successfully by a new approach from the Rudd Government.
While there is debate over the extent to which Australia is suffering an “infrastructure crisis”, both sides of politics failed to effectively address the country’s infrastructure needs during the late 1990s and earlier this decade due to political limitations.
The greatest failures were at state level, where Labor Governments preferred to avoid charges of fiscal irresponsibility by under-investing in infrastructure and ripping out huge dividends from utilities. While there are no clear “losers” from infrastructure investment (except NIMBY householders), it requires Government borrowings, which were anathema to State Labor Governments, especially those trying to live down the Cain/Kirner/Bannon legacy.
Underinvestment suited Labor’s preferred image of fiscal conservatism and made it easier to fund public sector wage rises. The problems that slowly began to emerge across the health and transport sectors could be dealt with via the Government’s intensive media management — until, as Morris Iemma found, they became too overwhelming to ignore.
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The Howard Government had its own problems. It retained the traditional (and until now bipartisan) refusal to invest in urban infrastructure, as part of a rigid political separation of state and federal responsibilities, regardless of the national significance of urban infrastructure. Worse, its key infrastructure funding was in the hands of the Nationals, whose only agenda was to pork barrel its own electorates and stakeholders, ensuring the criteria on which projects were funded was hopelessly distorted.
Both levels of Government dabbled with engaging the private sector in not merely the construction but the funding and operation of infrastructure. This was initially embraced as a means of magically solving the problem of funding for such long-term investments.
In practice, primarily at the state level, it became the basis for a succession of stuff-ups that either handed super profits to the private sector or led to projects that caused massive dislocation as government bureaucrats –hopelessly out of their depth in negotiating with the likes of Macquarie Bank — agreed to curb the use of competing infrastructure. Infrastructure, after all, is only seriously profitable when it is a monopoly — and even then, as we now see, cheap capital is also a critical ingredient.
The Rudd Government has, to an extent, fluked its way out of the infrastructure predicament that bedeviled both its predecessor and its state Labor counterparts. While state governments are now trying to play catch-up in infrastructure investment by borrowing or drawing down surpluses, Rudd and co have the advantage of a resources boom that means truly massive budget surpluses. A number of industry sectors have also been pushing the case for infrastructure investment for years.
However, it also important that throughout 2007, Rudd and Labor persistently argued the case for greater infrastructure investment as part of their key theme of enhancing economic capacity (which is why the Government’s new investment funds are aimed not merely at infrastructure but education and health as well). While this tapped into a growing community concern that the proceeds of the resources boom were being wasted, it also established a groundswell of support for an activist infrastructure investment approach by government, and one that rejected the traditional federal-state barrier to investment in urban infrastructure.
Rudd has also made a good start on the other traditional problem of infrastructure investment — the tendency of governments to hopelessly politicize decisions. The establishment of Infrastructure Australia to provide external advice on prioritization of investment in effect creates a rod for the Government’s own back if it ever feels tempted to start spending in marginal electorates. Moreover, in Caucus yesterday Anthony Albanese made it clear to his backbench colleagues that Infrastructure Australia processes would be free of the sort of petty politicking that has traditionally marked infrastructure spending at all levels of government. In particular, Albanese emphasized that projects would only be funded if they were nationally significant.
All just words so far. It may be a different story in 2010 or 2013 when the Government wants to shore up its support in marginal seats. But so far, for all the criticism of Rudd for lacking substance, the Government is doing everything right on infrastructure, and changing the rules about how the Commonwealth handles the issue as well.