I’m not sure why the Coalition hid its infrastructure announcement away four days out from an election and tucked in behind its leader’s Press Club address, but there it is. Then again, superannuation is one of the most critical area of Australian public policy and we haven’t even seen a policy on that yet from the conservative side of politics.
Its infrastructure policy contains what is now an all-too-common Coalition mix of ideological windbaggery and National Party pork. Fortunately, that has been leavened by something we’ve seen all too little of from either side in this campaign, sound policy.
First, the good bits. The Coalition commitment to strengthen Infrastructure Australia and open it to greater transparency by releasing its cost-benefit analyses is well overdue. It’s not feasible in a democracy to prevent politicians pork-barrelling, and the National Party is nothing but a giant conspiracy to pork-barrel, but at least it can be made transparent, something Labor, which deserves credit for establishing the IA process, declined to do.
It was the Coalition that first proposed a “National Infrastructure Commission” in 1996, which turned out to be a non-core promise, but at least it will retain the evaluative structure established by Labor and build on it. Linking long-term infrastructure planning to population targets and involving state governments is also sound, although easier said than done, and plenty of national transport plans have been produced over the years that have looked very nice sitting on bureaucrats’ shelves, spines uncreased and pages untouched.
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The prospective Infrastructure Partnership Bonds scheme — although all the Coalition has strictly committed to is asking the Australian Office of Financial Management to examine a scheme costing up to $150m pa – is sound, too, although by no means perfect. As the Coalition claims, it isn’t more government debt — at least, not unless it’s funded by an increase in the budget deficit — and is misnamed, since it’s actually a tax rebate for revenue from investment in certain forms of approved infrastructure.
It wouldn’t have much in common with the Keating Government’s ill-starred infrastructure bonds, which became one of the biggest tax rorts of the 1990s once the likes of Macquarie Bank worked out a way to engineer them to lower tax for high income earners.
The Coalition’s scheme will similarly be put under the microscope, but is unlikely to be rorted in the way the Keating-era model — which Peter Costello shut down — was. Linking the rebate to projects that earn revenue is also significant and worthwhile. We don’t, as an economy, charge enough for infrastructure, especially roads, and charging more, and more often, for infrastructure use is part of the solution to the national infrastructure deficit. The Coalition’s Infrastructure Bonds would notionally encourage charging.
The real question about the proposal, and it hasn’t received much consideration in today’s media coverage, is whether it will generate additional infrastructure investment, or simply provide a marginal reduction in the cost of projects that would have proceeded anyway. Part of that might be answered by the AOFM when, as it presumably must, it advises on how a cap will operate, assuming the scheme will attract applications for higher rebates than$150m every year.
Would projects with big returns be ruled out to make way for more marginal projects? Would it be capped geographically or on a regional basis to ensure a “fair” distribution?
But given the cost will be $150m a year tops, it probably falls into the suck-it-and-see category, and should be given a go.
Barnaby Joyce — a dangerous man to let near anything to do with arithmetic — made of point yesterday of noting that Infrastructure Bonds would be available even for projects that would demonstrably lose money. He clearly has in mind another part of yesterday’s announcement (or more strictly a reannouncement), that the Coalition, like Labor, was committed to building the Melbourne-Brisbane inland rail route. There’s no need for an Infrastructure Australia CBA to be done on that project – it’s already been done by the Australian Rail Track Corporation, and it shows the costs significantly outweigh the benefits for a couple of decades.
With the Coalition’s emphasis on the appeal of Infrastructure Bonds to retail investors, clearly Joyce has in mind the Melbourne-Brisbane route being funded by mum-and-dad bondholders, a giant porkbarrelling version of John Howard’s vision of a “shareholder democracy”. The difference, of course, is that while you might have only lost half or two-thirds of your Telstra share value over the last decade, you’d lose every cent of any money you were foolish enough to waste on the inland rail, or the “Steel Mississippi” or however it will be badged.
The overarching flaw in the Coalition’s infrastructure policy, though, is its aversion to debt. “Infrastructure bonds” is where Joe Hockey’s “crowding out” thesis falls down, to the extent it hasn’t already collapsed around his ears. For the Coalition, private investors borrowing money to invest in infrastructure, with a small Commonwealth tax subsidy, is a wonderful thing. But State or Federal Governments borrowing the same money to invest in the same infrastructure, incurring lower interest costs than private investors because of their sovereign credit ratings, is “crowding out”.
This conviction that all debt is bad all the time, that no government should borrow a cent, is widening our infrastructure deficit (especially when we’ll be wasting precious taxpayer dollars on regional pork-barrelling) and exacerbating related problems like our housing shortage. A $150m pa rebate, no matter how wild the Coalition’s estimates for how much additional investment it will leverage, is no substitute for proper investment by governments, with projects either constructed by, or delivered in partnership with, the private sector.
Tony Abbott likes to compare the Commonwealth budget to a household budget and insist that demonstrates the need to “live within our means”. Even that facile analogy doesn’t stack up: nearly all households borrow heavily to invest in basic infrastructure via mortgages. We’re dudding ourselves and future generations with this bizarre aversion to limited government borrowing.