Infrastructure Australia’s Infrastructure Audit, released on Friday, gives Tony Abbott a real chance to start living up to his self-awarded “Infrastructure Prime Minister” label and kickstart his badly damaged economic reform credentials — if he’s prepared to back himself.
Covering everything from transport and electricity to sewerage and rail lines, the report is a comprehensive analysis of where our most significant infrastructure gaps are – and not just physical gaps, but policy and political gaps. It ends a fallow 18 months for IA while the government has mucked around with its structure while infrastructure investment across the country slumped.
The single biggest gap identified in the report is not physical. “Current arrangements for the funding of land transport represent the most significant opportunity for public policy reform in Australia’s infrastructure sectors,” the report concludes. That’s because “government funding alone is unlikely to be sufficient to provide the infrastructure that Australia requires”. Encouraging private investment is “fundamentally important” — and that means reforming transport pricing.
The report provides an update on an important number: the cost to Australia of congestion. Until now, we’ve had to rely on the Bureau of Transport Economics’s 2005 analysis that predicted the costs of congestion would rise to around $20 billion a year by 2020. Work done for the audit forecasts that, without additional investment beyond what is already planned, the cost of congestion will rise from $13 billion a year in 2011 to $53 billion by 2030.
What the report doesn’t say is that this cost falls disproportionately on low-income earners, who live further from city centres and centres of economic activity. Older, more central areas of a city like Sydney or Melbourne tend to be much better served by public transport networks and in any event are much closer to where people are likely to work than those living in outer suburbs, who don’t have access to the same public transport networks and often face an extended car commute to reach their job every morning.
Sourcing the investment needed to deal with congestion is a key public policy problem. State and federal governments face enormous pressures on their budgets, and while borrowing costs for governments are very low currently, there is little political appetite for borrowing even for projects the benefits of which substantially exceed the cost of borrowing. The Coalition has proposed a smart, innovative mechanism for “recycling” the proceeds of privatisation into new infrastructure projects, but electoral and Labor hostility to privatisation is a significant restriction. For its part, the federal Coalition has a massive allergy to investment in public transport, no matter how massive the net benefits are, preferring urban road projects and regional boondoggles.
Getting transport pricing right is thus critical to infrastructure investment. Whereas most infrastructure now has a “user pays” approach for consumers and business, car transport in particular suffers from a “payer uses” approach: consumers pay for access to infrastructure via licence and registration fees and fuel excise, but the access costs don’t reflect the true costs of usage, especially in relation to congestion. So there’s little incentive to moderate usage once you’ve obtained access, and little incentive for infrastructure providers to build more.
Of course, consumers do pay the true costs of congestion, but through the least efficient way possible: their time (plus whatever extra fuel costs they face sitting on a gridlocked motorway). Our current congestion policy is Soviet-style queueing, rather than capitalist-style price signals. Spending five to 10 hours a week in your car means lower productivity, less family and leisure time and poorer health outcomes, but even in fast-paced early 21st-century Western life, humans have a blind spot about the costs of their own time.
Economists have been banging on about the need for proper road pricing and congestion pricing for generations. Up until the 1990s, the technology for effective pricing systems was limited, and expensive, but the cost has fallen dramatically as computing power and miniaturisation have made road pricing street furniture and databases straightforward to establish.
What’s always been missing, except in rare places like London and Singapore, is the political will to extend road pricing beyond specific toll roads to the general road network. Politicians have long trotted out excuses to cover the fact that they simply don’t think can sell road pricing — the most recent coming from Warren Truss, who claimed that the government had “privacy” concerns about road pricing — a concern expressed even as the government was imposing a vast mass surveillance scheme on Australians that would track them everywhere they went and keep tabs on their communication.
The report is damning about this political failure:
“… beyond a few references in some transport plans to transport pricing as a long-term possibility, and faltering and slow progress on heavy vehicle charging, no substantive action has been taken by governments. Some jurisdictions oppose even the application of project-specific road tolling as a matter of state policy. The private sector will only invest in a project if it is able to earn a return on its investment. That return can only come from user charges or from governments… This unsatisfactory state of affairs needs to end… Governments and oppositions, along with industry and other stakeholders, will need to display leadership and integrity in initiating and participating in these debates.”
OK, stop laughing down the back about “integrity”, this is serious — indeed, for Australia’s future economic growth, very serious.
If Tony Abbott truly wants to be “an infrastructure Prime Minister”, he could try convincing voters that road pricing can deliver huge benefits, especially to people living in outer suburbs. Sure it’s a big challenge for a politician who has proved cack-handed and inept when it comes to selling any message other than “no”, but it could be pitched in a way that suits his talents — explain to voters that they’re already paying for congestion, but via a ridiculous, socialist approach of queueing, explain how the burden falls unfairly on outer-suburban voters and talk about the need to find the funding for future road and rail infrastructure. Then use Commonwealth funding to the states to encourage state governments to pursue the idea.
Yes, it needs “leadership and integrity”. But Abbott could be not just an infrastructure Prime Minister, but the infrastructure Prime Minister, if he managed it. Either that, or he can be just another politician making excuses, and letting the gap between reality and illusion become the biggest, most expensive infrastructure gap of all.