While most attention will focus on the project priority list released today by Infrastructure Australia, the accompanying Australian Infrastructure Plan is a landmark reform document, signalling that there’s a new source of credible, independent economic reform advice within government.
In recent years the Productivity Commission has been the lone voice offering independent and often inconvenient advice within government on economic matters. Infrastructure Australia, under Mark Birrell, has now similarly challenged policymakers in the infrastructure space with a wide-ranging set of proposals for how infrastructure policy — and particularly transport policy, the greatest laggard when it comes to infrastructure sectors — should be shaped.
The plan offers several core policy lessons that politicians and policymakers — and taxpayers — now have to deal with.
There are no magic solutions to funding infrastructure — and the problem is getting worse
While the plan argues governments should explore options like value capture (skimming off some of the rise in land values after nearby infrastructure is provided), there is just no alternative to requiring users to pay more, particularly when it comes to transport infrastructure. Worse, IA says our current system of charging road users is unfair and unsustainable, and needs to be replaced. IA wants heavy vehicle charging fixed first: it proposes dumping our current registration and fuel excise-based charging system for vehicle tracking systems that charge for actual use, which it says will also enable more efficient use of heavy vehicles.
But that is just the start — the plan proposes something that will send a shiver up the spine of most politicians:
“Federal, state and territory governments should also commit to the full implementation of a light vehicle road charging structure in the next 10 years. This reform must include the removal of all existing inefficient taxes — including fuel excise and registration charges — and the development of supporting regulatory and investment frameworks.”
That means, most likely, the adoption of in-car charging systems that monitor actual location and road use, rather than relying on rego and fuel excise. It has enormous privacy implications, apart from anything else, as well as being highly politically unpalatable. To pave the way, so to speak, the plan suggests either the PC or Infrastructure Australia itself conduct a major inquiry into road user charging. Of course, the Commonwealth itself doesn’t own too many roads — but elsewhere the plan proposes that the Commonwealth use its funding powers to push the states and territories toward reform.
Public transport charging
If slugging motorists for the actual costs of their infrastructure use is unpalatable, it gets worse — the plan recommends that public transport become much more expensive:
“Around 20 to 25 per cent of the cost of public transport provision in Australia is typically collected from users. Or put another way, up to 80 per cent of every public transport journey taken in Australia is paid for by taxpayers. This funding mix is both inequitable and unsustainable.”
It doesn’t propose full cost recovery but says the current pricing framework “drives a ‘low-cost, low-quality’ paradigm for our public transport services and delivers a system that is relatively unresponsive to changes in demand and customer expectations”. In that context, one of the other recommendations of the plan — that Sydney, Melbourne, Brisbane and Perth all go for higher-density development in existing areas — looks almost innocuous.
We need to borrow more
Infrastructure Australia wants governments to borrow more for infrastructure investment, and to report it more transparently.
“Increased use of public debt to support investment can provide a smarter approach to delivering economic infrastructure, provided investments are well-considered, well-executed and make a definitively positive contribution to the economy. Public debt can also provide intergenerational equity around infrastructure investments by distributing costs between current and future taxpayers who will benefit from the provision of enhanced infrastructure.”
This is hardly a revolutionary idea — economists have been saying for several years that we should be borrowing more for infrastructure investment (as opposed to running deficits for operating costs), but Canberra is still locked in a “all deficits are bad” mindset despite the vanishing of the “budget emergency”.
Privatise, privatise, privatise
IA wants governments out of infrastructure almost entirely. Electricity assets still in government hands should be sold, water utilities should be sold, and the NBN should be readied for long-term sale. Intriguingly, the plan also recommends a “corporatised” road fund model whereby — until a full user-pays road pricing system is in place — road user charges would be controlled not by politicians but by a corporatised government body.
And just in case you think IA is off on an economically rationalist frolic, it also wants some good old-fashioned regional development, urging that governments encourage the growth of Adelaide, Hobart and Darwin and smaller regional centres like Newcastle and Geelong.
The problem for policymakers is that IA’s plan isn’t just a wouldn’t-it-be-nice technocratic dream. Australia has developed a significant problem with infrastructure investment over the last two years, with the election of the Coalition coinciding with a massive drop in public infrastructure investment across the country. This will only exacerbate the infrastructure funding challenge when, as the plan argues, current funding models simply aren’t working.
Malcolm Turnbull “launched” the plan this morning, making the usual noises about “studying it carefully” and “whole of government responses”; disturbingly, Turnbull chose to emphasise regional infrastructure for agricultural exports in his speech rather than the real economic substance of the Plan, which is focused strongly on getting urban infrastructure right. But if there were ever a time for an agile, innovative and reformist response from a government on infrastructure, this is it.