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Feb 17, 2016

Infrastructure policy challenge has been laid bare -- and voters won't like it

A major new Infrastructure Australia report shows just how difficult the challenge of getting infrastructure right is, especially in transport.

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markbirrell

Mark Birrell

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.

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17 comments

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17 thoughts on “Infrastructure policy challenge has been laid bare — and voters won’t like it

  1. Norman Hanscombe

    Kevin, if you genuinely don’t understand what was wrong with the disastrous Pink Batts fiasco, it’s scant wonder you don’t understand the numerous major changes which have occurred since the time of projects such as the Mount Wellington Road and the Snowy Mountains Scheme, and other events you quote, I’d suggest you confine your Posts to what others with whom you agree say, as I really can’t justify wasting time responding to your quaint ideas.
    This applies also to any disasters in Australian Education which you happen to support.

  2. Kevin Cox

    Norman Hanscombe the methods of Denison Miller have been used many times in the past century with good results. Think small projects like the construction of the Mt. Wellington Road, larger ones like Snowy Mountains, and HECS loans. Then there is the reconstruction of Germany and Japan, the rise of the east asian economies, and the rise of China. These were not done on borrowed money from financial institutions but were achieved through creating money using the credit of communities and using it for productive purposes. Even recently Australia was saved from recession by the school’s hall program and pink batts.

    The important thing is to get money doing something that increases assets rather than sloshing around in the financial system doing little.

  3. Dog's Breakfast

    “IA wants governments out of infrastructure almost entirely.”

    Any pretense that IA was not ideologically slanted is destroyed by this line.

    Dogma dressed up as analysis.

  4. Norman Hanscombe

    As someone who held many senior positions in the Trade Union movement, Keto Vodda, I was aware of the differences between those which benefited Australian Citizens and those which didn’t.
    Unfortunately as the decades rolled by there was a constant increase in the number of Union and/or Political Power Brokers who concentrated on arranging deals with their nominal Factional opponents to broker arrangements which benefited not the workers or the Australian Citizens but instead the ambitions of the Power Brokers for themselves and those associated with them.
    Crikey Land is one of their favoured homes, although we can’t be sure how well the Crikey Commissariat actually understands what it’s doing.

  5. Keto Vodda

    As I near retirement I still wait to experience a privatisation that has clearly benefited me.

    On the other hand there are plenty of privatisations that have had negative impacts on me.

  6. Norman Hanscombe

    Kevin Cox, the world has changed significantly several times since then so what were once solutions no longer work. If they did they’d have been used many times over the last century or so.

  7. Kevin Cox

    The first governor of the Commonwealth Bank, Sir Denison Miller, solved the problem of getting funds for investment by creating zero interest money for new infrastructure and to pay for the First World War. Rather than borrow money from the British he simply used fractional reserve banking idea and the credit rating of the Commonwealth to create the money needed.

    The infrastructure is paid for from user pays but this way we do not have to pay interest on the new money created. It worked a century ago and it can work again today. The opposition to it comes from the rentier class – still mainly the overseas powers like the USA, Britain and increasingly the Asian Countries.

  8. Norman Hanscombe

    If you were more on the ball, Frank Johansen, you’d understand that Turnbull is intellectually and ethically so far ahead of his Chattering Class critics that they’ll still be running when the proverbial cows come home.
    You’d be doing yourself a favour were you to concentrate on improving your English Language skills.

  9. Frank Johansen

    Hear hear, Graeski. Whats the bet that the only piece of that report Lord Waffle of Wentworth will seize upon is the bit about selling off his crappy, third rate NBN.

  10. Graeski

    Privatise, privatise, privatise – of course, privatisation is the cure to every economic ill. The magic wand that simply needs to waved over any problem to effect a miracle.

    So who buys the shares when our wealth, our assets – yes, today they’re owned by the Australian government in proxy for you and me – is sold off? Who gets to lock up all future profits for their own personal benefit? The wealthy in our society, of course. The parasites.

    Everything that this government or any organisation remotely linked to this government ever does – EVERYTHING – has the one simple aim of making the rich, richer and the poor, poorer.

    Don’t trust them. They’re thieves.

  11. IanG

    Is their verification that this is not an, as yet unused, script penned by Rob Sitch? Sounds just like the sort of thing that Jim or Rhonda could come up with.

  12. Salamander

    What’s “independent” nowadays? Even the Greens have started caving in.

  13. bushby jane

    IA was supposed to be an independent assessment body when set up I thought, but seems to me to be not so independent any more.

  14. Ian Brown

    Infrastucture Australia – as is our custom, another national technical institution headed by a lawyer / ex-politician. Surely we can do better?

  15. mike westerman

    Amark – worse: existing infrastructure will continue to fall apart while nothing else happens. On one level, why should change happen when the best we can come up with is a report that blindly follows the “privatise, privatise, privatise” mantra? If the message was “stop obfuscating true costs with hidden subsidies and so called commercial in confidence clauses” then we might be going somewhere.

  16. Norman Hanscombe

    Wouldn’t it be refreshing to see more Politicians [and Capitalist media entities] making decisions despite the threats from non elected ‘eltes’ who nowadays wield so much influence?

  17. Amark

    Prediction – Nothing will happen

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