ESSA

ESSA

Election 2016: Infrastructure


Anisha Kidd

By

July 1st, 2016


Anisha Kidd examines the complex web of infrastructure policy


The infrastructure policy landscape is a complex web of competing interests at the local, state and federal level. Here’s a primer on some important aspects of the infrastructure debate.

  • Infrastructure policy is important – it lays down the foundation of our economy and society. It’s the roads we drive on, the trains we ride on and the utilities (energy, telecommunications, water) that we rely on.
  • The federal government has an extremely important role to play when it comes to funding infrastructure – although infrastructure projects fall along state lines (with few exceptions) as noted by the Productivity Commission Inquiry the vertical fiscal imbalance arising from the collection of income and consumption taxes by the commonwealth government means that ‘the Australian Government has a vital role in funding infrastructure spending by State, Territory and Local Governments’.
  • The idea of an infrastructure deficit is complex.
    • The ALP claims that the ‘economic cost of underinvestment’ will reach ‘$53 billion a year by 2031’. This statistic is drawn from the Australian Infrastructure Audit that suggests that the ‘the cost of delays on roads in the six largest capital cities… [will] grow to around $53.3 billion 2031.’
    • However, as pointed out by this AFR article if we had no congestion we’d conclude that we’d spent too much on ‘on deserted roads, idle ports and empty trains’, and our infrastructure will always face challenges from a growing population.
  • Arguments about an infrastructure aside, all parties are agreed on the import of the of infrastructure expenditure – in principle.
    • The ALP notes “infrastructure is critical our future prosperity”,
    • The Coalition, unsurprisingly, views investment as the key to “support economic growth”,
    • And the Greens state “public infrastructure is vital to the future of the Australian economy”.
  • However, the key challenge associated with infrastructure policy to date is investment in the right kind of infrastructure. Of the key reports into the state of Australia’s public infrastructure over the last 2 years; The Productivity Commission Inquiry into Public Infrastructure (2014), and Infrastructure Australia’s Australian Infrastructure Audit (2015) a number of observations about key issues within our current policies are clear:
    • Selecting the right projects remains the most critical aspect of sound policy,
    • Ensuring high net benefit projects are selected relies critically on the quality of cost-benefit analysis conducted in the project development stage,
    • Existing funding models require ongoing reform, through private sector involvement, or user pays pricing arrangements,
    • Alternative funding and financing models should be considered in the context of the project in question.
    • Fundamentally, ensuring the transparency and robustness of the decision making process behind our infrastructure expenditure remains a key challenge for all levels of government.
  • These issues were reiterated at this year’s National Infrastructure Summit. Although Chairman of Infrastructure Australia, Mark Birrell commended ongoing improvement in transparency and discipline in the submission of business cases for major projects, he implored that we “still need to establish a more rigorous evidence base for infrastructure investment decisions”.
  • Infrastructure Australia has an important role to play in the ongoing debate around infrastructure policy, as the key advisor to all levels of government on infrastructure policy and planning. Possessing responsibility for evaluating major infrastructure projects against a ‘national significance test’, IA develops a project priority list to inform public expenditure.
  • So for all we know about infrastructure, how do the policies of the major parties stack up?

Unfortunately, it’s hard to say.

  • Because IA’s evaluations are only conducted on projects costed at over $100 million a significant number of projects pursued by the parties do not fall under its purview, and are often subject to no evaluation at all.
  • Furthermore, there is evidence of parties committing to projects expensive projects that are not on the Infrastructure Priority list in the first place.
  • All parties have introduced discussion about alternative financing models – from greater private sector involvement, debt financing or the Australian Investment Bank. While this demonstrates a clear emphasis in identifying alternative, sustainable funding arrangements assessing these models without a clear understanding of the projects they will be applied to is limited. After all the risk profile, community willingness to pay, and public and private sector funding requirements will vary significantly depending on the nature of the project in question.

Therefore, as much as the parties claim to understand the pressing challenges associated with our public infrastructure, we have yet to see a party commit to the kind of rigorous governance model that would ensure the integrity of the decision making process in selecting the right projects.

  • Needless to say the infrastructure planning process is inherently political. Major commitments to projects with high visibility will always score big points to parties regardless of the cost benefit analysis that has gone behind them. For example over the past decade, more money has been promised in Queensland than in any other state.

 

So when it’s all done and dusted what are we left with – perhaps just a slightly better understanding that we don’t know what we don’t know? In any case (whomever is elected) the strength of Australia’s infrastructure policy in both the short term and long term will depend on choosing the right projects, and that means having the right information, evaluated by the right people, and ensuring we can depend on the right government to make it happen.

 

 

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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