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A plan to halt Australia's decline
Rob Burgess
Published 7:49 AM, 14 Oct 2010 Last update 10:14 AM, 14 Oct 2010
When parliament resumes on Monday Brendan Lyon should stand in the public gallery holding two stone tablets, each inscribed with two infrastructure commandments for the federal government.
His voice would echo through the chamber like thunder while the government and opposition quailed below.
A bit over the top, I agree. But what else will convince government to confront the urgent infrastructure challenge facing Australia?
Lyon presented a list of badly needed reforms to the National Press Club yesterday, put together by the group he heads, Infrastructure Partnerships Australia – a forum through which both private and public infrastructure leaders attempt to influence national debate.
The urgency for action is clear. State and federal governments are spending more on infrastructure than they have for years, but it is still not enough. IPA estimates that last year we slipped another $32.1 billion behind on the required investment to "return the quality of infrastructure to a point that will sustain ongoing national prosperity".
After Queensland's dramatic credit rating downgrade last year, state governments are beginning to push up against the limits of their own balance sheets – and Queenland is trying to win back the AAA rating its debt lost, partly with funds generated by the current QR National float. So if the states can't pay their own infrastructure bills, who will?
Lyon's list is simple at first glance, but represent a world of political complexity – IPA knows what needs doing, and Julia Gillard and Tony Abbott may agree, but trying getting these policies past voters. IPA wants to:
– Begin a reasoned debate about the solutions to urban congestion and the funding of transport projects – and the role of road pricing;
– Increase opportunities for the private sector to fund the backlog projects by finally creating a sustainable link between superannuation and infrastructure projects;
– Entrench the role and independence of Infrastructure Australia; and
– The federal government must provide a permanent funding framework to allow Canberra to bring forward the nation’s most significant infrastructure projects.
The first of these is imminently sensible. Lyon outlined yesterday how the average cost per kilometre for road use in Australia is 9.9 cents. Bumping it up to 10.4 cents, but actually charging it to those that travel those kilometres and put strains upon road infrastructure would radically overhaul this area of taxation and generate and extra $10.8 billion in revenue to help improve choked networks.
The plan, very close to the scheme suggested by Professor John Freebairn in Business Spectator two weeks ago (Greg Hunt's road less travelled, October 4) would be to replace the crude patchwork of fuel excise, registration fees and stamp duties imposed on the sale and operation of vehicles, with something far more elegant.
GPS technology makes it easy to track vehicles' road usage, and wireless communications mean information can be fed back to drivers to explain the costs of their driving habits. If you want to drive into the city at 8am, the 'toll' per kilometre on the busy roads would rise until enough drivers decided to drive in at 7am or 9am, for example. Likewise, heavy vehicles taking short-cuts on B-roads would pay directly for the damage they do.
The political obstacles to such a plan are huge. The COAG reform agenda is making some progress, but asking each state to give up its tried and tested (and inefficient) transport revenues in favour of a new national system would create winners and losers – and competing claims for compensation.
Even a single voice raised in parliament on the issue of privacy, would create a storm of public opprobrium for the proposing government – never mind that individuals are just as 'trackable' via their mobile phones as they would be via a GPS road-charging system.
And social equity would be an easy sell for the naysayers – why should the poor pay more when they have to drive so far to work already? To which the reply would be: because at an annual average flat $1386 per annum in taxes and charges, poorer Australian are already heavily subsidising the transport industry.
The second of IPA's list of reforms should be an easier sell. They point out that more of our massive pool of superannuation funds should go into infrastructure – currently it is only 5 to 6 per cent, while super funds put 29 per cent of our retirement savings into Australian equities and 11 per cent into fixed interest. With the super guarantee expected to increase from 9 to 12 per cent, IPA suggests the federal government create appropriate tax incentives to drive super into annuity-style produces that are ideal for funding infrastructure projects.
The third reform on Lyon's stone tablet is to formally recognise the success of Infrastructure Australia and raise its stature as in independent sounding-board for government policy. Allegations of porkbarrelling during the federal election over new train lines in Brisbane and Sydney make most sense when compared to Infrastructure Australia's list of national priorities – so IPA wants IA to be made a permanent, financially fortified part of the political landscape.
This is exactly the sentiment expressed by IA board member Peter Newman in relation to Anthony Albanese's high-speed rail plans (Is Albanese off the rails? September 29)
Rather than let the latest version of high-speed rail be scuppered by a couple of Canberra bureaucrats, said Newman, let it be measured using IA's highly successful vetting process – and abandoned only if the numbers don't make sense.
And the final demand on IPA's list will be perhaps most controversial of all – creating a "permanent funding framework to allow Canberra to bring forward the nation’s most significant infrastructure projects". That sounds a lot like a mandate for increase Commonwealth debt.
Indeed, one reporter asked Lyon whether the Gillard government should be so obsessed with paying down the national debt, when the nation's infrastructure so urgently needs attention.
Lyon played the straight, diplomatic bat, saying both were important objectives – but then reminded the audience that debt has long been an important way of funding infrastructure and would continue to be. He seemed to be hinting that Canberra had gotten it wrong.
Later, I put the same question to Tony Makin professor of economics at the Griffith Business School – has the post-Howard/Costello obsession with zero national debt gone too far. Both sides of the current house want to pay off our national stimulus debt as quickly as possible, but is that necessary?
His answer shows why Labor is half-wrong, so to speak. Makin agrees that there is nothing wrong with taking on further debt to fund productive infrastructure. The problem is, post-GFC, Labor is paying down a debt used for questionable projects – the Building the Education Revolution, which next week will be attacked in parliament for cost over-runs and the construction of 'inappropriate' buildings, and pink batts which have a less easily quantifiable economy benefit (especially in the absence of a carbon price on the energy they are saving).
So adding to the current public debt stock looks like a very bad idea – not only politically, but economically too.
And when we've finished paying our GFC stimulus bill? Makin points out that the global cost of money continues to rise, under pressure from bloated public balance sheets around the world, but also that Basel III capital constraints will further raise the cost of borrowing.
By the time the federal government decides it might be a good idea to borrow for wealth-creating infrastructure projects, the cost of doing so could be prohibitive.
Which means that unless the government gets serious about linking super funds to infrastructure, or perhaps rolling out a more sensible national transport taxation regime, Australia will continue slipping further behind.
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3 Comments
Steve Paul wrote:
Rob Burgess seems to be mistaking bringing the budget into balance and increasing borrowings. (See A plan to halt Australia's decline, October 14.)
As in Victoria, the state government has run budget surpluses throughout its entire life, but has increased its level of debt to fund infrastructure expenditure. It is the interest payment (like when you borrow to buy a house) that you fund in your recurrent expenditure and if interest rates go up you have to cut back on recurrent programs to meet the increased cost of borrowings.
What our level of debt should be is not a fixed proportion of GDP, but is dependent on economic circumstances and change over time. Also, what we borrow to invest in is also open to debate. Unlike many, I happen to believe that investing in the capital infrastructure of our schools is a good thing, just as investing in the insulation of our homes. Just as a road needs to be constructed well, all projects need to be done well.
14 Oct 2010 9:45 AM
Anthony Pearson wrote:
Private money funding public infrastructure invariably means a transfer of public wealth to private pockets – either by the increased cost of borrowing for private money combined with the necessary profits to make it worthwhile or the bailouts required when it does not work (See A plan to halt Australia's decline, October 14).
Hence there needs to be very stringent criteria, including public economic benefit for the private funding of public infrastructure to actually deliver the overall benefit envisaged.
To date I am not convinced that any scheme worldwide has delivered this.
14 Oct 2010 1:06 PM
Barry White wrote:
The presentation by Brendan Lyon was an exercise in 'business as usual' – it just won't happen. (See A plan to halt Australia's decline, October 14.)
By the time a road usage tax is implemented it will not be needed. Over the next small number of years petrol will either be too expensive for commuters to drive to work or it may even be rationed. Certainly I would never put money into any road project and not into any super fund that invested in such projects. So far they have a near 100 per cent failure rate.
Very Fast Rail is very, very expensive and requires entirely new corridors. We will not have the money! If you want to plan for a low energy future put resources into electrifying interstate rail and suburban rail and get long distance trucks off the road. Reopen branch lines that were closed.
These are the types of projects we need to protect the country.
15 Oct 2010 8:09 AM
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