Commentary

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The Business Council of Australia’s report card this morning on the nation’s infrastructure, prepared by Rod Sims of Port Jackson Partners, is pretty damning.

That’s especially so when it’s read with Treasury Secretary Ken Henry’s warning last week about our population growing to 35 million. Taken together, they should provide an antidote to complacency.

Australia has a lot going for it as we emerge from the financial crisis with a decades-long terms-of-trade boom stretching ahead thanks to the growth of India and China. But as New South Wales has demonstrated, prosperity can easily be stuffed up with poor governance leading to poor infrastructure.

“Australia needs another big effort on infrastructure reform,” says Sims, and it’s hard to disagree.

Here’s my list of the key points from the chapters of his report:

1. It’s “not clear” whether the largest single infrastructure project, the national broadband network, is the right way forward for Australia – there’s no cost-benefit analysis and there’s a potential for a conflict of interest between the government’s role as builder and regulator;

2. Electricity reliability “cannot be assured” and electricity prices are likely to rise significantly over the next 5-10 years, so that Australia may lose one of its key sources of competitive advantage;

3. The rural water plan faces a “huge implementation challenge”, and some of the spending allocations need to be reconsidered;

4. Decisions about urban water supply have been made with little transparency and may or may not be the least-cost options;

5. The report contains a damning assessment of the congestion on urban roads and public transport and says that, at a minimum, there should be active steps to introduce congestion pricing, and consideration of privatising Sydney railways;

6. The freight transport sector faces many problems, including poor planning, regulation, pricing, funding and a number of specific market and government failures.

Sims is not very complimentary about Infrastructure Australia either. He says IA did not release the cost-benefit analysis that justifies the recommended projects, its audit was “at best a high level appraisal”, and it set a work program that does not appear to take account of many existing institutions.

Indeed, Sims recommends that the Productivity Commission undertake the proposed audit of Australia’s infrastructure instead of IA.

The report says that the increase in infrastructure spending over the past eight years, including this year’s fiscal stimulus spending, was mostly just a catch-up of previous years’ under spending.

Only 14 per cent of the stimulus went on infrastructure because too few projects were ready to go, and the 8.3 per cent increase in spending between 2001 and 2008 was a nothing but a spike in state funding to catch up on past under-spending – nothing for the future.

The Council of Australian Governments (COAG) should be the key driver of infrastructure reform across all sectors, and the role of IA should be “refined”.

As Ken Henry said last Thursday: “With the right decisions, one can envisage a period of unprecedented prosperity; with less judicious decisions, however, we could experience an extended period of extreme volatility – with no growth path proving sustainable.”

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9 Comments

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John Flynne wrote:

But as New South Wales has demonstrated, prosperity can easily be stuffed up with poor governance leading to poor infrastructure. (See Infrastructure alarm, October 26.)

Is the federal Labor government any better? Just look at the ministers involved in their state of origin.

26 Oct 2009 10:03 AM

Vasso Massonic wrote:

Alan you are spot on, per item one. (See Infrastructure alarm, October 26.) That is why I sent my The Conversation post (Law of the jungle) to the ASIC Misconduct and Breach Reporting department for their attention.....

"As a Telstra shareholder, I am appalled at the treatment of my share holding in Telstra and disappointed at the inaction by our regulators." Which was duly acknowledged.

As things stand, we are at risk of wasting one decade of the decades-long terms-of-trade boom stretching ahead thanks to the growth of India and China, stuffing about with bits of fibre.

26 Oct 2009 12:01 PM

Jeff Justin wrote:

Regarding population growth, when will the economists realise there has to be a better way of growing an economy?

How many people would China fit within the borders of say a city like Adelaide. It is within the cities we need infrastructure improvement and recycling water in these smaller areas will preserve our biggest advantange. Safe drinkable water!

26 Oct 2009 12:17 PM

Barry White wrote:

It is plain madness to even contemplate a population increase. (See Infrastructure alarm, October 26.) Infrastructure Australia demonstrated its ignorance of what is coming when it funded roads instead of the third rail freight track between Newcastle and Sydney.

26 Oct 2009 1:04 PM

Detlef von Richter wrote:

Interestingly, the government with all its advisors is only interested in a re-election than actually solving existing problems.

Take population growth, favoured for its economic growth potential, but the squeeze on existing infrastructure lacks any acknowledgement that we people breath in air and breath out CO2, pass wind that contains both CO2 and methane, have pets that use air and food similarly. This is all before we get onto the actual energy consumption of each household for cooking, heating, cooling, lighting and keeping our selves informed via TV and computers.The heat island effect is also played down with heat absorption by asphalt, cement and bricks which back radiate at night and raise minimum temperatures. All this before land clearing for new housing estates and its need for more infrastructure. We certainly are going down a path that will cause our children to pay heavily for our collective stupidity and intellectual laziness.

26 Oct 2009 2:15 PM

Beat Odermatt wrote:

The government's zest for power and secrecy costs us all dearly (Infrastructure alarm, October 26). In South Australia, the lack of public consultation and single-minded power hunger have led to very silly and very expensive decisions. Adelaide, for example has enough water to meets its demands if environmental solutions are implemented: better water use, grey water re-use, water harvesting, better utilisation of available ground-water combined with current supplies from the River Murray could provide all the water Adelaide ever need. The government however has ignored sound and proven environmental solutions in favour of “big buck, big-energy-use” desalination infrastructure. To build a new, massive $1.5 billion energy-hungry desalination plant in a state that is already short of electricity could be regarded as extremely unwise. Unwise investment in infrastructure will cause massive increases in water and electricity costs, which will make it difficult to attract and retain industries.

26 Oct 2009 8:53 PM

Peter Jackman wrote:

Give the Business Council 100 per cent for the analysis (Infrastructure alarm, October 26)! Business must be pragmatic and look to the future in more than just an election cycle. The points raised should be approached by the politicians in a rational manner. If the general population could see those recommendations I believe they would be in total agreement. The fighting would start as to the priorities. I hate to be a pessimist, but Alan Ramsey has it right about our pollies.

27 Oct 2009 10:18 AM

Trevor Ridgway wrote:

Surely the use of money from an infrastructure fund is better utilised by investing in an area not already being catered for by an existing company? See Infrastructure alarm, October 26.)

Why build an NBN when, with a little encouragement, Telstra would gladly do it! This would release $40 billion to:

a) pay off a portion of the debt incurred in "stimulating the economy"

b) put into some water project ,or roadbuilding or railway or other badly needed infrastructure improvement.

c) fund a retirement scheme for the current members of the FIRB and the ACCC and to set up some pro-Australian bodies in their place!

28 Oct 2009 6:47 PM

Jim Tsolakis wrote:

Alan, Alan, Alan (Infrastructure alarm). Everyone is asleep at the wheel, and we, as a nation, don't know what we are in for. Thirty-five million people means that we need to start building new cities, not just new infrastructure. Think on these numbers – we will need:

- 10 million new homes

- 20 new universities

- 4,000 new schools

- 50,000 more hospital beds

- 100 new super-hospitals

- 400 new shopping centres

- 2,000 new supermarkets

- 1,500 new aged care centres

- 4 new international airports

- 10 million new jobs

- Millions of square metres of new factory and warehouse space

- Room for 12 million more cars and trucks on the roads

- 100s of new community centres, halls, tennis clubs, golf courses, gymnasiums, shopping districts, childcare centres, petrol stations, workshops, car yards, etc, etc

- at least double the number of sheep, cows and chickens!

Shall I go on? And all of this in the framework of an ETS designed to reduce emissions to half "current levels". We are already 20 years behind and look at what is happening to property prices! This is a big job, a very big job.

My view is that we need at least six new multi-million-person cities to be created from scratch. Our current cities cannot and will not cope with any more people. This is Australia, the land of plenty, and of land, we have plenty. With some vision and action we can have all the natural resources we need, such as water and food. It's time for a reality check. PS – I think we are going to need at least three more big banks!

29 Oct 2009 11:38 AM

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