Pearls and Irritations

A recent report by Infrastructure Australia recommends franchising state public transport services, with Commonwealth incentives for so doing. It claimed that this would realise around $16 bn of financial savings, which could be spent on infrastructure. The report assumed there to be inherent but undisclosed inefficiencies in state government services, without providing evidence of such inefficiencies.

While the report is part of a ‘reform series’, material at Infrastructure Australia’s website creates some confusion about whose series this might be. Possibilities include Infrastructure Australia, Infrastructure Partnerships Australia – a self-described think tank which, although boasting senior public servants on its advisory board, has been called a lobby group – or perhaps both organisations. (A recent speech posted by Infrastructure Partnerships Australia outlines its arguments for improving infrastructure service delivery.)

The report attracted criticism, including from leading experts, for matters such as exaggerating savings, not considering options other than franchising, and drawing the wrong ‘lesson’ from 40 years of continuously controversial – if not failing – urban rail franchising in the UK and Melbourne.

While these and other criticisms – such as of a call for probably unconstitutional Commonwealth Government meddling – are deserved, the report has other issues. I mention two here.

First, the supporting document for the report stated the (claimed) savings could be made without franchising. The recommendations for franchising reflect an assessment that state governments lack willpower to make the savings.

Leaving aside questions about a Commonwealth statutory authority basing recommendations on its (consultant’s) views of state politics, the underlying assumption is that States exert secret influence that render public sector transport businesses inefficient.

The argument is that franchising leads to savings because it removes the secret government influence that causes inefficiency.

However, there is a problem with this argument. Competition and related policies agreed by state and commonwealth governments in the last three decades aimed to eliminate such secret influence. The policies mean governments should only influence public sector businesses overtly such as through published Community Service Obligations.

Hence the argument for franchising and other forms of privatisation – including PPPs – is that governments have not implemented the competition and related policies: public sector businesses are prevented from being efficient via influences hidden from public sight.  The logic – as distinct from ideology or self-interest – of the privatisation argument boils down to an argument for transparency in government dealings.

As such it would be hypocritical to claim ‘confidentiality’ for any part of a franchise, privatisation or PPP deal.  It would be equally absurd for pro-privatising governments to argue ‘confidentiality’ of business cases they submit to Infrastructure Australia.

Unfortunately Infrastructure Australia’s report did not take the opportunity to expose this hypocrisy and slap down the widespread malpractice of governments shielding scrutiny of privatisations and infrastructure proposals via veils of confidentiality. That type of government behaviour engenders community cynicism about franchising and privatisation.

A start to fixing this problem would be revisions to national PPP guidelines – drafted by Infrastructure Australia – so that they deal with the need for full transparency. This should be accompanied by publication of the ‘business case’ and assessment for every infrastructure proposal submitted to Infrastructure Australia.

A second question falls to anyone who believes the report’s claimed savings. Such savings would mean public transport systems are inefficient, raising doubts about the merits of proposed road and rail projects in the relevant cities. Would the projects be white elephants if the systems were efficient?

This could be very damaging if governments tried to hide such a situation by institutionalising inefficiency; by abandoning real reforms or cruelling parts of existing city transport systems.

Luke Fraser and I have previously made this point regarding road pricing. Without a ‘road pricing scenario’ it is unknown whether any of the current bout of concrete pours for major roads is worthwhile.

It is within Infrastructure Australia’s power to take a lead in rectifying this by assessing projects as if there were efficient roads and public transport systems.

The report not only missed that opportunity but took a step in the wrong direction. It said savings of the indicated magnitude could help pay for Sydney metro and Cross River Rail; proposals that have not been recommended by Infrastructure Australia.

These issues raise questions such as: Does Infrastructure Australia understand its own report?  Does it believe its key role is to promote ways of getting money for infrastructure, even if it spent on projects it doesn’t support?

The latter is something Infrastructure Partnerships Australia can do.

John Austen is a happily retired Sydney western suburbs dweller.  More details will be forthcoming at his website The Jade Beagle.

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