Infrastructure Audit 2015 and serious transport reform: how soon is now?

Jun 6, 2015

Infrastructure Australia’s Infrastructure Audit was released to the press in May this year. It circulated  quickly across the nation’s media houses. They all parroted Hanrahan: ‘we’ll all be rooned’ if we don’t resign ourselves to a big, new wave of investments.

Transport received the most press attention, which is understandable: it is by far the largest and fastest-growing infrastructure item, and unlike water, telecommunications and energy, it remains predominantly a government responsibility. The Prime Minister reiterated that Infrastructure Australia would follow up with a 15-year plan that will shape government spending priorities.

The Audit is Infrastructure Australia’s most significant publication since major changes to its leadership and legislation following the change of government. On the evidence of this report, the new broom sets quite different priorities for transport at least.

Until 2013, Infrastructure Australia was explicit that transport – in particular roads – required market reform before further spending would elicit more efficient outcomes: ‘reform first, invest second’, was the mantra. Infrastructure Australia‘s State of Play report (early 2013) labelled roads the worst utility, by all measures. Roads ‘stood out’ for poor performance: they had ‘no economic efficiency objective’ ‘no coordinated planning or design’ ‘no review of proposals or results’ and ‘no commercial medium for users to influence capacity or design’.

That was the language of competition reform. The Infrastructure Audit is something quite different.

The Audit relegates market reform to a motherhood statement: there is no sense that competition mechanisms must be in place before further spending occurs. Instead, the Audit lays the ground for a new wave of government-led road spending: of 81 formal Audit findings, those related to transport mostly emphasise a vastly-increased demand. This is unsurprising: roads are provided by government as a free good; when something appears free, people tend to want more of it. To remove any doubt about its focus, the Audit tempers reform expectations: ‘recent experience suggests that making improvements in the governance, regulatory and policy settings for infrastructure will remain a difficult exercise’.  

As an alternative to ‘difficult’ reforms, the Audit suggests ways in which transport bureaucracies can heal themselves. Better project selection, better planning and assessment processes, increased governance: If bureaucracy can only be improved a little, then success lies just around the corner. Unfortunately such logic is not borne out by experience: spending by government infrastructure monopolies shows no track record of producing productive or efficient public outcomes. Australia’s government-run energy sector spending was excessive, often directed at the wrong priorities and poorly-timed. In light of this fact, the authors might have asked themselves why the solution for roads would look any different from those applied to other utilities.

The Audit notes that we need to find new ways to pay for roads. It fails to notice that today’s roads are being built with multiple billions of public sector debt. Road-related revenues such as bowser taxes and vehicle registration fees no longer pay for Australia’s road spending levels.

In a recent paper co-authored with Michael Keating I referred to quantitative analysis[i] suggesting that between 2006 and 2023, Australia will have generated something in the order of $140 billion dollars in accumulated road-related public sector debt.

Debt is not bad, if employed productively, but government road projects are never measured for their actual productivity outcomes. Political leaders have not even been told that they are road spending with their credit card rather than via the family savings account: in 2014, the Productivity Commission managed to advise governments that total road-derived revenue and spending levels were ‘broadly’ in balance. Even this year, the Intergenerational Report made no reference to roads as a cost pressure. For clarity, between 2006-07 and 2012-13 accumulated road spending above road revenues totalled over $26 billion; you can see this for yourself by visiting the Bureau of Infrastructure Transport and Regional Economics Infrastructure Yearbook 2014, page 41. ‘Roads of the 21st century’ would be better christened ‘the debt trap of the 21st century’. Given that road spending is already generating between $6 and 8 billion dollars of new public sector debt each year, foreshadowing an expensive new infrastructure spending pipeline via the same unreformed monopolies (however much they might polish their management practice) would be irresponsible.

There are more elegant solutions: in our cities, transparent pricing tests should be established for all proposals which claim to bust congestion, such as major new city tollways. Do these roads ‘wash their own face’ commercially and also cover the negative externalities that roads generate? Between 2005 and 2013, the much-feted ‘congestion busters’ – Cross City Tunnel, Westlink M7, Lane Cove, East Link, Clem Jones, Go Between and Airport Link – displayed actual user levels that were at best only 75 per cent of proponent forecasts, at worse less than 25 per cent; most hovered around 50 per cent of anticipated patronage[ii].   All new toll roads should be examined against alternative solutions, including public transport alternatives, priced – at least for theoretical purposes – on the same basis, to establish an objective project hierarchy, delivering outcomes the community wants, at least cost.

Australia’s busiest interstate highways are de facto nothing more than predictable, multi-billion dollar, long-lived commercial assets. They should be put to market test for the pension funds to consider, but only in conjunction with sales of the rail assets that compete with them. The latest Infrastructure Audit bemoans the increased demand for highways, yet it fails to advance market tests as a solution for rationalising that demand. This has been the only logical end-state for these assets since Whitlam instituted full Commonwealth funding control over major highways through the National Roads Act, over 40 years ago.

As Morrissey once put it, ‘How soon is now?’

Commonwealth road spending in particular has been an expensive exercise in gift-giving, conceived and managed by a powerful bureaucracy, with cheerleading provided by motoring lobbies and other vested interests, such as civil engineering firms and bank advisories: more gifts mean more long-running and highly-lucrative projects. The cost has been high: inadequate public transport systems and gold-plated transport build costs, which now grow at twice the rate of CPI; far less transport budget autonomy for state and territory governments, who are expected to co-fund whatever projects the Commonwealth sets store in. Commonwealth gifting has hastened the decay of rural and regional roads, which appear to be in the process of a relentless ‘asset-stripping’ in order to find the money for astronomically expensive ‘icon’ road projects (even though the latter demonstrate no reliable demand function). Commonwealth highway gifting is also behind trucking still carrying 80 per cent of Australia’s east coast interstate freight task, rather than a heavyweight commercial rail, such as the rest of the world employs to enjoy cheaper freight, delivered more safely and with less emissions.

Similar waste in government utilities led the previous generation to reform the politically-powerful and unaccountable energy, water, telecommunications, rail, shipping and airport boards. Presumably the last thing on a market reformer’s mind in that era would have been a plan to hand major new 15-year spending increases to such institutions.

No doubt there will be more to come from Infrastructure Australia. Perhaps a future report will provide governments with direction on road sector competition reform, in the public interest. Or perhaps Santa’s elves will just write a new gift list and tell Santa that the demand for these gifts is higher than ever.

Whatever transpires, don’t blame our Prime Minister for wanting to make infrastructure better: all Prime Ministers have written out blank transport cheques in good faith, as counselled by their expert transport agencies. For now, Infrastructure Australia appears to have joined that cabal of experts.

Luke Fraser and former Secretary of the Department of Prime Minister and Cabinet Michael Keating AC recently co-authored the transport and infrastructure paper in John Menadue’s Fairness, Opportunity and Security series.

Luke Fraser is founder and principal of Juturna, a public policy consultancy specialised in roads, freight and market investment reforms. He is a former national trucking industry CEO and authored several road and freight infrastructure reform studies for Infrastructure Australia between 2008 and 2014. In 2012 he was appointed to the COAG Road Reform Board.

 [i] Mr Fraser’s academic paper examining future debt from roads is awaiting publication

[ii] Infrastructure Journal Toll Roads: Big Trouble Down Under An interview conducted with Robert Bain London, January (2013)

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