Luke Fraser. Shorten, Infrastructure Australia and boldness.

Infrastructure Australia (IA) has truly become something to conjure with; it has even spawned a comedy series. Where is it headed? Last week Federal Opposition Leader Bill Shorten outlined Labor’s vision. This involved:

  • a new $10 billion IA financing facility to encourage spending;
  • putting trillions of Australian superannuant money to work in infrastructure investments;
  • IA to become an investment bank of sorts

The problem here lies in promoting more investment in infrastructure along the same lines as today.

Lack of infrastructure spending is the least of Australia’s problems.

Michael Keating and I demonstrated in an article ‘Infrastructure: Improvement or Impoverishment?‘ the Fairness, Opportunity and Security series just how vast infrastructure spending has become in less than a decade: between when Kevin Rudd assumed power in 2007 and relinquished it in 2013, public capital formation – mostly infrastructure investment – rose by over a third. Capital formation in transport, postal and warehousing grew by almost 50 per cent; net capital stock grew by an almost incredible 39 per cent. If spending is your goal, then as Harold Macmillan said, stop complaining – you’ve never had it so good.

The real problem is what we spend the money on and at what cost.

In roads, Australia spends over thirty billion dollars each year without recourse to independently verified business cases for most large projects. Few appear economic, even fewer bankable. Some are community service obligations and probably justified on this basis. Other very clearly are not: they are simply enormous wastes of money. Non-bankable projects pose a problem for Shorten’s hopes to unlock trillions in superannuation finance.   East-West Link was an $8 billion dollar project with a business case delivering as little as 45 cents in the dollar, yet it was supported at the very highest levels of Victorian and Commonwealth transport bureaucracies and treasuries. Shorten’s reforms are silent on this sort of incompetence, but it is the main game. There have been plenty of similar duds promoted under Labor state governments. Both sides of politics are caught in a ridiculous system: political will for infrastructure is all-consuming, but the appetite for clear-sighted microeconomic reforms which nurture more productive investments is absent.

What is this costing? Modern road spending above available fuel tax and vehicle registration revenue saw roads generate multi-billion dollar new government debt in each year from 2007 onwards. The last reported figures (2012-13) work out to over $26 billion; today’s real figure is probably more like $38 billion. This is a worthy challenge for a new Commonwealth Treasurer keen on arresting wasteful spending.

IA’s assertion that all this spending is about busting congestion is based heavily on long-discredited data around urban car use: actual growth in capital city car use from 2007 to 2014 has been overstated by factors of between around six and eight for all state capitals. In Adelaide, 2014 government figures show car growth actually dropped over those years in net terms, rather than grew[i]. Yet the 2007 forecasts continue to be quoted.

Australia can do better.

IA should list all projects it has rejected and publish the detailed reasons for rejection. This would inform better policy making. Conversely, it would be cause for concern if IA hadn’t rejected any projects lately: it should be either helping projects towards productive inception or showing them the door.

An ambitious government should support IA to walk and chew gum at the same time: to get its head above projects and call out the structural reforms that – if pursued – could attract large, bankable new investments. IA has developed a reputation for too carefully picking and choosing its fights on this higher plane. It was entirely silent on the National Broadband Network. Since 2013 it has maintained silence on government road debt. It offers little on some other highly-prospective areas for investor upside.

Take irrigation: there have been no IA calls to roll back the flawed Murray-Darling Basin Plan, corporatize the delivery of water in the basin, rein in the over-allocation of water licenses and establish the necessary structural adjustments for those affected. This is a sector crying out for plain speaking: superannuation funds and banks should have reforms explained to them in longhand that if pursued could unlock productive, multi-billion dollar investments in irrigation infrastructure. Farming should be engaged on how irrigation reform can present Asian markets with a far greater Australian farm value proposition than it does today.

In contrast, IA’s limp 2015 Infrastructure Audit offered only a line on page 127 of a report few will ever read, saying ‘more market reform in rural water is warranted’. No data quantifying how flawed the sector is to shame to action. No sketch of bankable deal structures that might be on offer to commercial investors if Australia reformed rural water. In short: not serious.

To be fair to Mr Shorten it is hard to capture public attention with a vague call to put steel and leadership into Infrastructure Australia, yet these are the qualities most lacking. The new PM’s call to boldness should be heeded: IA should call a spade a spade on the wasteful, unreformed and unimaginative infrastructure sectors which hold Australia back. If those in charge can’t or don’t want to do so, they should hand in their badges. Government too should be bold enough to demand better solutions from its infrastructure tsar.

Solutions are there for the asking. Investors are waiting.

A forthcoming post offers some possible reform solutions and deal structures for the road and rail sectors – a follow up to an earlier piece on rail.

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 has authored several reform studies for Infrastructure Australia. In 2012 he was appointed to the COAG Road Reform Board. He was for a time a chief of staff in the Howard government.
[i] Sources: Bureau of Transport and Regional Economics, Estimating urban traffic and congestion cost trends for Australian cities Working Paper No 71 www.bitre.gov.au/publications/2007/wp_071.aspx;

Bureau of Infrastructure, Transport and Regional Economics, Australian infrastructure statistics yearbook 2014, December 2014

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