PETER MARTIN. We need to stop spending billions on things we don’t really need.

I am going to say it. We are spending too much on infrastructure – on roads, railways, bridges and the like. We don’t try the cheap things first. And we are spending too much on the NBN.

You probably disagree, especially if you are waiting for a train, or in a car with a driver who is stuck in traffic. If you go to the footy you would prefer a better stadium, if you use the internet, you would like it faster.

Here’s what those sorts of projects, and many more like them, set to be funded in upcoming budgets and elections, have in common: the people who use them don’t pay for them. Train fares cover at most 30 per cent of the cost of the trips.

The income from fuel excise and rego and license fees no longer covers the cost of maintaining and building roads.

The national broadband network will never get its money back, despite what was promised, and neither will spending on stadiums, especially when governments persist in knocking them down and rebuilding them, starting the cycle all over again.

(There is a reason I haven’t mentioned electricity. That market works well, also despite what you’ve heard. Any company proposing a new electricity plant needs to pay for it and be pretty sure it’ll get its money back.

The days of government-built generators are behind us, unless this one decides to build a coal or nuclear white elephant, which would kind of prove my point.

Even Malcolm Turnbull’s much loved Snowy Hydro pumped storage scheme is probably uneconomic when the costs of construction and the construction of transmission lines are taken into account.)

I am not arguing for the users of roads and trains and stadiums to be charged the full cost of providing them, and neither are Stephen Bell and Michael Keating, a professor of economics and the former head of government departments including Finance and Prime Minister and Cabinet, who set out their claims in a new book entitled Fair Share, Competing Claims and Australia’s Economic Future. I am arguing that where users don’t have to pay the full costs they will pressure the government to build too much.

Or the government will be tempted to offer uneconomic infrastructure as a bribe, believing it’ll get voters across the line who will get the benefits without having to pay the full costs.

Big pseudo-commercial projects such as the NBN and the inland rail line are especially attractive because they can be funded off-budget through an odd convention that removes their impact so long as the government asserts they will one day make money.

On budget night the Melbourne Airport rail link might become another. The $5 billion Turnbull has promised will look attractive to travellers and needn’t make a dent in Scott Morrison’s budget, even though Infrastructure Victoria says it won’t make sense until 2032 or 2047.

Bell and Keating’s point is that it is not enough to say that roads are congested, or that things could be better. If roads were never congested, we would have spent too much. Without commercial discipline, governments need to conduct cost-benefit studies to determine what’s value for money. They are imperfect, but they are no good if they are ignored.

During the 2016 federal election the Coalition committed to 21 transport infrastructure projects, each costing more than $100 million; only five had been approved by Infrastructure Australia. Labor committed to 28; only one had been approved by Infrastructure Australia.

Often it’s better to do nothing, or little. The much-hyped tram line from Sydney’s Central station to the University of NSW will deliver passengers slower than the existing bus shuttle. Infrastructure Victoria says the Melbourne rail link would deliver passengers slower than could the existing SkyBus with priority signalling. Scores of capital city households are finding the NBN more expensive than the commercial service it replaced.

Productivity Commission chairman Peter Harris has a three-stage rule when it comes to infrastructure. It’s this: “First identify the problem, then identify the least-cost solution, then take a deep breath.”

If it had been applied to the NBN, it would have been delivered only to the places that private providers wouldn’t serve, for a fraction of the cost. If it had been applied to Melbourne’s airport rail link, the bus service would have been fixed first. If it had been applied to roads, congestion charges would have been tried first.

And not building things buys time. Since the government committed to the NBN in 2009, 4G (and soon 5G) mobile services have grown to an extent not envisaged, making the project even less economic than it seemed at the time. By the time we’ve built many of the freeways we are repeatedly planning, congestion charging or driverless cars might have arrived, making them much less economic.

Doing nothing, or little, is hard for politicians, even if it eventually means lower taxes. They come to office pledging restraint and, after their first budgets, don’t deliver it. I’m happy to vote for the party that promises straight up to build the least next election. It’ll probably make the best decisions.

This article was first published in The Canberra Times on the 18th of April 2018

Peter Martin is economics editor of The Age.


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3 Responses to PETER MARTIN. We need to stop spending billions on things we don’t really need.

  1. Hi Peter,
    Thanks for this, including the book recommendation. I get some of it. But I’m still a little confused about the basic premise of the article. For starters is the basic premise that Sydney and Melbourne should still grow? Because, regrettably they are. How does just in time infrastructure build actually work? And what is the relationship to that approach and where regional cities/rural areas fit within this. Yes, the buses ex Tullamarine get into Southern Cross station fast enough. Yes, many of us are glad there is resistance to taxpayers paying for stadia rebuilds so soon – especially when they are mostly empty, except at grand finals and Beyonce concerts. Yes, we knew 4G/5G was coming so why go underground with glass and copper wire – and at what cost? Yes, some of us believe that the inland rail line is a variation on the routes of old country trains running through Country party electorates rather than the most effective route. I guess I’m looking for the big picture but what I’m getting is an appeal to ‘reason’ and lowered expectations.

  2. Peter G Martin says:

    There are trade-offs between infrastructure choices. An effective NBN could be used to mitigate demand for all transport, with savings in fuel and pollution. Remote work options can offer savings in housing affordability.

    NBN internet must have redundancy built-in. Valid CBAs can’t work without allowing for that. But CBAs of limits on its structure can only ever be probabilistically “guessed”. This is a classic NP Complete problem.

    The IT industry is hard to predict, but is accelerating demand for Big Data — Cloud computing, Blockchain, AI and Machine Learning loom as demand drivers approaching exponential proportions. Bit-by-bit design won’t wash.

    Home users started the PC revolution and Linux, were founders of many of today’s tech industries. They start work on home computers, but will need huge amounts of data for testing and prediction. We cannot be competitive if we cannot match customers and competitors in bandwidth.

    4G/5G are not substitutes for fibre networking. Current 5G plans actually require extensions of backhaul optical fibre, given the sheer volumes involved.

    If quality of the work on the CBA published for the NBN is an indication of what to expect, look first at the results to date.

    • Peter G Martin says:

      Assuming reports prove correct, with the interruption to emergency phone services because of a failure at Orange, NSW, we have an example of what can go wrong with planning for more sparse NBN coverage as recently suggested here.

      In this case, there were some redundant facilities available, designed to provide failovers and redirect traffic around the problem area. Those failover arrangements themselves fell apart when separate faults were uncovered in routers supposed to handle the failovers.

      In effect, we had a kind of dress rehearsal for how unpleasant and unpredictable things can be when easy assumptions are made about limiting the costs of an NBN network along what may seem to be simple cost-benefit lines (e.g., presumed to be pruning of network plans).

      The initial breakdown was in a regional centre in New South Wales. Service interruptions, however, were found in New South Wales, Victoria and thousands of kms away, in Western Australia.

      And a pausing point for those that might argue that rural services are over-supplied and/or should only be extended on a user-pays principle. City dwellers were the users paying in a different way for problems in rural regions.

      Welcome to the connected world.

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