Recently, I have been running the line that the Government should borrow to build productive infrastructure in order to: 1) support growth and jobs as the mining investment boom fades; and 2) expand Australia’s productive base and improve living standards.
A key element that will determine the success of any plan to boost infrastructure investment is to set-up a framework that ensures any such investment is well-targeted and based on rigorous cost-benefit analysis, rather than being politically expedient. Jessica Irvine recently raised the idea of setting-up an independent agency, on par with the RBA, with the power to decide infrastructure priorities:
Labor, to its credit, invented Infrastructure Australia. But it is hamstrung in important ways. It can only provide a cost-benefit analysis of projects submitted by governments. It can’t make recommendations on other projects, such as a second Sydney airport for example.
It consists of 12 board members, chaired by Sir Rod Eddington and including the Treasury Secretary, Martin Parkinson, but its support agency, the Office of the Infrastructure Co-ordinator, is run on a shoestring…
Such an agency could, like any other business, have the ability to borrow to fund important work. Investors could purchase longer term (20-year or 30-year) bonds to fund its work.
It could conduct rigorous cost-benefit analysis of all potential infrastructure projects.
Its board could meet monthly and produce statements of infrastructure priorities like the Reserve Bank.
It could better coordinate interest from private sector investors, like super funds, and lower the cost for bidding for projects that is currently a major deterrent to private sector investment.
An independent infrastructure agency could remove from politicians the honey pot of infrastructure spending. It could put an end to election year vote buying and the politics of state federal relations.
It could lead a sorely needed national debate about the nation’s infrastructure backlog and future needs.
Again, what Australia must try to avoid is building expensive ‘white elephants’ that are based on political motivations, do little to improve Australia’s productive capacity or living standards, and benefit only tiny segment of the population at the expense of the majority.
A classic example of such poorly targeted infrastructure investment was on display yesterday in Canberra, with the Government announcing an initial $18.7 million investment to develop light rail between Gungahlin in the north and Civic. From the Canberra Times:
Canberra’s long promised Capital Metro project is one step closer to becoming a reality, with $18.7 million in funding allocated for preliminary design work and a co-ordinating agency included in Tuesday’s budget.
Announcing a total infrastructure spend of $775.5 million in 2013-14 and $272 million in new capital works, Treasurer Andrew Barr said the Capital Metro agency would be established at a cost of $12.3 million.
A project director and board president will be recruited and an additional $5 million for design work on the Light Rail Transit corridor between Gungahlin and the city, with the route via Flemington Road and Northbourne Avenue.
Mr Barr said the project and the $800,000 in spending to remake Parkes Way were critical to the creation of thousands of construction jobs while attracting overseas and domestic investment.
The feasibility of a Canberra-wide light rail network will also be assessed in a $1.4 million master plan process.
Anyone who has spent a large amount of time in Canberra (I lived there for three years) would recognise that it is totally unsuitable for a dedicated (and costly) light rail service. Canberra is the most decentralised city in Australia, with the population spread-out around five primary employment centres: Civic (the tiny CBD), the Parliamentary Triangle, Belconnen, Woden, and Tuggeranong. Gungahlin in the far north is also emerging as the city’s sixth node.
Canberra’s housing and employment lacks density. It is also serviced by the nation’s best road system. Accordingly, the overwhelming majority of Canberrans drive their cars to/from work. Yet, for those that require it, Canberra’s bus system (Action) operates well given the capital’s geography and demography.
In short, Canberra lacks the population base or density to make such a light rail project viable from either an economic or social perspective.
If policy makers in Canberra are truly interested in improving public transport access to Canberrans, they should look to expand bus services across the entire city, rather than focussing on one costly project that benefits only a tiny minority of the population (those located in the narrow northern corridor between Gungahlin and Civic), and is likely to be grossly underutilised.
These are the types of vanity infrastructure projects that Australia doesn’t need.
