Late yesterday afternoon, at the CEDA State of the Nation conference, the head of Infrastructure Australia, Michael Deegan, delivered a damning assessment of the federal, state and territory bureaucracies in dealing with Australia’s infrastructure needs. From the AFR:
The commonwealth’s top infrastructure advisor has accused public servants within federal, state and territory governments of “self-interest”, “displays of truculence” and failing to show common sense in planning for Australia’s infrastructure needs.
Infrastructure Australia’s national infrastructure co-ordinator, Michael Deegan, made the harsh assessment about Australia’s efforts to dealing with shortfalls in transport infrastructure…
“You would expect that somebody, somewhere knows all the key pieces of economic infrastructure, what is needed for the future and that all relevant land spaces are monitored, protected and planned,” Mr Deegan said.
“You would expect common sense and effective planning.
“You’d be wrong.”
He said in 2013, Australia still had no national snapshot of the condition of our existing roads and highways.
Australia failed to identify road routes where improvements could lead to an increase in national income, and failed to measure whether money spent on roads actually improved service performance.
“No one does these things. They simply don’t get done”…
“These bureaucratic charades and displays of truculence have real consequences for jobs and national productivity”.
As someone that has worked in both the Federal and Victorian State Government, I understand Deegan’s concerns. In my experience, infrastructure projects are too often based on political motives, rather than rigorous cost benefit analysis.
A classic example that I experienced first hand was the $1 billion-plus MYKI public transport ticketing system, which was pushed through by the Victorian bureaucracy without rigorous debate over whether the project was: 1) needed (it wasn’t – the existing Metcard system worked just fine); 2) was cost effective (much cheaper systems could have been purchased off-the-shelf from overseas); or 3) funds could be better utilised elsewhere (e.g. by actually expanding the train network).
Canberra’s proposed light rail system is another example of a government seeking to build an expensive vanity project for political reasons, when much cheaper and effective options, such as expanding the pre-existing bus network, are available.
A key factor determining the success or otherwise of Australian infrastructure investment is whether a framework is in place to ensure any such investment are well-targeted and maximise net benefits from a productivity and social welfare perspective, rather than being politically expedient. In this regard, Jessica Irvine recently raised the sensible 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.
What Australia must avoid at all costs 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 (as is the case with Canberra’s rail proposal).
Over the last decade, Australia was in the fortunate position of having its living standards rise due to the one-off boom in the main goods that it sells to the rest of the world, namely: iron ore, coal, gold, and LNG. However, with commodity prices now retracing, it can no longer rely on luck and will need to boost productivity in order for living standards to continue rising. Well targeted, cost-effective infrastructure hold a key to achieving this goal.
