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In infrastructure, you get what you’re willing to pay for

19 February 2016

Infrastructure Australia’s latest report got lost in the tax debate this week, writes Tim Colebatch. It deserves a closer look


Shovel ready: Malcolm Turnbull greeted by Infrastructure Australia chair Mark Birrell at Brisbane Airport this week, where he launched the Australian Infrastructure Plan. Dan Peled/AAP Image

Shovel ready: Malcolm Turnbull greeted by Infrastructure Australia chair Mark Birrell at Brisbane Airport this week, where he launched the Australian Infrastructure Plan. Dan Peled/AAP Image

It’s called the Australian Infrastructure Plan, but it really isn’t one. The report released on Wednesday by Infrastructure Australia, the little engine of whom we expect so much, reveals that it has had time to evaluate only two of the ninety-three infrastructure proposals that state and territory governments have proposed for federal funding.

That’s not surprising. This financial year Infrastructure Australia had its average staffing level increased by almost 40 per cent: from eleven to fifteen. The Productivity Commission has a staff of 167. Yes, Infrastructure Australia has another twelve people on its board who are pretty cluey on infrastructure issues, and a larger budget for consultants than for staff. But in its seven-and-a-half years in business, neither Labor nor the Coalition has equipped it to play the role they have led us to expect of it: to be an honest expert broker, evaluating the nation’s infrastructure needs and rigorously evaluating the projects that governments propose to meet them. You can’t do that with a staff of fifteen.

So all the stories you read and heard this week about the Australian Infrastructure Plan giving the green light to a long list of projects dear to governments past and present – WestConnex and the M4 upgrade in Sydney; the East–West Link, the Melbourne Metro and level crossing removals in Melbourne; the Cross River Rail and the Ipswich Motorway in Brisbane; Adelaide’s north–south corridor and Gawler rail line upgrade; the rail link to Perth Airport; even Canberra’s sadly ludicrous light rail plan – were all somewhat premature.

As problems to be tackled, the report rates them all as priorities or high priorities – all ninety-three of them. But that is far from implying an endorsement of the solutions that state and territory governments are trying to sell to us. That would require a proper evaluation, and Infrastructure Australia hasn’t had the resources to do that yet. The only two projects the report endorses are the controversial Perth Freight Link to the port of Fremantle, and the uncontroversial widening of Melbourne’s Tullamarine Freeway.

It does provide a preliminary sorting, dividing the remaining ninety-one projects into thirty “high priorities” and sixty-one “priorities,” and into near-term, medium-term and longer-term timescales. Some of that does involve some interesting calls: a second airport for Sydney is rated only a longer-term issue, as is a decision on how to deal with future port congestion in Melbourne. The Victorian Coalition’s former plan to build a rail link to Melbourne airport is rated only a medium-term issue, as is building the “missing link” from the ring road to the Eastern Freeway. Canberra’s future public transport and northern corridor congestion are also rated as only medium-term issues, despite the ACT Labor–Greens government making the $700 million light rail plan its urgent priority.

We’ll come back to that. To me, the central thrust of this “infrastructure plan” is to restate even more forcefully the central message that Infrastructure Australia has been trying to get through to Australians ever since it began operations under Sir Rod Eddington. In infrastructure, you get what you’re willing to pay for.

I realise that the tax debate has provided formidable competition for media attention this week, but it is tragic that this critical message has yet again passed through the media largely unheard. The most important chapter of the report, summarised here, warns that the growing congestion in our cities is the result of years of underinvestment in roads and rail – not only in building them, but also in maintaining what we already have. And that, in turn, is the result of a political culture in which taxpayers and users demand better infrastructure but are unwilling to pay for it.

As the report points out on pages 76–94, there are ultimately only two sources of funding for better infrastructure: taxpayers and users. For transport infrastructure, we rely heavily on taxpayer funding, yet in a political culture that demands low levels of government debt, even the current inadequate levels “may be unsustainable in the face of increasing budget pressures.” While it urges the federal government to consider borrowing specifically for productivity-enhancing infrastructure investments, as past governments did, the report warns that government funding alone “is unlikely to be sufficient to provide the infrastructure that Australia requires… Australia needs to consider a broader system of transport pricing, both for road and public transport.”

The report argues for a mix of reforms to make better use of the infrastructure we have already, and to increase the sources of funding for new infrastructure projects. Among them:

• Commercially viable assets, such as freeways, should be converted to toll roads – in its model, under private ownership – and the revenue raised used for new transport investments.

• Road user charges (aka congestion pricing) should be introduced in place of fuel excise and vehicle registration fees, so that users pay the true costs for their use of congested roads. Infrastructure Australia urges that either the Productivity Commission or itself be commissioned to hold a public inquiry into the benefits of such a switch.

• Heavy vehicles must be charged the full cost of the (considerable) damage they cause to roads, using new streamlined technology, as an urgent reform.

• Public transport users should be required to pay a higher share of the cost of the services they use. In Melbourne, for example, it is estimated that passengers on average pay just 30 cents of each dollar of cost, leaving taxpayers to pay the other 70 cents. The report argues that while public transport will always be subsidised, this balance is wrong, and users should pay more – offset by concessions for the needy – so that governments can invest more in new infrastructure and better maintenance.

While our political leaders compete to offer attractive new investments, the report points out that these are often paid for partly by underspending on even more essential maintenance of existing infrastructure, road and rail alike. It warns of a “hidden deficit” accumulated by years of “sub-optimal maintenance” which “over time, [has] the potential for significant deterioration in infrastructure performance and much higher costs.”

The report touches on many topics in its 200 pages, too many to be adequately summarised here. A sketch of its thinking should start with its call for a National Population Policy, since population growth is the driving force of the increased demands we are failing to meet. It notes that our population growth is overwhelmingly going into four cities – Melbourne, Sydney, Perth and Brisbane – and it is essential that those cities “rapidly increase the delivery of higher-density housing… [to] provide people with high-quality, affordable housing that is well-connected to infrastructure, community public spaces and world-class amenities”.

One key message here is that we need to invest more in urban public transport, to provide better connections between home, workplace and community amenities. But that investment should not be targeted only at the inner areas where the higher-density housing is going up. Quite the opposite: one of the main messages of the report is that a far higher priority must be given to Australians in the outer suburbs, as motorists and public transport users. They suffer from mobility deficits which mean, for example, that some residents of Melbourne can access only 10 per cent of the city’s jobs within a forty-five-minute drive, and even fewer within a one-hour journey on public transport. This is serious inequality of opportunity.

Few will agree with everything Infrastructure Australia says. It advocates privatisation of infrastructure assets wherever feasible, on the grounds that private owners provide “more cost-effective, customer-responsive services.” Bank customers, electricity consumers and Melbourne rail commuters may regard this as a quaintly old-fashioned, Thatcherite view that ignores mounting evidence to the contrary. But it would be a pity if differences of opinion meant we ignored the crucial proposals for better pricing systems in road and rail alike, and the warning siren the report sounds on the “hidden deficit” in road and rail maintenance.

That is what the report is really about. So far as its “priority list” of projects is concerned, at this stage it is no more than a broad sketch, with the details to be filled in over time if and when it gets the resources to do the job the politicians claim it is set up to do.

Twenty-eight initiatives are listed as near-term high priorities:

New South Wales
Sydney Metro (the privately run rail line being built from Chatswood to Bankstown via the CBD).
Rapid transit links for buses from and to the northern beaches, and on Parramatta Road and Victoria Road.
WestConnex stage 3 to link the M4 and M5.
Upgrade of the M4 through the western suburbs beyond Parramatta.
Duplication of the Port Botany rail freight line.
Upgrade of Chullora rail junction.
WestConnex branches to Port Botany and Sydney Airport.
Preserve corridors for future Outer Sydney orbital road (M9) and rail tracks, a rail line and fuel pipeline to the future Badgery’s Creek airport, a future freight rail bypass of Newcastle, and a Western Sydney rail freight line and intermodal terminal.

Upgrade of the Cranbourne/Pakenham rail lines beyond Caulfield, and removal of their level crossings.
Melbourne Metro (the underground rail line planned from South Kensington through the city to South Yarra).
All three parts of the controversial East–West Link: from the western suburbs to the port, to the north of the CBD, and from there to the Eastern Freeway.
Further upgrading of the Western Ring Road.
Preserve corridors for future Outer Metropolitan ring road from Werribee to Mill Park.

Cross River rail to speed travel times to the CBD.
Ipswich Motorway.
Dedicated rail freight line to the Port of Brisbane.

Western Australia
Improved road/rail links to the outer northern suburbs.

South Australia
Upgrade and electrification of the Gawler rail line through the outer northern suburbs.

Develop a portfolio of projects to optimise the performance of urban transport networks.
Develop a National Freight and Supply Chain strategy.
Preserve a corridor for a high-speed rail line from Brisbane to Sydney and Melbourne.

But unless the funding issues are tackled, whatever the priority, few of these will be built in the five-year timeframe the report proposes. Economists occasionally propose reforms to road pricing, but hardly anyone has been prepared to get up in public and say that public transport users should pay more for the benefits they receive. In Melbourne, you get unlimited use of public transport for $7.80 a day, or $3.90 if you qualify for concessions – yet providing that service costs more like $25 per passenger per day.

The report sets no target for what share users should pay – I would suggest a 50:50 split as a reasonable benchmark – but it warns that excessive subsidies are locking us out of adequate investment and maintenance spending, and into a “low-cost, low-quality paradigm.” It concludes:

While there will likely be a continuing long-term case for partial taxpayer funding of public transport, the financial sustainability of the system demands a frank discussion about the fairness and efficiency of such large transfers from taxpayers to specific users. Together, road networks and public transport are the strongest candidates for reform because current approaches are not working, and the benefits of reform are so substantial.

Let the debate begin. •

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Real politics: deputy prime minister Barnaby Joyce with PM Malcolm Turnbull at the launch of the Australian Infrastructure Plan in Brisbane today. Dan Peled/AAP Image

Real politics: deputy prime minister Barnaby Joyce with PM Malcolm Turnbull at the launch of the Australian Infrastructure Plan in Brisbane today. Dan Peled/AAP Image