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We must borrow and build infrastructure

By Ian Spring - posted Tuesday, 19 June 2012


Tens of thousands of new steady direct and indirect jobs would be generated: most of them in the job hungry southeast of the country. We would have a three-speed economy, with infrastructure spending being the third, steady, speed.

Productivity and standards of living would increase enormously.

The sale of Federal Bonds will be welcomed by financial markets, and would provide a steady investment base, denominated in Australian dollars, for Australian superannuation monies.

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Other benefits would include major support for the building and construction industry, for PPP investors, and the program would maybe reduce the need for privatisation sell-offs.

If this borrowing program is to be achieved politically we must accept that in the present circumstances there will be widespread fear of using federal debt to fund infrastructure.

In fact, most commonly held fears are without foundation.

Fear that spending will affect building costs and inflation

Effect on total demand should not be significant as extra spending of the program will only be around .6 per cent of GDP each year, this is tiny when compared with expenditure on the current resource infrastructure boom.

Since most of the expenditure in the program would occur after the mining infrastructure boom, skills and capacity should be available, so there should be limited inflationary pressure on building costs.

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Disregard the crowding-out argument, it is mostly hot air. Fear that extra borrowing would increase interest rates in the credit market.

Concern about the effect of capital raising on interest rates would have been appropriate before the world became globally interconnected. Investment in Australian bonds now comes from around the world, and the effect of bond sales on domestic inflation should be negligible.

Raising funds committed to patently sound economic infrastructure will only improve our credit ratings.

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About the Author

Ian Spring, BEc(Hons) is a retired economist/manufacturing general manager who has set out to encourage forward planning and action to solve our infrastructure problems.

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All articles by Ian Spring

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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