Bipartisan blindness

The business community has welcomed vows to fix Australia's infrastructure and such promises couldn't come at a better time. Whilst well intentioned, the previous government failed to deliver on major infrastructure initiatives, illustrated by dismally low multi-factor (labour and capital) productivity levels of 0.7%, not only below historical averages of 1.1%, but 1.6% lower than its peak in the 1990s.

Most experience these inadequacies in the form of traffic congestion on a daily basis, with the climate and water-scarcity at the forefront of the minds of many.

Although 'men in blue ties' have attributed much of the blame to the previous government, infrastructure shortages are a global problem. One OECD report put the annual price tag of required, yet presently unmet infrastructure investment, at a cool $1 trillion. One McKinsey report extrapolates this, suggesting that $57 trillion in infrastructure investment will be required over the next 17 years.

For those of you playing at home that's 12 zeros, or $57,000,000,000,000.

At the heart of the problem is the all too common political myopia - a general lack of vision, compounded by an inability or unwillingness to comprehend the timeless "spend now to save later" concept.

At home, this has taken form in our obsession with balance sheet rhetoric and budget surpluses, which shattered the previous government's financial legitimacy. Equally, the Coalition's funding of many initiatives will only be achieved at the expense of others. This notion of mutual exclusivity about spending, specifically on infrastructure, needs to be reframed.

If Abbott's government is to be successful, it doesn't need to reinvent the wheel. Perhaps the answer lies in the young girl's resolution to Old el Paso's hard or soft taco debate: why not both?

Whilst a three word solution may be two too long for James Diaz, it is not blindly optimistic.

The solution to Australia's infrastructure shortages does not need to be borne solely by the public's purse. Instead, a solution which is collaborative and which involves both the public and private sector may be what we are looking for. Australia has one of the most advanced policy frameworks for Private Public Partnerships (PPP) in the world. PPP are essentially contracts which involve both the public and private sectors in order to develop infrastructure. In doing so, the private party is often involved in the financial, operation, technical aspects of the project, as well as the respective risks. An increased use of user-fee based infrastructure could result in the development of many infrastructure projects with a limited impact on the government's balance sheet.

Infrastructure Australia state that the main aims of PPP is to achieve better value for money which includes sharing risk appropriately, promoting innovation and managing assets over their lifecycles. Using the 'Value for Money Framework' Queensland redeveloped the Southbank institute of Technology. In 2007, the robustness of the framework was reaffirmed winning 'Best Global Project' at the international Public Private Finance awards, due to its world class innovation, design quality and sustainability, financial efficiency and expertise in risk management. In addition to being responsible for the design and construction, the Axiom Education Queensland consortium will continue to finance and maintain the precinct for 34 years.

Australia has found itself in an advantageous position as superannuation funds have a voracious appetite for infrastructure. One fund's chairman, Garry Weaven, has declared that the superannuation funds could finance any conceivable pipeline of infrastructure. But why the enthusiasm?

Simply put, one can generalise that the length of time required to develop and operate infrastructure is well suited to such funds' long term investment horizons. Infrastructure doesn't necessarily move with market trends, rather revenue is often consistent over a long time period and closely aligned with inflation. It provides a good hedge to the risks associated with a portfolio comprised of stocks and bonds, and is suitable for a long-term investing outlook.

Despite seemingly abundant financing and a world class framework, the question remains. Why do many of us spend hours in congested traffic a week?

A self-baptism may produce a great name, but only by exhibiting great leadership and addressing several issues will see Abbott earn it. First, a clarification of jurisdiction over projects at a state and federal level so that responsibilities are clearly articulated. This should include financing and risk apportionment. The federal government should also work towards developing a strategic pipeline of projects that are appropriate for the private sector to invest in.

Whilst the investment potential proves tantalising, infrastructure is no place for Hayek's disciples. Infrastructure is both strategically and economically integral, and the government must remain at the table to make lasting commitments and find robust solutions. Then, and only then, we can have both.