Debt is not a dirty word when it comes to funding infrastructure

The future of state and federal governments will in no small part be determined by their capacity to service the infrastructure requirements of Queensland, most particularly the south-east corner.

Recent Brisbane City Council elections were a case in point. Each side of politics engaged in a bidding war on additional capital infrastructure outlays, especially roads and tunnels.

More recently, the Federal Government has joined the fray with fists full of dollars for the Tugun Motorway, Ipswich Bypass, Caboolture Rd upgrade etc.

The fundamental question is how do you finance the additional infrastructure required to service the state's vast inland and massive population growth now and into the future?

State governments have a limited number of options available to them to finance infrastructure. They are: greater federal financial support, additional borrowings, selling-off one set of assets such as electricity to pay for other new infrastructure, user pays in the form of tolls, public private partnerships, higher taxes and/or the redirection of funding from existing programs.

Queensland Treasury boffins have been worried for some time about the long-term decline in the true value of state expenditure on economic wealth-generating fixed assets, such as dams, roads, bridges, and rail, in favour of social infrastructure such as schools and hospitals or recurrent outlays.

The Local Government Association of Queensland started public debate on this issue 2½ years ago with the Layton Inquiry into financing Queensland's future roads and transport needs.

The association followed up a year later with the State of our State Infrastructure Report by Professor Lyndsay Neilson, director-general of the Department of Planning and Infrastructure in Victoria.

In April, the Civil Engineering Construction Alliance added to the debate by releasing Building our Future, while at the federal level earlier this year Allen Consulting Group released a report for the Property Council of Australia entitled Financing Australia's Urban Infrastructure. It has become a popular cause.

The simple message in all these reports is that as a state and nation we are foolishly under-spending on infrastructure.

Worse still, if that trend is not reversed it will adversely impact on future economic prosperity, result in increasing carnage on our rural and regional roads, congestion in our cities and increased greenhouse gas emissions.

All the reports concluded governments could and should increase public sector borrowing to finance the much-needed capital infrastructure.

Queensland's situation is deserving of special attention.

Professor Allan Layton stated that before the announcement late last year of the Beattie Smart State Infrastructure Fund of $1.4 billion financed by borrowing, public investment in capital infrastructure had fallen to its lowest level in per capita real terms in 20 years. In lay terms, state infrastructure spending has not kept up with population growth.

Yes, the headline capital outlay figure in state budgets continued to grow, but when adjusted for inflation and population growth, the real value of the expenditure was declining. In fact, in 1983-84 state expenditure on new fixed assets was just over $1400 per capita in (01/02 dollars). At the end of the 2002 financial year, the equivalent figure was $1000.

The state's decision-makers haven't been blind to this predicament, but finding the money is an altogether different task. Tolls are political poison, people services are where the votes are, the low tax state is holy writ and to date, debt has been a dirty word.

The State of Queensland has a very strong balance sheet, the best in the land with a triple A rating. Indeed, Queensland has a much-touted zero net government debt position. However, that philosophy is not consistent with maintaining a high quality public infrastructure in a strong population growth environment.

Having read the latest Standard and Poors rating of Queensland's financial standing, there is no doubt the State Government could borrow more, subject to the overarching national global borrowing limits imposed by the Premiers Conference.

Queensland has growing GST revenues and increasing taxation from the booming property market. The underlying fundamentals are strong. The State Government has the capacity to service debt for new borrowings for important capital infrastructure such as roads.

The Queensland Government could even be bold enough to eliminate the 8¢ a litre fuel subsidy and use that $500 million annual saving to borrow an additional $5 billion over 20 years at current market rates.

For what it is worth, such a move would eliminate all of the $4.8 billion backlog in road construction in Queensland and not affect the state's financial rating or cash position.

It would be taking a leaf from John Howard's book. The PM abolished the 3¢ a litre GST fuel offset in the bush and ploughed $800 million back into road works in this week's Auslink statement, and seemingly got away with it.

In recent years, state borrowings have been curtailed due to community demands to fund higher and higher recurrent outlays in police, education and health and also due to poor return on investments.

Any notion of intergenerational equity, which put simply means matching the payment of an asset over the length of its long life, has gone out the window. If we can't pay for it now out of cash then the job doesn't get done has become an all to familiar mantra.

The good news is the problem with our state's infrastructure is too big for our politicians not to act - their political futures depend on it.

Better still, the economic fundamentals are strong and getting better.