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