Towards a new deal on infrastructure?

When the State Treasurer announced a budget surplus earlier this year of one billion dollars - considerably more than expected - it was followed by calls to spend that surplus on new “mega” or “iconic” projects that are often all about visions and image and not much about functions and real economic value. Now that the latest budget indicates a doubling of that surplus, the pressures on government to spend it on such new “megaprojects” has increased further. While there is sometimes a place for such “megaprojects” Queensland, like the rest of Australia, is suffering from an infrastructure deficit.

Although Queensland has historically provided more money for infrastructure than other states, funding has not kept up with the state’s above average growth - now estimated to be twice the national average. As a proportion of Gross State Product, Queensland capital spending has been in decline, from 5.4 per cent in 1999-2000 to 4.2 per cent in 2002-03, although the latest Queensland budget indicates an effort to reverse this trend. While nation-building governments after World War II spent generously on infrastructure, governments after the mid-1970s have diverted funds from infrastructure to social services, debt reduction strategies and budget surpluses. As a proportion of GDP, Australian government capital expenditure has halved, declining from 7.2 per cent in the 1970s to just 3.6 per cent in 2003-4.

The states have accused the Howard Government of under-funding infrastructure. The federal government insists the states have not allocated GST revenues to what are essentially state infrastructure responsibilities. Whatever the cause, overall national spending on infrastructure is not keeping up with needs.

The other aspect of this problem is that it is as much about the poor allocation of funds on the wrong priorities as it is about the total amount being spent. Around Australia there have been too many ill-chosen “megaprojects” - large-scale infrastructure too often built without forethought, independent analysis or open scrutiny and championed for their so-called “iconic” status. “Megaprojects” have been driven by grandiose visions, rent seeking interests and short-term politics. They partly reflect weak institutional processes of assessment that too easily enable such projects to become reality. The result is expensive white elephant projects that fail to deliver, are costly to maintain and divert important limited funds to uneconomic activities.

There are plenty of recent examples. Melbourne’s Federation Square cost $340 million more than original estimates and the resulting amenities do not match the original tender brief. The recently opened Alice Springs to Darwin railway is already failing to meet its original financial targets. The synchrotron project in Victoria has failed to meet targets or gain private sector support and will never pay its way.

Other failed infrastructure projects include magnesium plants that have now closed, lacklustre performing new museums, the South Australian Wine Centre, empty technology parks and under-used football stadiums. Despite such a bad record, poorly conceived and performing “megaprojects” continue to find support. Only recently, the outgoing  Deputy Prime Minister John Anderson announced funding for a feasibility study on an inland railway line, the so-called “steel Snowy,” between Brisbane and Melbourne. Similarly, there was a suggestion that Queensland should pursue the 2024 Olympics - another diversion from the main focus of serious government.

Queensland faces particular issues about infrastructure spending. Not only is its population growing faster than many other areas, but the state is also responsible for key national export industries like coal, bauxite, beef, sugar and wheat so pivotal to Australia’s economy and which can be adversely affected if infrastructure is not kept up to the mark. This explains Federal Treasurer Peter Costello’s recent attack on the inadequacy of coal port loading capabilities in Queensland.

There is also a need, in a decentralised state like Queensland, to have a balance between the fast growing south-east part of the state and the more remote rural regions. Some see that the south-east area and in particular, Brisbane, has had its fair share of “megaprojects” of late - the Suncorp stadium, the Southbank redevelopment and the new $200 million plus modern art gallery.

So, getting Queensland’s infrastructure spending and priorities right is essential for both the state and Australia. Key regional drivers of economic development, like energy supplies, are feeling the pinch of poor infrastructure as well. The 2004 report on Energex, Queensland’s government-owned energy supplier, highlights the failure of infrastructure to keep up with demand and suggests that successive governments have transferred Energex’s surpluses to pay for recurrent expenditure and to produce surplus budgets.

The Queensland Government has acknowledged the infrastructure problem. Its Draft South East Regional Plan, released in September 2004, is the first government attempt to develop a long-term regional statutory planning system. It is now being underpinned by an infrastructure plan with allocation of funds to deliver the infrastructure over the next decade. More funds are being allocated to the energy issue. But we cannot go on tackling this issue in an ad hoc, reactive way. The underlying issue both nationally and in Queensland is for a modern system of governance that promotes rational priorities to maximise the impacts of our limited infrastructure dollars.

The problem is partly caused by the fragmentation of responsibility for infrastructure over different agencies, the lack of a coherent process of assessing and setting priorities and need for an open system of decision-making. Queensland also shares other institutional problems common to other states, such as frequent administrative changes, a high turnover and short-term contracts for senior staff and the loss of expert knowledge. The result, as elsewhere, is a decline in policy-making capacity - the so-called “hollowing out” of government and loss of organisational memory.

Queensland’s own reform experience illustrates these trends, especially the decline of the Co-ordinator General’s Office (COG) which had its functions channelled out to different departments under the Goss Labor Government. During the 1960s and 1970s the COG planned Queensland’s major infrastructure projects and, in doing so, developed real expertise, knowledge and experience. It was seen as a unique and effective Queensland institution. Today, the old COG function resides with the head of the Department of State Development but in reality exists in name only. In Queensland, this problem is further compounded by the fact that there’s no upper house to exert scrutiny on executive government.