Infrastructure: the new hot topic

The case for finishing the reform of infrastructure taxation arrangements is very strong. Direct private investment in infrastructure is now a reality, and if we are not to return to the past level of reliance upon government debt, taxation impediments to private investment need to be removed. The process of reforming s.51AD and Division 16D of the Income Tax Assessment Act has been slow and meandering. It should be completed as soon as possible.

The regulation of access to monopoly infrastructure is complex and challenging, and involves different considerations in different sectors. Nevertheless, the reform agenda set out by the Productivity Commission provides an appropriate starting point for action. It suggests that the existing regime contains aspects which unduly deter investment.

The most important initiative which should be undertaken is the creation of a national infrastructure commission. The role of such expert, non-partisan bodies in economic policy is steadily increasing. Although in many cases the ultimate decisions properly remain in the hands of elected governments, such bodies play a vital filtering role. They elevate public debate on economic issues, and provide benchmarks against which the actions and promises of governments can be measured.

At the 2004 Federal election, Labor promised to establish a National Infrastructure Advisory Council to conduct “rigorous analysis on who should build infrastructure, how it should be funded, and who should own it”. This proposal is now being embraced by Howard Government backbenchers.

We should take such proposals one step further, and establish an Infrastructure Commission on the same basis as the ACCC, with joint federal and state government control. This commission would:

• undertake indicative planning and analysis with respect to Australia’s long-term infrastructure needs, such as that conducted by NEMMCO;
• scrutinise the viability and financing arrangements of infrastructure projects;
• establish model regulatory codes for all sectors, to facilitate the emergence of uniform national regulatory approaches; and
• monitor the quality and performance of existing infrastructure, and gather data on infrastructure issues.

Increasing government borrowing without appropriate external scrutiny and restraint would be dangerous, as the Western Australian canal proposal indicates. An independent expert body charged with evaluating infrastructure financing proposals would provide a critical safeguard against the excesses of the past.

An advisory council would tend to reflect sectoral interests, and therefore may not be seen as truly independent. A statutory commission, properly appointed and run, would add rigour and depth to national debate on infrastructure. It would not be able to instruct governments, but it would exercise a powerful discipline over governments. The blame-shifting and finger-pointing between federal and state governments which currently characterises our national infrastructure debate would be much harder to sustain.

Australia is at a turning-point on infrastructure, but not for the reasons currently supposed. Serious challenges are looming. Rather than adjudicating a debate about responsibility for emerging deficiencies, we should be preparing to tackle the challenges of the future. There are weaknesses in our recent performance, but they are not egregious. Without serious reform, however, we may face future problems of a much more serious nature.