Infrastructure spending offers 18% permanent increase in GDP

Sidelining funds into the Future Fund 'cookie jar', has been another lost opportunity. This will do nothing for productivity. Its returns will be low and its risks frighteningly high, when compared with investment in solid, productive Australian infrastructure. If funds are invested primarily in US equities (currently at record high levels) a loss of up to $5 billion in a week is a worrying possibility. Perhaps the best answer at this stage is for passage of new legislation to require the Future Fund to invest a major percentage of its funds, say 50 to 60 per cent, in new Commonwealth development bonds. This would meet the needs of both long term Commonwealth superannuation, and of infrastructure.

Responsibility for major infrastructure must shift from states to federal government

We need a total revision of thinking on infrastructure. It is the proverbial elephant in the room. My 2004 estimate of $265 billion spending necessary for major infrastructure over the next 20 years is on the Borrow and Build website. As far as I know, this is still the only available national forward estimate. Queensland's recent figure of $70 billion for that state alone, confirms the general size of the problem. The Howard government has resisted strenuous requests from all quarters to do a national infrastructure audit. We are flying blind.

The enormous sums necessary to bring our infrastructure up to date - and keep it there - cannot possibly be funded from taxation, particularly as we go into a future of tightening budgets due to population ageing.  Major borrowing will be necessary. Who should do this borrowing?

The states cannot borrow these enormous sums. With basic infrastructure showing no or low commercial returns and with no tax dividend, interest on debt would put competitive stress on states’ key responsibilities: health, education and welfare. Limited borrowing would do little good.  Big borrowing would be dangerous. Split federal-state funding has not worked. It has led only to bickering and delay.

Private funding is hopelessly too expensive for basic infrastructure. It is a high cost model and only works where there is an urgent need to fix a bottleneck in an existing high traffic area. Even then, further bottlenecks often need to be created to channel traffic to the private investment. If private investment was ever going to have made a really major contribution to the national problem, this would have happened already at the recent low point in the interest rate cycle.

Since neither the states nor private investment can do the big job, the only option is for the Federal government to step in. It should start by doing a comprehensive infrastructure audit, and then commit to borrowing to support a greatly increased, scrupulously transparently managed, long-term capital spending program.

Without such a program, current congestion would grow into gridlock. We would never be able to achieve the desperately needed doubling of the capacity and extent of the Sydney urban rail system ($50 billion) or the greatly upgraded (mostly six lane) Melbourne-Sydney-Brisbane Expressway within 20 years ($25 billion to 30 billion?) to cover the forecasted doubling of freight and the extra 3 million to 4 million people who will by then be living on this route. Nor would we get the whole suite of new urban and interstate railway systems that we will need mid-term as global emission targets start to bite.

We should follow the US model.  Federal roads, particularly those of the Eisenhower Interstate Program of the 1950-60s, have been the backbone of the USA’s wonderful economic growth ever since. The Howard Government should have learned from this example. History will deal harshly with them.

Good economic management requires more than just adjusting the economic levers every year against short term goals and fitting economic policy to the electoral cycle. Responsible capital investment over the last eleven years would have given us higher productivity and better control over interest rates than we have at present. We must stop neglecting the future.

We have a huge infrastructure backlog. A twenty-year $250 billion to $300 billion federal borrow-and-build program involving extra expenditure of $10 billion to $15 billion per annum, will be necessary to deal with this and bring the country into a fully competitive position by 2027. Debt would peak at below 30 per cent of GDP (a modest and responsible figure by international standards). There will be no need to repay this debt as it will be self funding from the tax dividend.

In areas where there is advantage in private involvement, every effort should be made to get the best mix of cheap and free federal government funding and private expertise and efficiency.  An 80:20 public:private model might be a good aiming point in these areas. With the tax dividend helping, this could lead to tolls and charges around a quarter of current levels. All design and building activity should be put out to private tender.

See the Borrow and Build website for details of how a federal borrow-and-build program would be a safe and effective solution to our infrastructure problems. No more missed opportunities – we need action now.