Infrastructure a Key to Populate and Be Prosperous

The Australian

By Rod Sims 

Director, Port Jackson Partners Limited
Adviser to the BCA Sustainable Growth Task Force

Debate is again surfacing over whether Australia can sustain a much higher population, now of 35 million, and also whether Australia can facilitate high economic growth and so manage prosperity. As Treasury secretary Ken Henry said last week it clearly can with the right policies; and, as Kevin Rudd said, also last week,we should embrace high population growth.

The first set of policies Henry referred to that we must get right are those in relation to infrastructure. I believe Australia is now well overdue for another sustained effort on infrastructure reform, and the foundations are there for this.

The last sustained effort, which began in the late 1980s and early 90s, saw big gains. Competition was introduced for the first time into telecommunications and electricity generation, rural water trading began, National Rail replaced individual state government-owned rail freight services and national road user charging was introduced, among many other changes.

These infrastructure reforms, which led into the competition policy agenda, played a role similar to floating the dollar and reducing tariffs in allowing the economy to achieve high productivity and respond more flexibly to economic disruption.

Australia now needs another big effort on infrastructure reform. The momentum from the earlier reforms has been replaced by the frustration of bottlenecks and poor infrastructure services, and these will act as a serious handbrake on our future growth if not addressed.

There are favourable signs. The present commonwealth government has listed infrastructure as a priority policy area, and the necessary reform directions are increasingly understood. In addition, what is mainly needed is pricing, regulatory and governance reform more than rising spending, which is very relevant given Australia’s need to curb government expenditure.

My report for the Business Council of Australia, which is included in its publication Groundwork for Growth and which has been released today, brings together the required reform agenda.

At a high level we need to embrace the three keys to successful infrastructure policy.

We need to reform infrastructure pricing and regulatory policy to make better use of the infrastructure we have and to provide the right investment signals; we need to improve our infrastructure planning to avoid gaps and to get the infrastructure we need in a timely fashion; and we need transparent and measurable goals we can work towards.

We also need important governance changes. The commonwealth needs to work through the Council of Australian Governments to drive and encourage the required reforms, using its larger financial resources and policy skills. Infrastructure Australia, which has already made an important contribution, needs to change some of its processes and clarify its role. The Productivity Commission also has a key role to play in conducting detailed and regular policy and condition audits of our infrastructure to ensure the reform process stays on track.

Infrastructure Australia can play a key role. In particular, it can work with the states to set target service levels for our infrastructure services, for example, in relation to urban road and public transport congestion, freight movement times and urban water sustainability.

It can also maintain a pipeline of projects that meet strict criteria of transparent feasibility studies, including cost benefit analysis, and having statements explaining where particular projects fit into relevant infrastructure plans and how they help meet the target service levels.

Sitting under this high-level policy and governance framework are the appropriate sectoral policies. For freight transport we need, for example, a rolling pipeline of projects that meet the above criteria, locational and mass distance pricing for trucks, national road and rail freight regulation, and we need to link road spending and the user charge revenue.

In our cities we need much improved transport planning, congestion pricing and significantly improved public transport efficiency and coverage. Our cities also need to move towards an active urban water market, and rural-to-urban water trading should be encouraged.

Concerns over rural water shortages should not constrain our growth. We can remove this constraint by giving the environment the first call on available water, and having an active water trading market with no direct or indirect barriers to trade.

There is a longstanding electricity reform agenda, which the carbon pollution reduction scheme and renewable energy target policies have made more urgent. The Commonwealth’s $53 million national broadband network implementation study also gives us the chance to have a communications policy framework based on deep analysis and the evaluation of all the available options.

Clear, measurable reform targets are fundamental. Consider that if instead of tolerating ever rising road traffic congestion levels, for example, we set a target of at least stabilising these levels. The policies are available to achieve this and the setting of such a target would indicate serious political will.

Imagine a world of stable urban traffic and public transport congestion at acceptable levels, no structural water shortages as prices and trading keep supply and demand in balance, and a sustainable and competitive electricity supply. Such a world is achievable and it would transform the growth debate.

We have before us an infrastructure agenda of fundamental importance. While responding to the global financial crisis has understandably been the commonwealth’s main recent policy focus, and indeed 14 per cent of the government’s stimulus spending went on economic infrastructure, the commonwealth should now be able to turn its attention again to its original policy platform, where infrastructure reform featured strongly. Whether or not a wide-ranging infrastructure reform agenda as outlined above is embraced and given priority by the Commonwealth and COAG will determine whether our infrastructure facilitates high growth or is a handbrake on that growth.