The Australian Financial Review

By Rod Sims
Director, Port Jackson Partners Limited

You could be forgiven for thinking Australia’s infrastructure problems are all due to a lack of funding by the states and not relevant to the coming federal election. You would be wrong.

Many of Australia’s infrastructure problems can be traced to a failure of federal–state relations, and addressing these problems should feature heavily in the coming federal election campaign.

They require effective and coordinated federal–state planning processes, some difficult policy decisions that can only be taken with federal leadership, and the necessary reform co-operation will only occur with the appropriate incentives for the states.

The previous national competition policy payments provided the states with incentives to undertake difficult reforms in the national interest that may not have been in their necessarily narrower interests.

They also provided additional funding to the states, which is important when state revenues as a proportion of gross domestic product have now been stagnant alongside growing community requirements for many years, notwithstanding the introduction of the goods and services tax.

World-class infrastructure is fundamental to Australia’s competitiveness.  Instead, we face bottlenecks at our bulk and container ports and at our intermodal hubs, inadequate rail systems, congestion on our urban roads, struggling public transport, urban water shortages, overallocated rural water systems, an increasingly acknowledged straining electricity network, and a broadband network not keeping pace with developments in similar countries.

At a deeper level, however, we can also see the causes of these problems.  We do not have national infrastructure markets, and we have inappropriate infrastructure pricing, often poorly coordinated planning, a confusion between government roles (as policy maker, regulator and service provider), and sometimes misguided regulation.

There has been recent progress. Governments are now boosting their expenditure to make up for past underspending, the Council of Australian Governments announced some specific changes in energy and transport, and there have been important announcements on rural water and broadband.

There is, however, much left to do, and slow progress in the implementation of these recently announced policies has been slow.

Six foundation strategies are needed to underpin our approach to infrastructure in Australia. We need to create effective national (not state-based) markets; we need market-based infrastructure pricing; there should be forward-looking public investment approaches that are integrated across governments; we must encourage active competition and also private ownership in all non-network segments; and our regulation should not discourage investment seeking to meet expected demand.

These foundation strategies must inform detailed sectoral strategies.

To create a national electricity market we need regional boundaries that reflect market rather than political needs, and we need a national approach to transmission investment decisions.

We need to remove the caps on household electricity prices and roll out smart meters.

We need to ensure there is private ownership of all generation and retail businesses.

Finally, we need one national climate change response, which means the various renewable (or low-emission) energy schemes must be phased out.

In urban water provision we need to introduce both retail and supply competition with private sector involvement, and set prices that reflect the cost of new supply and allow rural to urban water trading.

In rural water, we need quickly to buy back water in overallocated areas, remove all impediments to water trading and establish real time water accounting systems and registers. 

To decongest urban transport we need to introduce congestion charging, better connect our roads, invest in urban public transport and rely on private-sector operation of this public transport (as public sector operation has largely failed).

To gain sufficient capacity in our national freight market we need to undertake the investments identified in the Auslink corridor studies, extend this investment to integrate with and enhance our ports and intermodal facilities, price road usage by our larger trucks appropriately, introduce national road and rail regulation and end obsolete port operation rules.

Finally, we need to stimulate investment in high-speed broadband, and allow effective access to facilitate competition in service provision.

If the above agenda were implemented it would probably boost our GDP by around 2%, or $20 billion per annum. This is only slightly less than the gains we have already enjoyed through the completed National Competition Policy infrastructure reforms.

With infrastructure reform in Australia, therefore, we seem to be only half way there. It is time to complete the job.

The paper by Rod Sims, ‘Revitalising Infrastructure Reform’, is incorporated in the BCA paper Infrastructure: Roadmap for Reform, which can be downloaded via the link below.