The Australian Financial Review

By Rod Pearse

Chairman
BCA Sustainable Growth Task Force

The Business Council of Australia identified the problems with our economic infrastructure four years ago. That report in 2005 highlighted bottlenecks at our bulk container ports and at our intermodal hubs, inadequate rail systems, straining electricity networks, overallocated rural water systems, looming water shortages in our cities, congested roads and struggling urban public transport.

The BCA argued then that one step to solving these problems was for governments to be clear about and to prioritise the returns from their infrastructure investments.

In 2009, we are still discussing many of the same infrastructure bottlenecks. We are still discussing the limited progress made by governments in addressing state and national infrastructure issues and by the Council of Australian Governments in overseeing and co-ordinating an appropriate policy framework. And we are still not clear that Australia is investing in its highest-priority infrastructure projects.

One important reason for this lack of progress is that there is still no clear public rationale against which we can assess the infrastructure investments that are being identified and prioritised by government. We cannot be confident that infrastructure investment is going to best address infrastructure problems and priorities.

Another impediment is that we have no clear pipeline of future projects that have met rigorous assessment tests and for which adequate funding through the economic cycle has been appropriated. Such forward planning is essential to breaking the “stop/start” cycle of infrastructure investment in Australia.

The 2009–10 federal budget provides an example. In that budget, the government announced that it would invest in eight of the infrastructure projects considered by Infrastructure Australia. But it announced no rationale for the choice of these projects relative to others that had been proposed, and announced no clear measure against which the success of the chosen infrastructure proposals could be appraised. 

In short, the public will not be able to hold government accountable for its infrastructure decision making. There is no doubt that Infrastructure Australia undertook a rigorous assessment of the projects before it recommended them to the government. And in the limited time frame available, Infrastructure Australia has made some effort to explain the rationale it used to establish this priority list.

But more can be done to deliver public confidence that the projects recommended will make a specific and sufficient contribution to national productivity.

And the next step can be taken without exposing the sensitive commercial-in-confidence information that underlies the recommendations.

This next step is to set target service levels for these and other new infrastructure projects – markers against which the success of the chosen infrastructure projects can be assessed and outcomes measured.

Such service levels should be based on a realistic appraisal of where the gaps in Australia’s infrastructure are. This cannot happen without sound and transparent audits of Australia’s infrastructure on a regular basis. These are now missing from the infrastructure policy and investment process.

Appropriate service levels would include transparent targets for measures that people and businesses care most about, measures such as:

• The maximum road congestion levels in our cities expressed, for example, in terms of average vehicle travel speeds, or vehicle hours spent in congested traffic.
• On-time running and passenger congestion on public transport.
• Access to public transport of a set standard for all citizens within a certain population density.
• The frequency of different levels of water restrictions, and current and forecast water usage levels as a percentage of sustainable supply.
• The percentage of rural water surface and groundwater systems that are under stress.
• Road and rail travel times between the main intercity destinations.

Infrastructure Australia could provide a framework for these target service levels and then, within this framework, leave each state and territory to set their individual targets.

By creating accountability, this approach improves our chances of getting a true assessment of the potential productivity benefits from governments’ infrastructure investment choices. By setting target service levels for infrastructure projects, and making them public, we can take the next step to making governments more accountable for their infrastructure policies and for their financial contributions to infrastructure projects.

That will not guarantee that projects are worthwhile investments. But it will certainly improve the likelihood that they are.