The Australian

By Greig Gailey

President, Business Council of Australia

Four years ago, in a landmark report, the Business Council of Australia set out the holes in our economic infrastructure.

That 2005 report highlighted bottlenecks at our bulk container ports and at our intermodal hubs, inadequate rail systems, congestion on our urban roads, struggling public transport, water shortages in our cities, over-allocated rural water systems and a straining electricity network. It crystallised intensifying fears that the state of our infrastructure would hold back future growth.

Yet four years on, most of the infrastructure problems identified in 2005 seem even worse. For four years we have found more reasons to avoid rebuilding our infrastructure. In 2006 and 2007, the government wanted to avoid adding to the demands on the over-stretched boom-time construction industry. By the end of 2008 the government was concentrating new spending on short-term economic stimulus.

The focus was on infrastructure projects that were ‘shovel ready’ rather than the long-term national productivity benefits.

This year the boom has turned to recession, money is in short supply and there are growing concerns over the size of the budget deficit.

As the BCA made clear in its Budget Submission earlier this year, temporary deficits are appropriate for these times. But new spending must go increasingly to building greater productive capacity and productivity that allows debt to be repaid from increased economic growth. Infrastructure is one way to do that.

Spending on economic infrastructure to relieve capacity bottlenecks is likely to boost our productivity by more than other federal and state government spending.

That good economic infrastructure projects were not shovel ready is an indictment of our infrastructure planning. The argument also ignores the ‘announcement effect’ of spending on significant projects: more important, it underestimates the likely depth and duration of the recession we are facing.

To focus only on spending is, however, to ignore the more fundamental problems facing Australia’s infrastructure. Now is also the time for Australia to put in place reforms that will ensure we get the right new infrastructure. The required changes can be led by the government’s new infrastructure adviser, Infrastructure Australia. Its creation in 2008 was a welcome development. But today, poor planning processes and governance at the state or federal level still allow politically driven project selection that delivers low returns.

Infrastructure Australia should create a pipeline of shovel-ready projects that must meet particular quality assurance tests.

These projects should address genuine problems, they should be able to be completed to a timeline, and they must bring benefits that outweigh their costs. They should also fit into a relevant wider infrastructure plan. Projects should not be seen as one-offs but part of a wider scheme.

Second, Infrastructure Australia should call for target service levels to be set against which infrastructure projects can be assessed and outcomes measured. The Productivity Commission is ideally placed to set these levels.

Governments should set transparent targets for things such as urban road congestion levels, on-time running and capacity of public transport, road and rail travel times between the main intercity destinations, the extent of water restrictions and the percentage of our water systems that are under stress.

Third, we need to drive improvements in how infrastructure is priced and regulated, and to build effective and well-regulated national infrastructure markets.

Action is needed at the state and federal levels through the Council of Australian Governments.

In the coming weeks, Infrastructure Australia will deliver its first report to COAG. This is the right time to fix the problems with Australia’s system of economic infrastructure, and to start delivering the better infrastructure we know we should have.