Australia's infrastructure backlog is well-documented.
According to recent media reports, The Business Council of
Australia and Infrastructure Partnerships Australia estimate
Australia's current infrastructure deficit at anywhere between
$450 and $700 billion. The critical need for infrastructure
building – and re-building, following recent natural
disasters around the country – is clear.
Identifying a need, and the ability to meet that need, are two
very different things however. Australia's ability to meet its
current and future infrastructure needs will depend on a number of
factors. Most critical of these is funding. Potential long-term
future sources of funding such as superannuation funds have gone on
the record as to their willingness to invest in projects, with the
right investment framework and allocation of risk. But without a
pipeline of projects, they can only sit on their hands.
Creating a pipeline of projects out of the current backlog is
the next major challenge for our governments in tackling our
infrastructure deficit. It is no easy challenge. However, some
positive steps are being taken. The announcement in the Federal
budget of tax breaks to encourage private sector investment in
infrastructure is a welcome first step. So to is the Federal
Government's commitment to increasing funding to Infrastructure
Australia, and giving it increased independence. Although the tax
breaks are restricted to projects of national significance as
determined by an unspecified decision-maker, it would significantly
enhance IA's independence to become that decision-maker. We
need to take infrastructure investment decisions out of the
Creating an environment in which superannuation funds are
comfortable investing in Australian infrastructure will be a more
difficult – but not impossible – task. It will
require a better understanding of what the superannuation industry
sees as the key barriers to investment, and a willingness on the
part of all players to compromise. We need to become more
sophisticated in the way we allocate patronage risk on economic
infrastructure, like toll roads for example.
Governments also need think longer term and more broadly about
the way they fund projects. Past thinking has often misguidedly
linked assets which have a long-term life with the short-term
impact on budgets. Does it make sense to think about the forward
estimate impact of a significant piece of infrastructure which will
have a useful life in excess of 100 years – one which
significantly improves the business efficiency of the economy?
Instead, governments need to look at the budgetary impact of an
asset over the longer term. For example, longer concession periods
should apply to assets with a long life expectancy to eliminate the
economic cycle risks most recently experienced overseas in the
credit crunch. Governments should arguably kick start the pipeline
by creating seed funding through the sale of brownfields assets
where the revenue flows are known and predictable and would be
attractive to long term investors like superannuation funds
– witness the investors in the recent Port of Brisbane
Governments also need to consider how to break down barriers to
competition to encourage greater foreign participation in projects.
This will have the benefit of driving down project costs because it
will open up our economy to greater competition from international
players, who will bring different ideas to the table. Making
procurement processes more efficient will also go some way towards
encouraging greater private sector interest / investment.
It is time to move away from the short-termism that has arguably
hampered the approach to infrastructure delivery in Australia in
recent years and adopt a long-term outlook. The proposals outlined
in the Federal Budget are a welcome start towards this. Only by
lifting our eyes to the horizon and recognising that
nation-building is a long-term goal can we start to create a
pipeline of projects of which the country's future generations
will be grateful.
This article was originally published in The Australian, 17
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