We need a mature debate on reforms to funding
arrangements for public infrastructure, if we are to address
Australia's infrastructure deficit.
If I had to list the three most significant challenges to the
development of public infrastructure in Australia, they would be
(1) funding; (2) funding; and (3) funding.
That's not to say that there are not other significant
challenges facing the development of public infrastructure in
Australia. For example, PPPs clearly have a role to play in
relation to the financing and efficient delivery of infrastructure
projects, and means by which we can further improve the efficiency
of the PPP model, and expand its application, need to be
continuously explored. However, such challenges pale into
insignificance compared to the funding challenge.
By funding, I am not referring to the availability of private
sector or government to raise debt or equity finance for investment
in public infrastructure. Rather, I'm referring to the sources
of money which can be used to actually repay that debt and equity
finance. There are basically two sources of funding for public
infrastructure: an allocation from the government budget, or via
direct user charges.
The government budget available for infrastructure can be
reducing government spending in other areas; or
by selling government assets.
Direct user charges can be applied in relation to some forms of
"economic" infrastructure, such as roads which can be
tolled, but they have limited application to "social"
infrastructure such as schools, hospitals and prisons.
The criticality of this funding issue features prominently in
Infrastructure Australia's most recent report to COAG.
That report refers to our infrastructure deficit and the widely
held view that our current infrastructure is barely adequate for
our current needs and is beginning to impose significant long-term
costs on our economy through its impact on our productivity and our
Infrastructure Australia says that there is a "powerful
need for change" in the way we fund our infrastructure, and
that we need to bridge the gap between expectations and reality,
that is between the unrealistic notion that governments should fund
more infrastructure while at the same time cutting taxes, reducing
debt, avoiding asset sales and opposing the application of user
However, if Australia is to truly confront the lack of funding
available for public infrastructure, we need to look at significant
reforms to the way in which public infrastructure is funded in
Australia. In particular, we need informed and mature public
debates about the application of user charges to infrastructure.
For example, the levying of user charges on motorists who use
public roads as a mechanism for raising the funds needed to invest
in our roads and other public transport infrastructure needs to be
properly considered and debated.
We also need more mature debate in relation to the merits of
recycling government capital, that is selling government
infrastructure assets that could be better managed by the private
sector, and using the proceeds of those sales to fund other
Finally, we need to look at how the government can improve the
budget available for spending on infrastructure. Productivity and
efficiency improvements in the planning, procurement and delivery
of projects can only go so far in creating financial capacity to
fund new infrastructure, however, such efficiency improvements
alone will not bridge the funding gap.
Absent reform in relation to user charges and sales of
government assets, additional government expenditure on
infrastructure can only occur by reducing government spending
elsewhere or increasing taxes.
The reforms which are needed will be challenging for both
government and the community. However, these are challenges which
we must encourage our political, business and community leaders to
confront and overcome if we are to maintain Australia's global
competitiveness and living standards.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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