Australia’s infrastructure emergency: Kohler

The Business Council of Australia’s report card this morning on the nation’s infrastructure, prepared by Rod Sims of Port Jackson Partners, is pretty damning.

That’s especially so when it’s read with Treasury Secretary Ken Henry’s warning last week about our population growing to 35 million. Taken together, they should provide an antidote to complacency.

Australia has a lot going for it as we emerge from the financial crisis with a decades-long terms-of-trade boom stretching ahead thanks to the growth of India and China. But as New South Wales has demonstrated, prosperity can easily be stuffed up with poor governance leading to poor infrastructure.

“Australia needs another big effort on infrastructure reform,” says Sims, and it’s hard to disagree.

Here’s my list of the key points from the chapters of his report:

1. It’s “not clear” whether the largest single infrastructure project, the national broadband network, is the right way forward for Australia – there’s no cost-benefit analysis and there’s a potential for a conflict of interest between the Government’s role as builder and regulator;
2. Electricity reliability “cannot be assured” and electricity prices are likely to rise significantly over the next five to 10 years, so that Australia may lose one of its key sources of competitive advantage;
3. The rural water plan faces a “huge implementation challenge”, and some of the spending allocations need to be reconsidered;
4. Decisions about urban water supply have been made with little transparency and may or may not be the least-cost options;
5. The report contains a damning assessment of the congestion on urban roads and public transport and says that, at a minimum, there should be active steps to introduce congestion pricing, and consideration of privatising Sydney railways;
6. The freight transport sector faces many problems, including poor planning, regulation, pricing, funding and a number of specific market and government failures.

Sims is not very complimentary about Infrastructure Australia either. He says IA did not release the cost-benefit analysis that justifies the recommended projects, its audit was “at best a high level appraisal”, and it set a work program that does not appear to take account of many existing institutions.

Indeed, Sims recommends that the Productivity Commission undertake the proposed audit of Australia’s infrastructure instead of IA.

The report says that the increase in infrastructure spending over the past eight years, including this year’s fiscal stimulus spending, was mostly just a catch-up of previous years’ under spending.

Only 14% of the stimulus went on infrastructure because too few projects were ready to go, and the 8.3% increase in spending between 2001 and 2008 was nothing but a spike in state funding to catch up on past under spending – nothing for the future.

The Council of Australian Governments (COAG) should be the key driver of infrastructure reform across all sectors, and the role of IA should be “refined”.

As Ken Henry said last Thursday: “With the right decisions, one can envisage a period of unprecedented prosperity; with less judicious decisions, however, we could experience an extended period of extreme volatility – with no growth path proving sustainable.”

This article first appeared on Business Spectator.