Australia's infrastructure deficit

There is general agreement that wise investment in infrastructure will be needed to lift productivity and lower costs if Australia is to make the transition from the end of the mining boom and take advantage of the Asian Century.

But not all infrastructure investment is wise. Further, the Federal Government has pledged to pay down debt whereas conventional government infrastructure investment increases budget both deficits and debt. With these constraints in mind the Government asked the Productivity Commission to prepare a report on infrastructure.

The Productivity Commission's Draft Report

Released on 13 March 2014, the Productivity Commission’s draft report argues for a comprehensive overhaul of processes for the assessment and development of public infrastructure projects. It recommends that all major public infrastructure projects be subject to rigorous and transparent cost-benefit analysis. BB The draft report finds that Australian Governments have the capacity to fund higher levels of public infrastructure investment.  Indeed, the Commission is cautious about creating any new financing vehicles – such as an infrastructure fund, tax concessions or a debt guarantee facility – without reforming governance arrangements.

The Commission observes that user charges are utilised for funding investment in electricity, gas and water and urges the wider application of road user charges including congestion charges. The idea is to get better utilisation of existing road infrastructure while providing a revenue source for potential private investors in new roads, including superannuation funds. The Australian Automobile Association has indicated its support for appropriate road user charging.

The NSW Government is privatising some existing infrastructure and intends recycling the proceeds into new infrastructure. Treasurer Joe Hockey has endorsed this approach for consideration by the G20. The Productivity Commission similarly recommends that State and Territory Governments should privatise their electricity and port assets, subject to processes to ensure value for money. The Federal Government has indicated it will use proceeds from the sale of Medibank Private for road construction.

A pipeline of infrastructure projects?

Rather than announcing a pipeline of infrastructure projects for prospective private investors, the Commission considers a pipeline would naturally emerge from the adoption of its recommended reforms.