Marion Terrill, the Grattan Institute’s transport program director, has slammed Australia’s infrastructure selection processes, which too often choose large trophy projects over higher returning smaller ones, and tends to experience large cost blowouts. From The Canberra Times:
Ms Terrill says there is increasing evidence that small and lower-cost projects – such as walking and cycle schemes – produce higher returns, faster implementation, and “better value for money” than large building projects…
“Unreliable or non-existent cost-benefit analyses have been an obstacle to optimal project selection,” she says.
“Recent large infrastructure projects in Australia have typically suffered from cost overruns of about 15 per cent, while patronage has been 15 per cent lower than projected, on average.”
Ms Terrill’s concerns of course follow the Productivity Commission’s (PC) report last year into the provision of public infrastructure, which presented a scathing assessment of the governance, selection and execution processes by Australia’s governments, and recommended that governments build a “credible and efficient governance and institutional framework for project selection”, that includes “properly conducted cost–benefit studies of large projects, and their disclosure to the public”.
Indeed, as reported in The AFR back in June, the head of the PC, Peter Harris, claimed that governments are treating consumers like “idiots” by obscuring facts about poorly-chosen mega projects:
Mr Harris challenged politicians to justify expensive but low-return projects over hundreds of smaller but more effective options.
“Make the case for why the mega project must be preferred apparently to the higher-return local project,” he said. “All of this is most obvious in roads investment; the last redoubt of the unreformed investment planning process”…
With many big-ticket road projects delivering little more than $1 for every $1 invested, there were usually many more-modest but productivity-enhancing options that could generate returns of as much as $10, such as electronic traffic management systems, he said…
If politicians made their decisions based on hard analysis, they would opt for hundreds of smaller investments over one or two big bang projects, he said.
“We treat consumers like idiots if we don’t publish [cost-benefit studies]” he said…
Let me again state my long held view that well targeted infrastructure investment offers the nation the ‘double dividend’ of supporting growth and jobs as the mining investment boom fades, whilst also expanding Australia’s longer-term productive base and improving living standards.
This is especially important given the government has chosen to run a high immigration policy, which means that living standards of the existing population will be eroded over time via higher congestion, slower travel times, and lower productivity (amongst other things) unless there are commensurate investments in new infrastructure.
Unfortunately, government’s of all colours have failed to implement proper governance surrounding infrastructure provision, and have in many instances blown taxpayer dollars on poorly conceived or executed projects.
Ultimately, sound infrastructure policy is about evaluating each infrastructure proposal on its merits, regardless of mode (e.g. road or rail). Investment proposals should be ranked and decisions undertaken based on their net economic and social benefits, which necessarily requires the completion and public release of detailed cost-benefit analysis, so that infrastructure decisions can be scrutinised and decision-makers can be held accountable.
Such an approach would also remove the inherent bias away from roads (the Coalition) or public transport (The Greens and Labor), which is essential to reducing political pork barreling and ensuring good taxpayer outcomes.
Continuing the current approach, and picking infrastructure winners based on pre-conceived biases or political motivations, is a recipe for waste and is likely to end up being productivity destroying for the economy at large.
