Back in 2014, the Productivity Commission’s (PC) released a report 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”.
And in October 2016, the Grattan Institute’s Marion Terrill released a report entitled Cost overruns in transport infrastructure, which documented the spectacular cost blowouts on Australian infrastructure projects over the past 15 years.
Grattan’s analysis covered all 836 transport infrastructure projects valued at A$20 million or more and planned or built since 2001, and revealed that over the past 15 years, Australian governments have spent $28 billion more on transport infrastructure than they told taxpayers they would spend. Australia also compared poorly internationally:
When cost overruns around the world are compared from the time of the formal funding commitment or contract, Australia generally ranks in, or slightly worse than, the mid range.
Now, Sydney’s WestConnex project has joined the long list of large, bungled transport investment decisions by Australian governments. From The Conversation:
Australian Auditor-General Grant Hehir has released yet another damning report on the process behind the A$16.8 billion investment in Sydney’s WestConnex motorway, Australia’s biggest infrastructure project since the Sydney Harbour Bridge…
Both the Coalition and the then Labor government went to the 2013 federal election promising to spend at least A$1.5 billion on WestConnex – before any business case had been completed. Voters were not informed of the project’s investment merits until 2014, when Infrastructure Australia first published the business case.
The primary justification for funding early expenses with a concessional loan – the first of its kind – rather than a grant was flimsy. The audit report found the decision was made because this approach would have “a smaller impact on the presentation of the Australian Government Budget”. In other words, it would look better on the books…
The audit of WestConnex found that the hasty early investment in the project was structured in a way that did not deliver value for money to Australian taxpayers. The A$2 billion concessional loan was made at below market rates, structured in a way that minimised the tax paid on the interest, and the time before interest is due to be paid to the government on the loan was set to be four times longer than major lenders traditionally provide…
The auditor-general has found politicians committed A$17 billion to WestConnex as if it were pocket change.
The author – the Grattan Institute’s Marion Terrill – then proceeds to outline three steps for more efficient infrastructure investment:
A good place to start would be to make infrastructure spending decisions more transparent. This could be done by publishing the full details of a project’s estimated and realised costs and return on investment on data.gov.au. Infrastructure spending should also be included in the Productivity Commission’s annual Report on Government Services.
Second, the quality of business cases needs to be lifted, substantially and quickly. The Commonwealth should ensure one agreed method is used to measure and manage project risk. The Productivity Commission should assign “reliability ratings” to infrastructure business cases, which should be published on Infrastructure Australia’s website for all to see.
Finally, taxpayers should demand that politicians fully evaluate a project’s investment merits before they commit to funding it.
I have said it before and I will say it again: well targeted infrastructure investment offers the nation the ‘double dividend’ of supporting growth and jobs as the mining and dwelling investment booms fade, whilst also expanding Australia’s longer-term productive base and improving living standards.
This is doubly important given the government is wedded to running a mass immigration policy, which means that living standards of the incumbent 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.
But if infrastructure investment is to be successful, it must follow rigorous due processes, including:
- evaluating each infrastructure proposal on its merits, regardless of mode (e.g. road or rail); and
- ranking proposals and undertaking decisions based on their net economic and social benefits, which necessarily requires the completion and public release of detailed cost-benefit analysis.
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. The end result has been needless waste and lower productivity for the economy at large.
