Last night, ABC’s The Business screened the below segment examining how to tackle Australia’s infrastructure backlog, which is estimated to be around $700 billion currently – almost half of Australia’s annual GDP. On top of a neat report by the ABC’s Neil Woolrich, the segment includes an interesting interview with the head of Infrastructure Partnerships Australia, Brendan Lyon.
Key points from the segment include:
- Australia is facing a difficult situation in replacing private mining investment projects with infrastructure projects.
- There’s a lack of funding to get projects off the ground. Governments, in particular the states, don’t have the funding capacity.
- The Federal Government needs to create markets and conditions where the private sector can get involved.
- Australia needs leadership to get the public on board and explain why borrowing is okay as long as it is used to fund productive infrastructure.
- Australia needs to use the low interest rate environment and Australia’s strong credit rating to leverage the Government’s balance sheet for the purposes of infrastructure investment.
As I have argued repeatedly recently, well targeted infrastructure investment offers 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.
Going into debt to fund investment, or leveraging the Government’s balance sheet, is not a problem provided that the expenditure expands the productive potential of the economy, allowing the debt to be self-liquidating.
The most important thing is to set up institutions that require prospective projects to be rigorously examined and ranked according to strict cost-benefit criteria, rather than investment being politically motivated, as is often the case currently. One idea is to set-up an independent agency, on par with the RBA, with the power to decide infrastructure priorities.