David Bassanese has written a good article today in the AFR supporting in principle (as I do) increasing infrastructure investment as the mining investment boom unwinds, but questioning the new Coalition Government’s infrastructure priorities, which seem to be based on a pre-conceived bias towards roads rather than an objective assessment of individual projects (irrespective of mode) based on rigorous cost-benefit criteria:
…the Abbott government seems to be even worse than the former government in letting politics – rather than proper cost-benefit analysis – dictate where the money would best be spent…
For example, the Abbott government’s three most expensive promises – for Melbourne’s East-West Link, Sydney’s WestConnex, and Brisbane’s Gateway – are all road projects, which are not among the most justifiable in these states according to Infrastructure Australia’s (IA) latest priority list.
According to IA, while the $8 billion East-West Link has “real potential” as a project, it is not yet deemed “ready to proceed” as it has not yet established itself on cost-benefit grounds as the best solution for the problem it is trying to address – namely transport congestion in this part of the state. Instead, IA judges Melbourne’s Metro Rail as having stronger grounds to proceed, placing it in the “threshold” funding category. Yet strangely, the Federal Government’s funding for that project has been axed.
Similarly, the Coalition is helping fund Queensland’s Gateway Motorway upgrade, and has axed funding for the Brisbane Cross River Rail – even though the latter project is rated by IA as more clearly justifiable and ready to proceed.
…why the Abbott government so prefers road projects over urban rail projects – contrary to the view of infrastructure experts – is strange, and seemingly reflects an ideological bias against promoting public transportation.
If Australia is to successfully build its way out of the mining hole via increased infrastructure investment, funding must only be provided to projects offering the highest net benefits, not based on political motivations or ideology. The former approach offers the greater prospect of raising both productivity and living standards, making any additional debt self-liquidating, whereas the latter approach risks leaving the Australian people with a huge debt bill and little to show in return.
In this regard, to ensure that potential projects are adequately vetted, it is important to (as much as possible) take the selection process for infrastructure investment away from the political process and instead place it in the hands of an independent authority tasked with maximising overall welfare and productivity at lowest cost.
Picking infrastructure winners, based on pre-conceived ideas or political motivations, is a recipe for waste and is likely to end up being productivity destroying for the economy at large.
