Back in 2014, the Productivity Commission’s (PC) released its 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”.
Then inJune last year, the head of the PC, Peter Harris, followed-up on its report claiming that governments are treating consumers like “idiots” by obscuring facts about poorly-chosen mega projects.
Now, the Grattan Institute has released a new report entitled Roads to riches: better transport spending in which author Marion Terrill provides a damning assessment of Australia’s infrastructure selection processes, which too often choose large trophy projects over higher returning smaller ones, and tends to experience large cost blowouts:
Governments have spent unprecedented sums on transport infrastructure in the last decade. But mostly, they have not spent wisely.
… too much money has been spent on the wrong projects in the wrong places. For one thing, investment has not put cities first, though they are the engines of national economic growth. Our largest cities face increasing congestion and competition between passengers and freight. Yet governments have largely bypassed them to spend in states and electorates where federal elections are won and lost.
Too often, politics comes ahead of the public interest. Too much has been spent on highways that are not especially important to the economy, but are popular with local voters. Decisions on particular projects are dubious or made on the basis of weak or undisclosed business cases. The Commonwealth and Victorian governments spent $438 million on the Geelong to Colac road, not a project of national economic significance. Canberra’s light rail, now being built, is likely to provide no more benefits than bus rapid transit but cost more than twice as much. Although governments have funded many worthwhile projects over the past decade, the overall investment has been poorly directed. An ad hoc approach results in missed opportunities and a lot of waste.
One difficulty is that there is little to stop politicians committing to projects before they are properly evaluated – particularly during election campaigns. Without more public information on potential projects, the public can’t be sure that funds will be spent wisely…
A better approach would involve three steps. Governments currently cherry-pick the evaluation method that suits the result they want. Instead, they should not be able to commit to a transport infrastructure project before tabling in parliament a rigorous like-for-like evaluation of the net benefit, conducted by an independent body.
Governments would then be free to make and defend decisions on the basis of a clear rationale for investment. Politicians would be less eager to invest in projects that don’t stack up. Once governments are only building projects where the community benefit clearly outweighs the cost, their second step should be to aim to build all such projects. Quality assessment, not arbitrarily imposed budgetary limits, should determine the level of investment. In other words, if a project has net benefits to the community, the government should build it.
Third, Commonwealth funding for projects should be disentangled from states’ GST entitlements. The Commonwealth should fund infrastructure that is important to the national economy, regardless of where it is based. It should not then override its own allocations by compensating states that did not receive funds.
More disciplined selection of infrastructure projects would have a double benefit. It would mean less wasteful spending and better transport networks, built where they will make the most difference.
Leaving aside the bogus claim that cities “are the engines of national economic growth”, which has been thoroughly debunked previously (see here and here), Terrill’s other points are valid.
For too long, 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, often for short-term political gain.
Delivering more efficient infrastructure provision 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 the right infrastructure 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.
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 as a whole.
