Billions of dollars on Australia’s infrastructure spending left no real impact on residents and economy

The Head of the new Better Infrastructure Initiative at the University of Sydney’s John Grill Centre for Project Leadership has said Australia’s first 15-year infrastructure plan is “doomed” to fail if policy-makers are not well-aware of past infrastructure successes and failures due to a lack of clear data.

Garry Bowditch, author of the Better Infrastructure Initiative’s research report, “Re-establishing Australia’s Global Infrastructure Leadership,” said the roadmap by Infrastructure Australia (IA) released last week, which sets out 78 recommendations to address the country’s current and future infrastructure gaps, was both “welcomed and overdue”.

However, these reforms must be matched by better-informed and more accountable policy-makers.

"If the proposition of a transport market is done properly and customers are in charge, then it will have serious consequences for Commonwealth-State relations and the operation, structure and longevity of Infrastructure Australia itself,” said Bowditch.

“Until we have a clear dataset of the successes and failures of previous infrastructure initiatives, and a robust evidence-base for green-lighting major projects, Infrastructure Australia’s priority list of projects may yet be doomed to repeat the inefficiencies of the past.”

Bowditch’s argument echoes his USyd report, which noted that data was unusually poor within the infrastructure sector. As a result, previous reform successes and failures are “too easily forgotten” and “policymakers are neither as well informed nor accountable as they should be”.

This is troublesome for the more than half a trillion dollars worth of investment into Australian infrastructure over the last 10 years -- a figure that excludes the sale of public assets to the private sector, is double the size of the previous decade, and which Bowditch’s report notes may have had little to no practical impact on the lives of Australians.

The Better Infrastructure Initiative report instead points out that massive investments often gave way to higher emissions, escalating congestion, lower service quality and greater service costs, with projects failing to leave a lasting impact on economic output:

“In the case of the last decade with Australia’s roads alone it is estimated up to $63 billion of projects may have had no impact on economic output.

“The message for policymakers is that there remains an unacceptably wide margin for error, as high as 30 percent, where projects fail to lift economic output.”

This is supported by Phil Ruthven’s article, “An industry perspective” from IBISWorld, which highlighted that Australia has an “enormous capital intensity” in transport infrastructure, but that this sector produces less wealth per dollar of investment, in comparison to newer service industries, which are less-capital intensive.

Rather than risk believing that lost business and investment opportunities are the new norm, the Sydney University report highlights the need to shift Australia’s mindset from “more infrastructure”, to “better infrastructure”.

“The constant refrain of the burgeoning ‘infrastructure dollar deficit’ is not serving the nation well. It creates in the mind of the community and their elected representatives a sense that there is a financial crisis in Australia’s infrastructure sector and more money will fix it.”

Infrastructure NSW has chosen to make no direct comment and said it cannot verify the analysis of the Garry Bowditch report, but Amanda Jones, Chief Operating Officer & Deputy CEO of Infrastructure NSW, said infrastructure investment was always carefully considered.

“The current NSW capital program is significant with expenditure of $68.6 billion in the four years to 2018-2019 . . . Infrastructure NSW has retained Deloitte Access Economics (DAE) to model the potential economic benefits of planned investment,” Jones told International Business Times Australia.

“For example, in November 2014, Deloitte Access Economics found that effective implementation of Infrastructure NSW’s recommendations could increase Gross State Product by $30.9 billion by 2035, a 3.6 per cent increase and add about 122, 000 more jobs.”

However, the report argued that while infrastructure in developed nations like Australia was more likely to have positive outcomes from infrastructure than developing nations, the chances of having no effect were still high at around 22 percent, and nine percent for negative effects.

Explaining the Infrastructure Inefficiencies

Bowditch told IBTimes Australia that the nation was once a global leader during the golden era of modern infrastructure from the mid 1980s to the early 2000s, led predominantly by a cocktail of key microeconomic reforms including the deregulation of financial markets, large-scale corporatisation and privatisation of government business enterprises.

“Other changes included the introduction of compulsory superannuation and competition policy reforms that unleashed a wave of innovation and new efficient investment opportunities. The upshot was that productivity growth from infrastructure was very good,” he added.

However, this ‘golden era’ quickly led to one of waste and ineffective investment in infrastructure, as reforms were unfinished and not applied equally across all infrastructure sectors.

“For example, the large spending items in infrastructure today are land transport, like urban rail and roads. These have been mostly untouched by reform. As a result, there is an undisciplined investment process, with large sums of capital not hitting their mark, in terms of either customer or investor satisfaction, as well as failing to lift long term economic growth,” Bowditch explained.

“It is unfinished reform that has caused Australia to lose its global leadership. For example, transport infrastructure has not had the benefit of market driven investment processes, and instead governments adopt administrative project list making processes that are inefficient and volatile.”

Resolving infrastructure inefficiencies by focusing on customers

Bowditch wants the government to commit to changing their model of governance to the delivery of service outcomes as the first priority, and building new assets as second.

To improve Australia’s infrastructure, the report proposed that policymakers needed to shift their mindset from ‘asset building’ to ‘service delivery.’ It argued that this would have better and more effective benefits for the community and businesses.

Instead of splashing out on ‘megaprojects’, the report also suggested that the government should be more cost-effective in giving greater priority to improving existing infrastructure for roads and rail, and removing bottlenecks and congestion.

“The reason some sectors in infrastructure are slow to adopt innovation and efficiency measures is because there is an absence of customer focus, and a lack of commitment to service outcomes. When these are missing in the governance model other factors take over like grandiose ‘nation building’ ideas that are focused on big and shiny assets, but may not actually serve the interests of the community nor the economy,” Bowditch said.

The report also makes a strong case for charging users when it comes to funding infrastructure. It noted that if infrastructure services reflected their importance and cost, it would give consumers an incentive to use them efficiently.

An example outlined is that there is currently no Australian motorway PPP that has their toll charge linked to a service outcome, such as minimum speed guarantee. The report argued that Australia was lacking a service commitment to customers, and that the services themselves were at risk of being seen as a tax instead of a service fee.

The suggestion for a user-funded model has been backed by experts who call for higher prices for infrastructure use, while The Australian notes Prime Minister Malcolm Turnbull has also expressed interest in charging motorists for the use of roads since taxes such as the fuel excise are increasingly inefficient as cars become more fuel efficient.

However, Bowditch believes charging more is only legitimate when higher prices are matched with better service quality.

“That is standard in most other parts of the economy, so let’s not let infrastructure be the exception . . . I want to see the Turnbull government be the champion of the infrastructure customer, and for the Minister (Darren Chester) to step in their shoes,” he said.