It is easy to think of investing in infrastructure as something that needs to be done on a routine basis – repairing power stations that supply our electricity or maintaining rail lines that carry our commuters and freight. This real foundation of our economy and society should be prudently addressed in a routine and methodical way, free from political and ideological agendas. Close to the operational level, asset management strategies address this.
At the same time, investing in infrastructure is anything but routine. It is a platform in which we determine the future competitiveness of our country, much the same as any other state. It also determines the extent to which we can maintain and enhance an open and inclusive society, one that also shapes long-term responses to climate change.
Infrastructure investment is a long-term investment to secure that future capacity and productivity in our economy. It provides a demand for highly skilled jobs in the professional service sectors, driving future employment growth.
While it can provide short-term stimulus through the installation and commissioning of capital assets, the long-term benefits are far more significant. The Depression-era stimulus from constructing the Sydney Harbour Bridge has been far outweighed by the benefits from the annual flood of traffic traversing the bridge over decades. Emphasis on the short-term stimulus from consuming resources to construct infrastructure misses the point. These projects are justified only on the basis of the long-term streams of benefits they can generate.
Infrastructure investment needs to expand a nation’s economic frontier – it lifts potential constraints on future economic growth. In the past Australia has benefited from the development of its road and rail networks, the creation of terminals (airports and seaports) and the development of a copper-based telecommunications system. Our future points to benefits accruing from fast fibre optic broadband, carbon reducing power investments and new high-speed rail technologies.
Australia has been facing a challenge to the core model for funding public infrastructure for a long time. The use of the taxation system to generate funds for public investment will not be sufficient to meet all of the infrastructure investments we require. We cannot do it out of our government budgets. It was not enough in the past either, and we imported foreign capital in the form of sovereign loans.
The Australian economy was simply not large enough in the past to fund the infrastructure investments that underpinned the economic growth we have achieved and the living standards we enjoy.
The nature of our infrastructure investments and what constitutes economic infrastructure have changed over time. Historically we have looked to the physical capital side of the economic growth equation, with less emphasis on the human capital side.
We need a new bipartisan consensus that effectively decouples infrastructure from political and budget cycles, to drive investment in the public interest. Emerging governance arrangements at the federal and state levels are showing promise but remain captured by legislative, budget and bureaucratic cycles. They are still in their early stages of maturity in the Australian federal system of government.
A new commitment to investment is required that explicitly learns the lessons from past failures, avoids the ghosts of white elephants (the lonely tunnels, quiet dams, and bridges to nowhere) and addresses the pressing demands for the infrastructure services that support a modern 21st-century economy. We need to be honest about past mistakes, in order to avoid them in the future.
We need investment in infrastructure that does the following:
- repairs and rehabilitates our stock of existing infrastructure assets to continue producing existing streams of services that our citizens demand
- expands the capacity of our economy by growing our infrastructure asset base with newer, smarter investments that are more productive in supplying services, lowering input costs
- improves the productivity or our economy by investing in new types of infrastructure technology, enabling new kinds of infrastructure services enabling improvements to other sectors of the economy
- enhances human capital with savvy health and education infrastructure investments that make our people smarter and healthier, improve the productivity of our economy and improve the quality of life for all.
These investments will position Australia to be at the front end of continuing global technological revolutions, set us on a lower carbon trajectory and expand the frontier of economic possibilities for the economy.
Rather than run down our current assets we must renew, reinvigorate and expand them as prudent custodians for future generations. These investments will be the backbone on which our future prosperity will stand.
Value capture and uplift associated with infrastructure projects are often discussed but not well understood. This is because the issue sits at the crossroads of competing public and private interests, as well as institutional imperatives of project proponents.
Nothing is more hair raising than exposure to risk without a sense of the level of that exposure. This is especially true in capital investment decisions.
Lytton Advisory 