A Successful Infrastructure Australia should spell its demise*

*Opinion piece published Australian Financial Review, 19 February 2016

Infrastructure Australia (IA) is under new management, with a grand plan and reform agenda that at first blush seems sensible enough.

However, there are early signs of an identity crisis in IA as it wrestles with the need for more market efficiency in infrastructure and how it will evolve from its purpose of anointing projects through an administrative selection process that can produce ‘hit or miss’ result.

The end game may necessitate IA to plan for its own redundancy in no more than 15 years as this would be evidence of its success with markets and would come with the gratitude of the nation.

IA’s call for even more funding is to be expected, but Australia can be too trigger-happy when it comes to spending up big on infrastructure. For example, in the past decade more than half a trillion dollars has been invested in infrastructure, double the previous decade.

Despite this, escalating congestion, higher emissions, greater service costs, lower service quality and lost business and investment opportunities persist in both cities and regional Australia.

It appears Australia has a problem translating big spending on asset building into meaningful benefits that lift competitiveness and improve the lives of its people.

Part of the diagnosis is that too much emphasis is on rushing the engineering blue prints for ‘shovel ready projects’ without proper consideration to setting objectives to measure future success. Compounding the situation further is an absence of problem identification the project is seeking to fix.

Governments must choose their infrastructure well, if it is to live up to the rhetoric of boosting productivity and living standards. The trouble is choosing projects is not easy, in fact it’s very difficult.

Australia’s experience suggests that the best way to deal with this is for the Turnbull government to finish the reform agenda started in the 1980s, and then do some more.

Many sectors in infrastructure have been reformed through corporatisation and privatisation. The big successes like airports and telecommunications has transformed these sectors for the better. We have seen excellent investment in facilities and customer service. Brisbane airport currently looks more like Dubai with its massive new runway excavations is a case in point, and other airports are decongesting and debottlenecking to ensure good customer experiences.

But other sectors like roads and public transport remain largely untouched by reform. As a result an undisciplined investment process has seen taxpayer dollars failing to fix poor service levels, and tardiness with introducing capital saving new technologies. In contrast, telecommunications has had a far more stable investment pathway and has been quick to introduce new technology. Customers have been the winner as they have benefited from markets and competition.

A good first step for new infrastructure minister Darren Chester is to step into the customer shoes and be their champion.

Customers want services, not assets. All governments need to adapt by enabling markets to deliver these services where possible.  It is better that infrastructure is provided through businesses to customers, not politicians lobbying voters.

When markets are not possible, then governments must seek to procure service outcomes. This will invite a broader participation in the market, not just those that want to build assets. It should seek to give greater emphasis to using existing infrastructure better, stimulate innovation and reward risk taking.

These issues are the focus of the University of Sydney’s Better Infrastructure Initiative report ‘Re-establishing Australia Global Infrastructure Leadership’ released on Monday.

Necessity is the mother of invention. But it has been difficult for Australians to bring their genius to the fore in resolving our infrastructure challenges when the system is awash with money without clear purpose and procurement processes inflexible to new ideas

Australia has an infrastructure services deficit, but piling more money into it does not seem to be delivering the outcomes required. Minister Chester and IA can change that by first acknowledging services matter more than asset building, and allowing the discipline of markets and customers to guide the spending.

END

 

Infrastructure Australia Audit: first ‘listen’ to the people

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Infrastructure Australia is under new management, and it shows in its first national audit report released today.

Demographics, land use and infrastructure are all bundled together in the Audit, and its not a minute too soon. The mega trends in demographics and land use are the big drivers of infrastructure demand and recognition of ‘integrated infrastructure planning’ is welcomed.

But how IA proposes to capitalise on this ‘integrated infrastructure approach’ is unknown at this stage. So we are all left wondering about the types of infrastructure outcomes, how our cities might be shaped, community impact and liveability we might expect in the future. Without these types of pointers, its hard to know what IA’s big picture strategy over the next 15 years is all about.

However, while ‘integrated infrastructure planning’ language should be encouraged, putting it into practice is a whole other ball game. Thats because there remains a culture of resistance across Australian bureaucracies and industry to the big picture shape of networks and cities into the future.

The culture of silos, where transport, land use, energy and water (to name just a few) are all separate and isolated from one another remains as big a problem today, as it has been in the past.

This is where IA can play constructively.

The biggest problem with silos is that they fragment infrastructure planning and intelligence. Departmental silos prevent proper recognition of the ‘customer’ who is having to traverse all the silos at once as they live, work and play. In addition, silos prevent proper policy and design reasoning so that the community can be assured that every time a new project is proposed that its actually makes people and the network of infrastructure better off.

Remember Sydney’s Cross City Tunnel, and closure of adjacent roads to drive up patronage for the new tunnel. Such business models are destructive to community trust and are typically incubated in a silo.

Securing permission from the community to do infrastructure is Australia’s newest and biggest hurdle.

While IA appears to be trying to express themselves in the language of openness and consultation, so much more is required. Engaging the community goes deeper than traditional consultation asking ‘what do you think’ of our latest project thought bubble.

Government’s must be prepared to ask the community what are the problems that concern them most, and set up a deliberative conversation to explore how these problems can be addressed, identify the trade offs without the presumption that building something new is the best way of meeting that need.

This is how infrastructure can inject much needed innovation and drive up productivity by being focussed on the problem and inviting more ‘unsolicited bids’ to solve them. There have been too many projects in Australia that are engineering brilliant solutions but are in search of a problem. Inland and high speed rail, decentralisation initiatives and reversing rivers come to mind.

Finally, headlines leading the IA Audit like congestion costs Australia $53 billion are simply meaningless. Instead, the community deserves to be engaged about infrastructure with language and values that meaningfully impact their lives, like travel time to school drop off, access to services like hospitals, schools and amenity, air quality and can it help my kids get a job. This is the new and necessary language of infrastructure.

These are some of the issues that shape liveability and infrastructure must be slavish to them, not the other way around.

Another budget of ‘reverse philanthropy’

Australia brought down its Federal budget tonight. Sure the Prime Minister was right, it had ‘no surprises’ and the flip side is ‘no aspiration’ either.

While Europe and US have had an appetite for public debt for a prolonged period of time, and have enjoyed the favour of the capital markets, Australia should not bank on the same.

Yet the budget is on track to do exactly that, with deficits that will accumulate as a burden on the Australian taxpayer for decades into the future. The big difference for Australia is its volatile ‘terms of trade’ (the relative price of exports to import prices) must be planned for, and contingencies put in place to ensure living standards can be sustained.

Debt is not the answer, and younger people in particular need to get on the case.

The question in search of a proper response is why does this budget, like so many budgets that  came before it from both Liberal and Labor, enable the transfer of wealth from the young to the old.

Australia has a serious case of what I call ‘reverse philanthropy’, and the consequences are serious.

The budget provides extraordinary tax expenditures to older groups by virtue of concessional tax treatment of superannuation, and an expectation of a universal pension funded by the taxpayer. Other benefits include, tax exemption to the family home that favours incumbent land owner, generally the older generation who also had the benefit of free university education as well.

In contrast the younger generation face extraordinary house prices, (fuelled by poor land use regulation that has restricted supply in favour of the old), and the burden of financing their university education as well.

Young people in Australia need to make their voices heard, and question the inter-generational  wealth transfer that is doing them no favours what so ever. For the younger generation to pull off this financial trick of supporting themselves and paying off the debt legacy of the older generation, is going to rely on a productivity boost equivalent to the invention in 1765 by Hargreaves of the spinning jenny which could spin numerous spools of cotton simultaneously.

Of course, if such transformational technology does not eventuate the impact of high marginal tax rates required to fund the budget will crush incentive and productive purpose. If you think this sound a bit like Greece today, then your probably not wrong.