Budget 2017: The good, the bad and the murky
The government’s good debt/bad debt approach to budget balancing has released billions of dollars into infrastructure and “city-building” projects. But fears persist that new financing models will make decisions around such spending less accountable.
Spending big on infrastructure has long been susceptible to political pork-barrelling. Recently, Victoria’s Geelong-to-Colac highway duplication was accused of being “Australia’s second worse waste of money”, as its empty lanes are projected to happily traverse key swing federal and state seats. Meanwhile, Queensland’s high number of seats held by a margin of 4 percent or less led to the 2016 budget being dubbed a “giant $25b pork-barrel for Queensland”.
So while the move by the government to differentiate “bad debt” (recurrent and unproductive spending) from “good debt” (investment in future productive assets) is a good thing for forward-thinking investment in infrastructure, it also raises two concerns: the inflating of future returns on investment to disguise ulterior motives, and those ulterior motives being the roll out of “nation building” projects that benefit particular members of the electorate, or simply provide a good, short-term jobs story.
These concerns have recently become all the more heated with the establishment of the Infrastructure Financing Unit within the Department of Prime Minister and Cabinet, a move that has been criticised by Infrastructure Partnerships Australia as fatally flawed, leading to “unintended and counter-productive consequences for worthwhile infrastructure development”.
Described variously as a “tax and spend” budget, or “strangely Labor”, it has received a mixed reception. Here we bring two views, from Phillip O’Neill, Director of Centre for Western Sydney, Western Sydney University, and Marion Terrill, Transport Program Director for the Grattan Institute.
Decision-making about infrastructure in Australia reached a new level of incompetence on budget night. Much public money has been committed, and the list of projects is long. Yet the planning and evaluation process for identifying what assets should be built and how their rollout should be staged remains dreadfully inadequate.
Infrastructure is expensive and imposing. Governments need to select projects well, because when we select a project to build we also decide not to build a competing project. Construction then needs to proceed efficiently and with minimal impact.
Good infrastructure delivers benefits over many decades. Some infrastructure assets – like those for the delivery of water, energy and telecommunications – deliver direct benefits to consumers so they can be funded by user charging, which in turn means some degree of commercialisation of the asset is possible.
Infrastructure also makes our cities more productive and better, safer places to live. These positive externalities are not easily commercialised; but when a project is a good one because there is widespread benefit we are happy for governments to borrow and our taxes to be used to pay down the debt. The presence of good public infrastructure, like good public health and education, marks us as a civilised people.
Getting the right balance of commercial benefits and positive externalities isn’t easy. Infrastructure roll-out needs informed choice and, therefore, engaged public debate. But infrastructure decision-making in Australia lacks both information and debate. The secrecy in Australia surrounding infrastructure – be it for new construction or the sale of brownfields assets – is appalling. Business cases are rarely made public. The claimed benefit-cost ratios are not able to be scrutinised. Project financing and construction schedules are never revealed. Construction contracts are deemed “commercial-in-confidence”, as are the complex sale contracts of existing public assets.
Sadly, the budget gives little hope that any of this will change.
There’s more than a touch of back to the future about this budget: we’ve got so-called nation-building projects and the usual cries of “What about me?” from various state premiers. But in the current world of “good debt” and “bad debt”, the infrastructure choices of Budget 2017 look more defensible than usual.
For a start, there’s plenty to like about the $5.3 billion commitment to Western Sydney airport: the project has bipartisan support; it’s been assessed as having benefits of $1.90 for every dollar it costs; Infrastructure Australia thinks it’s a high priority; and, after 30 years on the drawing board, nobody could say it’s a thought bubble.
Inland Rail may squeak over the line. Despite an equity investment of $8.4 billion, the project has a marginal business case at best, with benefits of just $1.10 for every dollar spent and all the risks on the downside. Indeed, plenty of experts are dubious about the merits of this project.
Don’t listen too much to the political theatre about which states have been dudded in the carve-up of infrastructure dollars. In the end, more than half of what the Commonwealth grants for transport infrastructure is effectively neutralised when the winning states end up with a lower GST share. WA has been singled out for a particularly large $1.6 billion package in this budget, but that will only matter if the Grants Commission is asked to quarantine it from affecting WA’s GST share. New South Wales and Queensland – as usual – get a bigger share of the infrastructure pie than the commission says they need, but their lower GST share in subsequent years unravels more than half of their ostensible advantage.
So, on infrastructure spending, Scott “Good Debt” Morrison’s 2017 budget probably rates a pass.
2017 budget: infrastructure snapshot. Figures from www.budget.gov.au
- $75 billion in infrastructure funding and financing over the next decade.
- Badgerys Creek Airport
$5.3 billion in equity funding to WSA Co, a new Commonwealth-owned company, to fund the first stages of a second airport for Sydney in the city’s west, scheduled to open in 2026.
- Melbourne-Brisbane inland rail
An additional $8.4 billion investment in the Australian Rail Track Corporation towards the Melbourne-Brisbane inland rail project, which will allow freight between the two cities in under 24 hours.
- Snowy Hydro
The planned Commonwealth purchase of the Snowy Hydro from the NSW and Victorian Governments.
- Melbourne to Brisbane inland rail
$8.4 billion to fund the 1700 km Melbourne to Brisbane Inland Rail project.
- State transport infrastructure projects
$1.6 billion towards WA road and rail projects.
$844 million towards Queensland’s Bruce Highway priority projects.
$1 billion in infrastructure funding for Victorian projects including $500 million for regional rail upgrades and $30 million for Tullamarine Airport rail planning.
This article includes an excerpt from “Budget’s ‘good debt’ conversion underpins $70b-plus infrastructure program: experts respond” originally published on The Conversation. This excerpt written by Phillip O’Neill Director, Centre for Western Sydney, Western Sydney University and Marion Terrill Transport Program Director, Grattan Institute.