Building in a productivity boost

Business Council chief executive Jennifer Westacott’s prediction on Saturday that Australia is “on the cusp of a golden era of prosperity’’ prompts a vital question. Does the economy have the capacity to capitalise on the opportunities that abound? Recurrent spending on aged, home care and women’s health and safety expected in the budget will benefit Australians’ quality of life. As Simon Benson and Geoff Chambers report on Monday, much of the Morrison government’s historic $18bn aged-care package will focus on creating a better-paid and highly trained aged-care workforce.

While the government has the fiscal switch set to “spend’’, it is also continuing to prioritise infrastructure, with an eye to future growth and jobs. If the economy and living standards are to reach their potential in coming years, and the economy to generate the revenue to care for our ageing population and meet the demand for increased spending on health and defence, investing in public infrastructure will be a key factor in lifting productivity. Doing so is essential to provide for growth and for real increases in wages.

Infrastructure projects need to be selected carefully, on the basis of economic imperatives and not political considerations. White elephants need to become an endangered species, as the Productivity Commission noted a few years ago. Chosen well, infrastructure developments will help the economy avoid the capacity constraints that held the nation back during the sustained mining boom that began in 2003 and peaked a decade later. Over those years, the Reserve Bank consistently reminded the Howard, Rudd, Gillard and Abbott governments about the link between investing in productive infrastructure and improving productivity.

Following last year’s budget pledge to spend $110bn on infrastructure over a decade, we welcome Scott Morrison’s move to boost new infrastructure spending by another $10bn on Tuesday. The increase will be spent in the coming year. When built, a new Intermodal Terminal in Melbourne will encourage exporters and transport companies to switch freight from road to rail, taking about 4000 trucks off Melbourne’s roads a day and creating 1900 jobs during construction and operation. The terminal should be ready in time for the start-up of the Brisbane-to-Melbourne Inland Rail route in 2027. The two projects, like the Western Sydney international airport, should have a transformational effect on the national economy.

Other projects to be funded will make roads safer, reduce travelling times and avoid traffic bottlenecks. They include upgrading the Great Western Highway between Katoomba and Lithgow in NSW to relieve traffic congestion west of the Blue Mountains. Other roads to be upgraded include the Truro Bypass on the Sturt Highway northeast of Adelaide, the Bass Highway near the northern Tasmanian coast and Queensland’s Inland Freight Route linking Charters Towers in the state’s central north to Mungindi on the Queensland-NSW border. In the ACT, duplication of William Hovell Drive will cut commuting times in the national capital from new suburbs in the Molonglo Valley and West Belconnen. Pre-pandemic, the road carried about 20,000 vehicles a day. The benefits of such investments are well established. They reduce travel times and costs for people and goods, and bring consumers and workers into closer contact with more businesses.

The upgrade and better use of online communications during the COVID-19 pandemic have changed working patterns. Person-to-person contact, however, will remain an essential part of business and employment as the effects of coronavirus recede. And soaring home prices in capital cities — where price tags increasingly exceed a million dollars in once-ordinary suburbs — are driving a shift of families to the regions in search of affordable housing, and encouraging young people to stay in the regions rather than moving to cities. The growth of regional centres will necessitate better public transport and road networks, quicker links to major centres and medical and education infrastructure.

Spending on productive infrastructure is taxpayers’ money well invested. As Ms Westacott wrote, striking a balance between growth and fiscal discipline is a challenge. “It’s about making sure every dollar is an investment in creating jobs … and delivering a more modern, advanced economy. This is especially important given the evidence of the role that growth plays in getting the deficit under control.’’