Building from the base

THE myths that sanctify the infrastructure debate in Australia are about to be slaughtered, as the Rudd government confronts reality: the coming shortage of funds, the problem of infrastructure governance and the need for higher prices in the cause of efficiency.

Kevin Rudd loves to depict infrastructure as nation building, a brand that resonates with Australia's political culture, where everybody thinks nation building equates with motherhood.

In truth, a proper infrastructure agenda is about economic reform as much as nation building. This is the Rudd government's new problem and it will demand a reappraisal of Labor's performance in an area it is assumed to own politically.

The new report on infrastructure commissioned by the Business Council of Australia opens a window the Rudd government likes to polish but prefers to keep shut. Its first message is that significant progress has being made. Its second message is that much of the present agenda is struggling. Its third message is that without a rethink Rudd's aspiration for "world-class infrastructure" will be unrealised.

The theme of this report is that after the global financial crisis the Rudd government must return to its infrastructure agenda but with a tougher mindset. The report is an opportunity for a reform-minded Rudd cabinet; it also warns against Labor's compulsion to debase infrastructure decisions for electoral gain, an Australian trait.

The report to the BCA by former Canberra bureaucrat, Rod Sims, from Port Jackson Partners, above all seeks a cultural change in the way Australia "does" infrastructure. It makes clear that infrastructure is tough, not easy politics. It identifies the Rudd government's reluctance to conduct proper cost-benefit analysis of projects. And it calls for an independent evaluation of infrastructure by the Productivity Commission.

The good news is the report's claim there is agreement on the policy direction; the testing news is that success depends upon political will. Sims tells this column: "Unless Australia gets infrastructure policy right, it cannot move successfully to a projected 35 million population. The optimism flowing from our economic reforms in the 1980s and 90s has gradually given away to mounting concerns that infrastructure will be a significant restraint on growth. In infrastructure, many reforms are only half done. Urgent steps need to be taken now."

Rudd, to his credit, believes in a strongly growing population. One of his tasks as PM will be to reorganise Australia's decision-making, state and national, to make his vision viable.

Sims finds there has been a significant lift in infrastructure spending in recent years. But it is mainly "catching up a past underspend". Most of the funds came from the states and the private sector.

But there is a vital new event: the national government has moved into funding urban transport and ports, a fresh beachhead.

Minister for Infrastructure, Transport, Regional Development and Local Government Anthony Albanese says the "commonwealth's recent exile from the urban policy arena has ended". This is a critical step.

The global financial crisis means the budget savings to finance Rudd's "building decade" are scarce. Australia cannot afford white elephants.

It is "unlikely" the states can keep funding infrastructure at the same level. For Sims, this means existing infrastructure must be fully utilised by price and market reform. He gives examples: charges for long-haul freight vehicles need to be lifted to make movements more efficient; water prices should be raised; traffic congestion charges are required. Sound infrastructure is about the old user-pays principle, not the free ride. The report argues for more market provision for urban water and greater competition in infrastructure markets.

infrastructure decisions are mainly state government-based and, as such, suffer from "stop-start" funding and being "unusually politicised". Sims quotes research showing "a high prevalence of deficient scoping in Australian infrastructure projects and this situation is getting worse". As many as 50 per cent of government announcements cover projects without any pre-feasibility study.

In effect, Sims wants the Rudd government via the Council of Australian Governments to drive the infrastructure agenda deploying the techniques used in National Competition Policy to persuade the states with cash and insistence on integrated planning. This fits with Rudd's vision for the national government to develop a cities strategy.

While the public now sees the national government as being responsible for interstate freight, the Murray-Darling Basin and communications, the states are still seen as having political responsibility for urban transport and urban water.

The BCA will back Rudd's campaign for the national government to become involved in urban planning just as Sims backs Treasury's support for congestion pricing.

But the politics will be decisive and difficult. Sims is heroically hopeful the commonwealth can assist the states with new policy to improve public transport efficiency. Central to this task is Rudd government involvement in preparing "an integrated transport plan for each major capital city" including investment, service levels and pricing.

This is where Rudd and Albanese are headed, but the woods are thick with obstacles and the sort of decisions Labor state governments have run away from.

On energy, Sims warns that Australia cannot be certain of maintaining electricity reliability given the transition to a low-carbon economy. Indeed, reliability could be "at risk". While prices will rise significantly, there are doubts about future capacity and the financing task. The national government needs to co-ordinate these challenges (including, amusingly, an early phase out of the recently legislated Renewable Energy Target!). On water, the report calls for each state to define its planning principles with the Productivity Commission to offer an overall way forward.

Given multiple inquiries about interstate freight, the report recommends a national freight implementation plan with an agenda covering roads, rail and ports extending the work done by Infrastructure Australia. Existing plans should be speeded up including the transition to single national regulators.

The report criticises the decision-making over the proposed national broadband network. This involved spending $43 billion "with little or no supporting analysis". The government as owner and regulator has a potential conflict of interest.

Overall, the Sims report sees the need for a "massive future infrastructure agenda" that is of "significant complexity". This report and its embrace by the BCA will encourage but test the Rudd government. The infrastructure exchanges in parliament yesterday were about whether "my list is longer than yours".

Infrastructure Australia has devised a pipeline of projects but this should be the start, not the end, of the new policy debate. It needs to go to quality decisions. Sound infrastructure is about good governance. They rise and fall together, witness NSW, where both are rotten. This is Rudd's chance to score a double victory and deliver on the expectations he has created. Yes, it won't be easy.