Budget 2017: Turning a good budget into great infrastructure
The Federal Budget 2017 was all about the government driving infrastructure provisions while the private sector took the back seat. So how do we correct this? Garry Bowditch writes in the Australian Financial Review.
Australia must be a complicated place. Its people, businesses and private institutions constitute some of the most successful infrastructure innovators on the planet. But when it comes to the heavy lifting of infrastructure provision, Tuesday's budget was all about federal government driving and the private sector in the back seat.
Nationalism and nostalgia for the great postwar nation building achievements do inspire; past greats like Chifley and Menzies served the nation well. However the budget's slavish loyalty to traditional government procurement to design, fund, build and operate infrastructure should change and for good reason.
Big risks for taxpayers abound in the budget's infrastructure formula across many of its signature projects like Western Sydney Airport, Snowy 2.0 and inland rail.
Government can't do it best
Cost blowouts and project completion delays are the norm for government-led projects, and taxpayers are burdened with the lot.
The Treasurer was simply wrong to argue in the lead up to the budget that government can do this best, and has ignored local and international evidence.
Australia has an unenviable world record, cited regularly by Oxford University as the nation with the worst projects. Sydney Opera House was 1400 per cent over budget and significantly delayed. The splendour of the Opera House today is simply no excuse to ignore the lessons of planning and project blunders of yesteryear.
Unfortunately Australia is a slow learner, as there exist too few safeguards against another infrastructure groundhog day; the NBN is a timely reminder the problem is far from being fixed.
The frustration with budget night and its set-piece announcements – justified by sugar hits to the economy from construction spending – is that it has little or no accountability for long-term outcomes.
Will these projects lower input costs for business and living costs for families, lift productivity for capital and labour, open up new markets that together create quality and enduring jobs and places to live?
What is success?
Unfortunately answers to these critical questions are heavily qualified. Community confidence can be justifiably lifted if there is complete and unfettered transparency to project performance with clear objectives and measures of success.
Combating project pathologies that drive up costs such as constant shifting of project scope, poor adaptation to new information, and a lack of curiosity to alternative capital-light innovations are critical. The culture of passive grants from the federal government has not helped, but at least there are signals for change.
The government is well aware of its own limitations in infrastructure, although it is unclear how to tackle these while rolling out projects at speed. An Infrastructure Financing Unit (IFU) now to be placed in federal Treasury is new and therefore untested.
The IFU is recognition that the federal government seeks to change from its self-described status as a "passive ATM" for infrastructure. Its new aspirational instruments are loans, equity holding, bonds that in theory at least will enable more rigour in project design and financing, and provide better hooks into having a say in the whole-of-life governance of projects and achievement of outcomes.
More sophistication required
Governments, investors and the industry – infrastructure customers can be funders as well. Energy, water and telecommunication have all cracked this combination, so must land transport.
A more sophisticated and demanding government buyer of infrastructure outcomes (not projects) will help trigger important reforms and change of culture. The question is how can IFU be catalytic in reforming infrastructure governance? There is deep infrastructure investment expertise in the Future Fund that the IFU would be well advised to tap into.
Risks with an IFU exist; adventurist off balance sheet financing is front of mind. Its placement in Treasury helps, as they police this type of activity with vigour across the entire public sector balance sheet. However, the panacea to off balance risk is transparency of activity that invites public scrutiny. We look forward to such an announcement from Treasury.
Misunderstood Keynes
Some may argue the government's budget has channelled the spirit of John Maynard Keynes, with the size of it fiscal stimulus and debt raising. If that is the case then they understand only one small part of Keynes' work.
Keynes lamented almost 90 years ago that too much of human history was lost to both social and economic stagnation; a Roman farmer would have felt very comfortable on a farm in late 16th century. The drivers of economic progression rely on technical innovation, people that can be inventive and institutions that can facilitate it.
Dynamism and enterprise will deliver on the government's credo of fairness, opportunity and security. But their custodians – individuals, community and business – seem to have been cast aside by a highly motivated government operating with a tight political schedule. Perhaps that can be corrected so what is a good budget can be transformed into a great one.
This article was originally published on the Australian Financial Review. Read the article here.
Garry Bowditch is Executive Director of the Better Infrastructure Initiative, John Grill Centre for Project Leadership, University of Sydney.
