Is it worth it? It’s the question that should be asked whenever governments come up with a shiny new infrastructure idea. But too often, major projects are announced as election promises, without evaluating the cost and the value of the project to taxpayers.
And while cost-benefit analyses might not seem like the sexiest thing to accompany election promises, there’s a genuine opportunity for the new Prime Minister to reform infrastructure funding in Australia.
Host Kat Clay is joined by Marion Terrill, Grattan’s Transport and Cities Program Director.
Transcript
Kat Clay: Is it worth it? It’s the question that should be asked whenever governments come up with a shiny new infrastructure idea. But too often, major projects are announced without evaluating the cost and the value of the project to taxpayers. And while cost benefit analyses might not seem like the sexiest thing to accompany election promises, there’s a genuine opportunity for the new Prime Minister to reform infrastructure funding in Australia.
With me to discuss this topic is Marion Terrell, Grattan’s Transport and Cities Program Director. So, Marion, I thought cost benefit analyses were compulsory for major infrastructure projects, but a lot of the projects are being announced by eager politicians before evaluating their value. What’s happening here?
Marion Terrill: Governments make the rules that they abide by, and so, the short answer is that they’re not compulsory. But governments at both state and federal level have wanted to improve the discipline associated with infrastructure spending over the years. And so most states and the Commonwealth have got an infrastructure advisory body.
Now they have a range of functions. Mostly they do get involved in business cases, but there’s nothing to stop the government from proceeding with a project without a business case at all. And in fact, that is what has been happening. What we did is we looked at, the, all the projects, worth half a billion dollars or more of the past five years to see how many of them had business cases.
And we discovered that only eight of them had a business case either published or assessed by a relevant infrastructure body at the time of the commitment. And if you just look at the ones that got federal money, out of the 32, there were 22 that got federal money. We found only six of those had a business case assessed or published.
By Infrastructure Australia at the time of commitment, and so some of them were in the pipeline at the time when government said, oh, we don’t need to get the final. We’re just going to go ahead. And 2 of them had never even been anywhere near Infrastructure Australia at the time of the decision to invest.
Kat Clay: So, our new Prime Minister, Anthony Albanese, played a significant role in establishing Infrastructure Australia in 2008. What was the intention in setting this up, and how has their role diminished through the years?
Marion Terrill: So, it’s one of the first actions of the new Rudd government, just a couple of months after being sworn in Albanese, as the Minister at the time, was very proud of it.
The way he talked about it was that he wanted to replace neglect and buck passing and pork barrelling with long term planning, where governments predict and anticipate infrastructure needs and demands, not merely react to them. That was what he had in mind. The organization got a substantial overhaul under, Tony Abbott’s government in 2014, and the minister at the time was Warren Truss, and he used similar sort of language about what they were doing.
They were, increasing the independence of the organization, and he said, that they had an election commitment for a strong, independent, transparent, and expert advisory body. To deliver quality, independent advice on infrastructure proposals. So, it is a bipartisan thing. Both sides have been committed in slightly different ways, but they’re both committed to the principle of getting this independent advice so that they can make better infrastructure decisions.
Kat Clay: So, in theory, they should be waiting for Infrastructure Australia’s advice before announcing projects, but we tend to see these kind of bold commitments, particularly on a state level, without waiting for that kind of independent advice. Are you concerned about these potential infrastructure promises being made into the lead up to the New South Wales and Victorian elections?
And what’s happened in previous election years?
Marion Terrill: Election time is very dangerous for infrastructure promises. So, we’ve had a look at them over time, both at the federal level and I’ve also looked at them for, New South Wales and Victoria. So, what happened with the recent federal election was there were Six promises made for transport projects worth more than a billion dollars.
And five of them were promised by the Coalition and one by Labor. So, none of the six have been properly assessed by Infrastructure Australia. There were two projects. One was Labor’s commitment of 2.2 billion for Victoria’s controversial suburban rail loop project, and one was 1.6 billion dollars from the coalition for the Beveridge intermodal terminal in Melbourne.
So those had not at that time reached even the most preliminary stage infrastructure Australia’s priority list. We’re coming up for a Victorian election, so three and a half years ago in Victoria. What we saw was both Labor and the Coalition ran about 15 billion worth of their promises were for projects that had a business case, a positive business case that stacked up.
Now that’s off a base of the overall promise, from the Coalition was 65 billion, so roughly a quarter did have this character. And for Labor they promised 95 billion, so more like about 15 percent. If you look at New South Wales, so they had an election three and a half years ago, they’re coming up in March, and again about 20 percent of the total promised, the total promise in dollar terms, was for projects that had been positively assessed.
or recommended by Infrastructure Australia and or Infrastructure New South Wales. So, what all that shows you is that quite a small minority of what is promised in the election context actually has been properly assessed and found to be worth building and also the kind of the better, a good option to solve a particular problem.
Most of it just doesn’t have that character at all.
Kat Clay: So, I think I might know the answer to this question, but what is the risk of making these kinds of election promises?
Marion Terrill: Well, there are a number of risks. I mean, what I would say is that when politicians make these sorts of promises in an election context, the public takes them seriously, the politician takes them seriously, and we do too.
So even if they then go back and do a business case after the fact, it doesn’t mean that the decision to invest hasn’t been taken. It has. One of the things that you see happening in an election context is a tendency to promise large projects. Across the transport portfolio as a whole, there has been a shift.
In favour of much larger projects and mega projects, and I think governments and oppositions like talking about them because they’re, I think they see them as more iconic or nation building. So, there’s sort of more glamorous projects, then, you know, sort of more small, local upgrades don’t have that character, but these prematurely announced projects are at higher risk of cost overruns or larger projects are also at higher at large, at greater risk of cost overruns.
They’re brewing up a, a set of risks, that, that do apply to these projects, probably more than projects that, that evolve out of a more orthodox process.
Kat Clay: Now, Marion, you’ve mentioned the word nation building. Isn’t there a place for visionary projects in Australia? I mean, the Brisbane to Melbourne rail connection and the suburban rail loop come to mind here?
Marion Terrill: With the examples that you raise, in fact with Brisbane to Melbourne Rail Connection, there are two proposals, so one of them is well underway, and that is a freight connection called Inland Rail, which is a project originated probably 20 years ago, getting on for 20 years ago. We’ve got a business case from 2015 and that’s proceeding.
And then the other proposal for Brisbane to Melbourne Rail is the East Coast High Speed Rail, which is a proposal that the Labor government has been very interested in and is intending to do further study on at the federal level now that it is one government. The problem isn’t with dreaming up visionary projects.
That’s the fun part. The problem is that there’s actually an infinite number of visionary projects. I guess what I come back to is, how do you pick amongst all these marvellous projects, which is the best one? Because in the end, you are going to be spending public money to build it. And if you choose project A, it means turning your back on project B.
So, you do need a method for choosing between them. It doesn’t mean that governments can’t make these decisions, that they’re not empowered to make them, and that they can’t commit to things like, you know, for example, Olympic Games notoriously lose money. Governments can still make those promises. By all means, but it is very helpful to understand what it is that you are committing to before you decide to commit to it.
Kat Clay: Marion, I want to dig into the potential solutions for reining in infrastructure spending. You mentioned in a recent opinion piece that Philip Lowe had a potential solution. What lessons can we learn from the RBA here?
Marion Terrill: The solution that the Governor of the Reserve Bank, floated a couple of years ago was that Infrastructure decision making could be a little bit like monetary policy making.
In other words, monetary policy used to be made within government and now is made more at arm’s length from government and that infrastructure decision making also could be taken more to arm’s length from government. So, he didn’t sort of spell it out in any great detail, but I think what he’s really envisaging is that it would be an expert technocratic type of decision. That is certainly one way of thinking about it, and I think it’s a view that has got quite a lot of support, I find, as I talk to people, about this, and it does respond to these concerns of politicized decision making. But there is another school of thought, really, which is that these decisions are inherently political, whether you like it or not.
It doesn’t make sense to take it out of the hands of government. And in fact, you could take this view a bit further and say, it’s absolutely appropriate for elected representatives to feel accountable at the ballot box for these types of decisions. So, they’re two very different perspectives, on, on the matter.
And I think one is really an argument for the status quo. And one is an argument for something that would be quite a substantial departure from the status quo.
Kat Clay: I mean, is there a middle ground here? What other solutions could the federal government implement to increase the guardrails on infrastructure spending if we remained with the, I mean, status quo, especially in relationship to infrastructure Australia?
Marion Terrill: Yeah, there absolutely is a middle ground and it’s being proposed by none other than Anthony Albanese. So, when he was the shadow minister. during parliamentary debate on a related bill, so on the National Land Transport Bill, he proposed a solution where Infrastructure Australia would necessarily be involved, and the way they would be involved is that the Minister could not approve an investment project worth a hundred million or more unless and until Infrastructure Australia had done, had given their assessment of it to the Minister.
The assessment would include cost benefit analysis, and it would include a sense of its relative priority order or relative ranking and then the Minister would then be the decision maker as is the case now. So, what I like about this is you. it, it would in no sense stop the minister or stop the government from making decisions that they are empowered to make today.
But what it would do is it would stop them from making promises on the hoof. It would stop them from making promises. dreaming up schemes based on nothing much. It would put the brakes on to some of the more reckless end of the commitment spectrum. So, in the end, I think, the Prime Minister understands better than most that infrastructure decisions are complex, they’re technical, and they really matter.
And he also understands that institutions matter. You know, he is the one who, when he set up IA back in 2008, Acted directly on the insight that the best time to make a tough decision is before that decision gets tough.
Kat Clay: That’s fantastic advice and I think that’s a great place to end the podcast. If you have enjoyed this podcast, please chat to us further on social media.
We’re on Twitter at Grattaninst and on all other social media channels at Grattan Institute. If you’d like to read more about our Transport and Cities research, of which there is a lot, A number of very good reports on our website at grattan.edu.au you can read about mega projects and Marion’s recent research into pork barrelling as well.
As always, please take care and thanks so much for listening.
Kat Clay
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