We need to cut wasteful spending on infrastructure

by Marion Terrill

Published by The Sydney Morning Herald, Tuesday 15 March

We’ll never know what arm-wrestles are going on behind closed doors with federal and state budget preparations in full swing. But one proposal that does not deserve to win is the recommendation from Infrastructure Australia that state governments should only get Commonwealth infrastructure funding if they divert people from the big four cities to smaller regional centres.

The plan to boost smaller cities and towns flies in the face of solid evidence that larger cities are more productive, and is just more chopping and changing in Commonwealth priorities. What we really need is a regime that minimises wasteful spending.

Most of what NSW spends on transport infrastructure comes from its own revenues, not the Commonwealth. Over the past decade, NSW spent nearly three times as much as the Commonwealth on transport infrastructure, at $39 billion to the Commonwealth’s $14 billion. The Commonwealth gave a further $2.8 billion to local government for transport infrastructure.

The Commonwealth gives transport infrastructure money to the states for several reasons. One is simply that it has deeper pockets than the states do, and historically has spent on roads, rail and public transport. It also puts in money because transport networks are important both for the state they’re in and also to facilitate trade and economic activity across the country, and to connect the nation as a whole.

But there has been a sorry history of Commonwealth governments imposing their priorities – and political agendas – on the states. Kevin Rudd and Julia Gillard presided over substantial spending, including stimulus spending, on a range of different transport types; Tony Abbott made it clear that he saw no role in transport infrastructure beyond roads; Malcolm Turnbull has declared himself agnostic as to how the Commonwealth supports urban transport. The problem with all these changes in direction is that road and rail investments have very long lead times, and halting projects is expensive and wasteful.

NorthConnex is by no means the only example of a project where the Commonwealth committed money – $405 million – ahead of a full business case. Melbourne’s East West Link was a more extreme example, where the Commonwealth committed $3 billion before legislated transport and financial management requirements had been met, and even before any cash flow was needed. This is not to say that congestion between Sydney’s north and west or between Melbourne’s east and west are not problems. They are: both have been identified in detailed studies, and in fast-growing cities like Sydney and Melbourne there is little real controversy about the weakness of these parts of the network.

The real question for both the federal and NSW governments is not how to plan the system from scratch, but rather how to identify the most important additions to an already mature network.

There is a way to do this. It is to assess all potential projects on a like-for-like basis, and build only where the benefits outweigh the costs. Despite its limitations, the best approach that exists today for making like-for-like comparisons is cost benefit analysis. No government should be able to commit public money to an infrastructure project before a rigorous independent evaluation of the business case has been tabled in the parliament. If Infrastructure Australia’s wish list of boosting smaller cities stacks up after a like-for-like comparison with all the other projects competing for the same funding, then the case to go ahead will be clear.

Of course, the Commonwealth will always be tempted to have a say on what is funded as a condition of contributing money to a project. And conditions on funding might make sense if the Commonwealth were building projects that the state in question would never build – such as a rail link between Victoria and Queensland that passed through NSW carrying little NSW traffic. But this is not where Commonwealth support tends to go.

Greater discipline in project selection is possible if all potential projects are assessed on a rigorous, like-for-like basis and the results published. This is what New South Wales needs and what would produce a double benefit to the community – less wasteful spending and better transport networks, built where they will make the biggest difference.