How an independent body could solve Australia’s infrastructure woes: Kohler

Australia’s national infrastructure policy should be managed in the same way as monetary policy – by an independent body removed from politics.

Next year the Federal budget will go back into surplus and stay there, and with the massive profits that are likely to flow out of the current mining investment boom even our current crop of politicians will have trouble spending enough of the tax proceeds to prevent huge surpluses developing in the years ahead.

As things stand the money will either be frittered away as middle-class welfare – as in Mining Boom Mark I between 2003 and 2007 – or doled out to the states as infrastructure pork at the whim of the prime minister and the federal infrastructure minister or invested in international shares and other pointless liquid assets via the Future Fund.

Far better if the transfers to the Future Fund were now capped and future surpluses put into the Building Australia Fund administered by an independent Infrastructure Australia, with the power to back up its research on priorities with real money.

Making the Reserve Bank of Australia clearly independent was one of the best things the Howard government did. It began with a Statement on the Conduct of Monetary Policy on August 14th 1996 and has since been followed up with four subsequent statements. The latest was September last year, adding a financial stability mandate.

Creating Infrastructure Australia was one of the best things the Rudd government did. Its work under chair Sir Rod Eddington and ‘Infrastructure Co-ordinator’ Michael Deegan, has been rigorous and comprehensive, but it only has the power to advise the minister where to put the money.

It’s basically like the Reserve Bank before it was independent.

Under its 2008 Act, Infrastructure Australia’s function is to provide advice about “current and future needs and priorities relating to nationally significant infrastructure”, which is defined as transport, energy, communications and water.

Each of these things is in some variation of chaos or political disarray in Australia.

The biggest infrastructure project of them all – the NBN – remains politically and financially controversial. The Opposition says it will scrap it and the question of whether it would pass a cost benefit analysis remains unresolved, although it is now going ahead.

Development of the Murray Darling water infrastructure appears to have descended in farce and the states are all over the place on urban water, with various hopelessly uneconomic projects.

Urban public transport and port infrastructure is in various states of disrepair around the nation, hostage to the incompetence of state governments.

And investment in energy infrastructure has ground to a halt while politicians battle it out over carbon emissions. Prices are already soaring and we face power shortages within five years. Years of under-investment has resulted in a massive transmission deficit which is pushing up electricity prices, and that’s even before a carbon tax is imposed.

The lack of a clear energy infrastructure policy has meant that Australia has now been caught with its pants down on carbon emissions, and needs to catch up quickly at huge expense. However the huge cost has made that much more difficult.

When the budget moves back into surplus in 2012-13, money will start flowing again into the Future Fund. Most of its funds are investment in listed equities, both domestic and international, with the largest allocation to ‘developed market’ listed shares.

Is that really the best place for Australia’s future budget surpluses? Foreign shares?

The Building Australia Fund, which was established in 2008, currently has $8.61 billion which is to be invested in national infrastructure by the government, with advice from Infrastructure Australia.

Whether the BAF gets any more is up to the government at the time. The Future Fund, meanwhile, has $74.62 billion, which is there to provide for unfunded superannuation liabilities. That’s almost been completed now but the Future Fund remains the default repository for budget surpluses.

It would be relatively simple to direct future surpluses into the Building Australia Fund instead of the Future Fund, and to put it under the independent control of Infrastructure Australia.

Its 12-person board, which includes the heads of both Prime Minister & Cabinet and Treasury, would then determine national priorities for spending the money away from the pork barrelling and incompetence of both federal and state governments.

The states would be forced to toe the line because all nationally significant infrastructure projects require some Commonwealth funding. The only way a state would get that funding would be by building the right projects.

This, surely, is an idea whose time is about to come.

This article first appeared on Business Spectator.