Time to take Productivity Commission findings seriously

Back in February, I expressed scepticism about the Productivity Commission inquiry into public infrastructure. I queried whether it would be a meaningful inquiry and if its advice would count so long as federal and state governments were insincere about genuine infrastructure reform.
Although the Productivity Commission is still completing its final report (due in May), its draft report released last month was comprehensive and objective. My fears about the Commission?s credentials were unfounded ? the draft report has made some critical observations and robust recommendations that are making the Federal Government uncomfortable.
Commission chairman Peter Harris reinforced a point I made in this column in March ? there are no ?magic pudding? solutions that will arise from private sector finance and federal and state governments will have to invest in infrastructure projects through forms of public funding, whether that be user pays systems or new taxes or levies. Indeed, the Commission has encouraged governments to reconsider their borrowing limits ? something abhorrent to most administrations across the country.
?There are benefits to maintaining a AAA credit rating,? the draft report states. ?However, there may be situations where public financing of infrastructure would be more efficient and welfare enhancing than either obtaining private financing or not providing the infrastructure ? Australian governments have the capacity to fund higher levels of public infrastructure provision than provided for under current fiscal and debt management practices.?
The report even devoted thoughts to a suggestion for direct road use pricing by heavy vehicles ? or vehicle telematics, a concept not unfamiliar to the quarry industry ? as an alternative to the fuel excise system. Indeed, the Commission recommended telematics as not only ?feasible? for heavy vehicles but as a system that should apply to all road users. The Commission recommended telematics should be the ?preferred objective? for governments and pilot technology studies should test the concept.
Prime Minister Tony Abbott has already scotched that idea. Having swept to office on pledges of leading a low taxing, low regulating government, he described telematics as ?a novel suggestion by Australian standards? but not something his government is considering.
Which reinforces my point. 
When are federal and state governments going to take tough stances on infrastructure reform and address the backlog of necessary infrastructure investment to boost productivity growth? When and how will they create the conditions that will reinvigorate infrastructure activity? And which will in turn benefit a depressed construction market, boost employment and encourage growth in the quarrying industry?
The Prime Minister has announced that he is forming a cabinet committee whose purpose is to ?drive? infrastructure projects across Australia. This committee, according to Assistant Infrastructure Minister Jamie Briggs, will ?consider? proposals from state governments and the private sector and ?put an emphasis? on delivering outcomes. 
While this implies a dedication to making infrastructure a priority, especially at a time when manufacturing is declining and the mining boom is receding, another committee seems to me to be more of an empty gesture than affirmative action. Why is Infrastructure Australia, which approves tenders for infrastructure projects, not being given more powers to drive infrastructure? And why are State Governments, which have been notorious for neglecting infrastructure, being merely encouraged to submit proposals?
If the Federal Government is committed to ?building the infrastructure of the 21st century?, then it should take more seriously the Productivity Commission?s final recommendations ? and that includes bravely adopting recommendations that aren?t politically convenient. Otherwise, this inquiry will prove to be another useless political exercise while the infrastructure backlog continues to pile up.


Since this editorial went to press, Commonwealth and State Treasurers at the end of March agreed in principle to an “asset recycling pool” that encourages State Governments to privatise assets and recycle those funds into new economy-boosted infrastructure. The pool will be used to give the States an extra 15 per cent of the sale value of their assets. However, each State Government will have to sign a bilateral agreement with the Federal Government that promises the proceeds from privatisation will be invested in new projects in exchange for the extra funds. The funds will be available to 30 June, 2016 in order to persuade State Governments to sell their assets quickly. It remains to be seen, however, whether asset sales will lead to meaningful investment in long term infrastructure assets by respective State Governments.

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