PATREC

Infrastructure funding and implementation

In recent years all Australian governments have experienced constrained budgets.

In part this can be related to a large number of baby boomer taxpayers leaving the workforce though retirement, but it can also be attributed to tax policy and the difficulty in adjusting tax policies to meet expenditure objectives.

Within this framework Australian governments, like most others in the world, have had difficulty in adjusting annual recurrent expenditures to be consistent with annual tax revenues, and in controlling foregone tax revenue expenditures. One highly publicised consequence of this is that Australian and international governments have seen their net debt increase.

A second less widely publicised implication is that many governments have been forced to delay and/or cancel major infrastructure projects. The consequence of this is that Australia, in common with many countries, has a recognised infrastructure gap.

This ‘gap’ has emerged precisely because governments have experienced difficulty in funding construction of new infrastructure from taxpayer revenue. The funding of upgrades and maintenance of existing infrastructure has also been constrained in some cases. Although the exact number is debated, any significant infrastructure funding gap raises questions about the long-term productivity and competitiveness of the Australian economy. There is a well-established correlation between the quantity and quality of infrastructure and economic performance.

Infrastructure funding is about both quality and quantity of projects. Some of the identified infrastructure gap reflects the rising expectations we have for the quality of both hard and soft infrastructure. Like communities in most advanced economies, Australians expect that the quality of infrastructure like railways, roads, airports, hospitals and communications will rise over time.

The costs of infrastructure provision rise in part, therefore, as greater capacity is needed to deal with growing population and in part because the infrastructure investment per capita increases consistent with delivering greater quality of infrastructure services and rising standards of living. The infrastructure gap encompasses all forms of infrastructure and arguably it is not reasonable to look at one sector (such as transport) in isolation. Road projects compete with port projects compete with sporting and health projects for funding. Capital city projects compete with regional projects.

WA context

Similar funding constraints apply to the WA Government as apply to others and the same rising demands for infrastructure services confront planners. The same manifestations of the problem are also evident as reflected in recent decisions to cancel or delay major projects like the MAX light rail and the challenges of providing high-quality hospital infrastructure like the Fiona Stanley Hospital within a constrained government budget.

However, the recent period sustained high growth rates and the impact of GST revenue sharing arrangements have been especially significant for WA in recent years insofar a planning for infrastructure provision is concerned.

Funding challenge

The budgetary position in Australia will not change dramatically any time soon. Hence there is a need for WA and other Australian jurisdictions to revisit the approach to planning for infrastructure provision and for funding infrastructure projects. In particular, the potential role of the private sector and policies and institutional arrangements not conducive to the efficient provision of and funding of infrastructure need to be identified.

Planning for infrastructure and funding needs to be considered simultaneously. Planning identifies the quantum and type of infrastructure needed by reference to the strategic planning objectives for the economy and the benefits and costs associated with particular projects. A forward-looking infrastructure plan that identifies infrastructure projects and their timing and prioritises them is a necessary requirement for optimal provision.

Infrastructure funding is required that can facilitate putting this plan into practice by identifying the most appropriate financial structures for particular projects. Not all projects are conducive to all of the various funding options. Arguably poor planning cannot be saved by good funding options and poor funding choices can undermine good planning.

Against these needs, the focus of the research is to undertake a review of infrastructure provision and funding in WA preparatory to PATREC undertaking more detailed and specific research projects on transport infrastructure provision.