Under prevailing economic circumstances, our political leaders are in great need of accomplished and resolute infrastructure reform advice – especially in transport, which dominates spending.
The new Federal Treasury Secretary’s advice to the Senate this week was refreshing. It argued that further big infrastructure project spending was not the economic magic bullet so many think it is[i]. (more…)
The Grattan Institute has just published a report on road congestion charging. It argues that congestion charging is a better way to manage busy urban roads. It is right but Ministers rejected the idea immediately.
We waste far more money on pointless roads than we do on welfare. But the dollars we waste on roads is in response to powerful lobbyists, the motor and construction industries.
See below a repost of an article by Luke Fraser on 3 October 2017.(John Menadue) (more…)
Australia’s current approach to road spending will soon generate up to $20 billion every year in new public sector debt – making it impossible for any new Commonwealth government to benefit from much-needed tax reform and revenue increases. This also cooks the goose of the road freight sector which Australia’s economy relies upon, while the perverse pattern of spending neglects our local road networks thanks to the endless fascination with dubious new motorway mega-projects. (more…)
Australia’s current approach to road spending will soon generate up to $20 billion every year in new public sector debt – making it impossible for any new Commonwealth government to benefit from much-needed tax reform and revenue increases. This also cooks the goose of the road freight sector which Australia’s economy relies upon, while the perverse pattern of spending neglects our local road networks thanks to the endless fascination with dubious new motorway mega-projects. (more…)
Botched State road projects, toll road fee hikes and congestion grab big headlines and make good sport for critics of State governments. (more…)
Botched State road projects, toll road fee hikes and congestion grab big headlines and make good sport for critics of State governments. (more…)
Pity Prime Minister Turnbull – an intelligent man, trying to secure productive reform of this sector, yet met with fresh disappointment at each turn. Turnbull has made a number of moves in the transport space to suggest he has seen through a lot of second-rate advice and now wants something better: a more efficient freight sector, for one thing. (more…)
One of the things that makes basketball so dynamic is the ‘shot clock’: once a team takes possession, they have 24 seconds to make a realistic shot – otherwise they turn the ball over to the opponents. This speeds up the game and discourages defensive play.
In politics there is also a shot clock; a government which hasn’t done much risks being thrown out at the ballot box. Even so, few governments seem to appreciate how little time they have to effect reform. In the two decades since the governments which many would argue understood best their brevity of tenure – the Hawke-Keating administrations – another problem has emerged: an advisory deficit in the senior public service, which as many contributors to Pearls have noted, has now grown so deep that new governments can be lulled into thinking that standard bureaucratic processes will get their agenda delivered. (more…)
The “Australia is full” immigration argument suggests we have our infrastructure planning and investment settings quite wrong.
Debate is now re-emerging about the need for Australia to consider new cities. (more…)
In the first two posts, the vast scale of Sydney major transport projects was estimated at $85 billion – a figure larger than all European spending on transport public private partnerships for the last five years; the posts also examined apparent strategic flaws in Sydney’s Westconnex and Metro projects which threaten poor returns and unhelpful operational impacts. How did Sydney get here? Can things be improved? (more…)
In the Fairness, Opportunity, Security policy series and the resulting book, Dr Michael Keating AC and I wrote of Australia’s out-of-control transport infrastructure spending that:
‘It is scandalous that this investment escapes proper scrutiny, while at the same time the proponents are calling for cuts in other government programs, including education and training programs that would actually increase productivity and participation’.[i] (more…)
This is the second of three articles considering transport infrastructure spending levels, shortcomings in transport governance and strategy and the potential for doing better. (more…)
This is the first of three articles considering transport infrastructure spending levels, shortcomings in transport governance and strategy and the potential for doing better. (more…)
There is a not-so apocryphal story of a senior government minister explaining his regional policies to party colleagues. Somebody is said to have asked “what is your ‘Regional Assistance Strategy’?” to which he is said to have replied: “It’s a room in a building, in a country town, with a phone. You pick up the phone. You ring the number we provide and when somebody picks up, you say “get me the f*#k out of here!’” (more…)
On congestion charging. There are three lessons: first, congestion charges are devilish hard to put in place, even when they work demonstrably well; second, don’t try to implement this in a city where there is no serious traffic congestion, or people will smell it for the revenue grab that it is – and respond accordingly. A third, vital lesson: Stockholm needed more than one level of government support to implement the charge. (more…)
A recent episode of ABC television’s satire Utopia saw political spivs trying to convince the fictional Nation Building Authority to endorse anti-competitive conditions on a multi-billion-dollar port asset sale. Head of that Authority Tony Woodford – played beautifully by Rob Sitch – resisted valiantly. Shortly thereafter, a newspaper review criticised Utopia thus: ‘…the writers of Utopia make their point by reducing pivotal players in the policy formation process to idiots. (They) are straw men, delivering obviously untenable arguments, which guide the viewer to think no one in government knows what they are talking about. It’s a lazy critique, but the writers get away with it because the viewers are entirely sympathetic. Lampooning “those clowns in Canberra” is hardly a controversial undertaking’. If only that sniffy assessment were accurate. (more…)
From time to time our newspapers pen articles about road reform. They raise the need for spending to be more efficient and less guided by the electoral pork-barrel and for more value to be visible to motorists. The call for efficiency is particularly understandable as tax revenue become scarcer: the Westconnex motorway project in Sydney would almost fund the latest Gonski education reform package. Westconnex would also fund almost half of Australia’s latest submarines purchase[i]. (more…)
As news broke recently that the Sydney Metro project would necessitate the closure of Sydney’s Bankstown rail line for a few months each year until well into next decade, the latest State Transport minister urged everyone to ‘look at the bigger picture’. (more…)
Attention to Stockholm’s congestion charging system should be seriously studied in Australian cities. … In roads, we have a pricing crisis rather than an infrastructure crisis. (more…)
Both the Grattan Institute [i] and Ross Gittins [ii] have lauded Minister for Urban Infrastructure Paul Fletcher for his hard talk on road reform. Gittins compared him to Paul Keating.
Fletcher is setting out with a reformer’s zeal. Like Keating, he shows a willingness to level with the public about big problems and the costs of inaction.
It would be a pity if poor advice sees Fletcher telling us about the wrong problem. If he is to approach comparison with Keating, he must be alert to policy furphies. (more…)
The Senate must be permitted to help avoid major infrastructure debacles.
Many recent posts in Pearls and Irritations have focussed on democratic renewal. Some have decried a lack of trust and competence in our political class. At the same time our retiring Reserve Bank governor advises government should spend more on productive infrastructure.
Given that the Australian Senate looks harder and harder to deal with for any government and public faith in major infrastructure projects is at a low ebb, how do we proceed? (more…)
Earlier this month the Grattan Institute made its first major report into transport, producing Roads to Riches: better transport spending[i].
The 70-page report is replete with interesting-enough statistics, but it misses the mark on the major problems and where solutions might most reliably be found. Its core conclusions could perpetuate expensive mistakes (more of that in a moment).
The Grattan is one of our brightest and most respected think-tanks; its CEO is talented and speaks truth to power. So if even Grattan can miss the mark in transport, it bodes ill indeed for the national debate. Transport matters: at current spending levels, just two years of national road funds would pay for Australia’s entire $50 billion dollar submarine program. A 15% per cent efficiency gain in road spending would yield almost $4 billion to almost meet the Gonski education funding reform shortfalls.
Grattan’s report points out transport spending reached astronomical proportions even before former PM Abbott’s ‘I want to be remembered as a road builder’ speech. Grattan is also right to conclude that too many such projects have been wastes of money (some appalling examples are cited) But the report then walks into a dead-end by looking for solutions in new and improved bureaucratic and parliamentary process -such as more project cost-benefit analysis – as the saviour.
More rigorous project selection and stronger powers to compel politicians to be transparent about choices will, it is argued, create superior outcomes. Fine, but a particularly big failing of cost-benefit in transport is that when applied to travel savings, the methodology does not distinguish between leisure time savings and more assuredly economic benefits, like getting to work quicker. The former doesn’t deliver a healthier economy. Witness the recent Pacific Highway upgrades which cost billions: the vaunted travel time savings which underpin much of the project’s positive benefit-cost case appear made up in part of the fact that people can simply get to their central coast fishing spot from Western Sydney quicker than previously.
Or was the Pacific all about safety dividends? If so, why is the Grafton leg – the site of the most horrific bus crash in Australian history – still not fully upgraded? This business case was scrutinised and approved by Infrastructure Australia. So much for paper.
Will more transparency make it much better? The irrational political power of big and sexy transport projects should not be underestimated – even when the facts are in plain sight: last year Victoria’s government published the full East-West Link business case revealing that the multi-billion dollar road would return only 45 cents in the dollar, yet many Victorians still swear the project should have been built. More paperwork doesn’t prevent such waste – common sense and an experienced grasp of practical transport operations does. Transport agencies appear increasingly denuded of this talent: how else to explain a project like North-West Rail in Sydney, which appears to break a cardinal rule of rail building: whatever new piece you add, make certain it is fully interoperable with the existing network. Billions of dollars can depend on simple, informed choices at early stages in a project.
Beyond this, what are the really big problems and solutions confronting transport? First and foremost, the lack of pricing reform. Unlike all the other economic utilities, transport continues to resist it. But without seeing prices, users can’t influence a more rational pattern of infrastructure provision and we must all instead place our faith in bureaucratic paperwork and process to deliver ‘value’. Where is the evidence that road pricing works? Look at every failed or under-performing commercial toll road project over the last 15 years[ii]. Australian motorists will soon tell you their view on which roads they don’t want – they do it by not using them and avoiding their tolls. Prices are already proving they can shape the network.
Grattan argues transport assets are mostly planned and funded by governments because they represent a public good – a market failure. This view is overstated. The advent of cheap GPS tracking and the explosion of deft smartphone apps mean that major roads are now ‘excludable at point of use’: in theory, we can indeed give people a say in what roads they want at a given price, so that they don’t have to pay if they don’t want to use.
If you spice this with the prospect of large fuel tax and registration rebates being paid back to motorists who enter commercial road arrangements on, for instance, major highways (so they aren’t paying twice for the road), debate might start to turn in favour of the hip pocket.
The national rail network is equally a government asset with no market failure in sight. The United States reformed its hidebound government rail nearly 40 years ago. It has gone from strength to strength since that decision[iii].
The Grattan mentions it will turn attention to pricing in a subsequent report. But pricing is the main game. Pricing will not work for every road in Australia. Nor does it need to. The policy priority should be to implement pricing reforms to staunch the biggest and most wasteful politicised road spends first. This means major highways and motorways, and this appears to be in prospect, given some smart and patient effort.
The elephant in the room is the role of the Commonwealth – specifically, whether it’s useful, or even constitutionally legitimate. Grattan’s report rightly points out that the Commonwealth plays a significant role in transport. Since Whitlam, Canberra has assumed all planning and funding responsibility for the major highways and other ‘nationally-significant’ infrastructure, but it has left the building and maintenance (and most of the opprobrium) to the States, in a textbook case of fracture between control and accountability. We see the results regardless of which party is in power – Canberra lecturing States over what transport project must be built with ‘Federal’ money. This practice only dilutes accountability to voters and scares potential market investors away.
Under current arrangements, transport is one of the biggest and least certain commitments of Australian tax revenue. But there is hope to do better. One first step would see the Prime Minister commit to placing transport squarely on the agendum for Federation reform. It has been left off it to date.
A final matter: in Williams v Commonwealth and Williams v Commonwealth 2 (the National School Chaplaincy cases), Australia’s High Court held that Commonwealth payments to State schools were invalid, in that they were beyond the authority of the Commonwealth to make. This has potential ramifications for many of Canberra’s payments to States, including roads and possibly some other transport projects[iv].
Williams therefore signals not only the possibility of reform but perhaps the need for it. Williams might also hint to students of Commonwealth governments past that when it has most displayed leadership, Canberra has not been about spending money and shaming and lecturing the States: at its best, it assists the sovereign members of the Australian Federation to reform into something better.
Luke Fraser is the founder and principal of a transport policy and investment advisory. In 2012 he was appointed to the board of the Prime Minister and Premiers Road Reform Project. Prior to this he was a national freight industry chief executive. Most recently he oversaw a new approach to heavy vehicle pricing and fuel rebates for the South Australian transport minister – a reform project which is partnered by the Commonwealth government. The views expressed here are his own.
[i] http://grattan.edu.au/report/roads-to-riches/
[ii] Better still, consult the excellent chart in Dr Robert Bain’s analysis of same: http://www.robbain.com/Toll%20Roads.pdf
[iii] https://publish.pearlsandirritations.com/blog/?p=4475
[iv]http://www.claytonutz.com/publications/news/201406/20/after_the_school_chaplains_case_where_to_now_for_commonwealth_funded_programs.page
Australia’s Treasurer Scott Morrison has signalled his reform priority:
“I’m interested in talking to people who have ideas how we can get spending under control. We have a spending problem, not a revenue problem.”
There is plenty of money to be saved in roads. They cost Australians over $30 billion annually, but what does Australia see from all this spending? When major projects are independently assessed at all – which is infrequently – they often expose themselves as commercial and economic duds. As Dr Michael Keating and I explained in an earlier collaboration, this approach doesn’t add to national productivity – it creates conditions where it can drain away[i].
It is too much to expect transport and infrastructure ministers to worry about this. They tend to see their brief as building things: shovels in the ground and memorial plaques bring their own reward. As Treasurer, Morrison is held to a higher standard: he is the one who must shoulder much criticism when national economic growth and productivity slumps. It is in his interest to implement structural spending improvements in the roads portfolio, where others will not.
Doing so would save billions annually and drive renewed productivity in the sector.
The Australian government recently accepted the Harper competition review recommendations for roads. The prescription was for cost-reflective pricing and an end to levying vast, lazy fuel taxes and high vehicle registration charges.
Before Morrison implements this prospective but very complex work, he can make two important changes immediately to create a more fiscally-responsible and productive sector.
Morrison is the one doing the spending, so he should demand transparent business cases from major commercial road proposals seeking Commonwealth funds, to provide confidence that these projects represent responsible outlays of taxpayer gold. Economic benefit-cost ratios (BCRs) in the region of 1.5:1, for example, represent a perfectly fair basis for government to proceed upon – but only if that ratio is deemed solid.
The only way to vouch for a BCR’s solidity is to subject all business case assumptions to objective scrutiny. To date, this has been almost impossible. A standard tactic of transport project proponents seeking taxpayer funding has been to ‘redact’ their business case – make it highly confidential – such that often governments, much less the public, cannot satisfactorily see and test the assumptions that shape the headline BCR. Proponents secure redactions by claiming their business case contains sensitive and valuable intellectual property. This claim is usually highly overstated if not completely unfounded, but governments desperate to announce icon projects tend to acquiesce.
It is next to impossible to determine from a redacted business case what assumptions were brought to bear in developing a final BCR for the project. Most important are the revenue assumptions, where Morrison stands to waste the most taxpayer cash and bleed out economic productivity. After all, even for projects that are supposedly privately financed, the track record is that the government guarantees the risks, and the taxpayer is left holding the debt if the project fails.
Let us look to track records: commercial Australian tollways have tended to overstate revenue, making BCRs appear better propositions than they become in practice. Below is an independent expert analysis of Australian toll roads: the top horizontal line (1.00) represents the traffic forecasts that the proponents presumably employed to arrive at their project BCRs. The coloured lines show the forlorn actual tollway traffic levels across time:[ii]
Morrison would be buying a big fight by recommending that full project business case assumptions be published. Lobbyists might declare it will put the major project investment pipeline at risk. But only dud projects would truly have cause for concern: if the project has some merit anyway, Morrison would in effect be clearing out expensive undergrowth to let the better-conceived projects thrive. The market would soon adapt for the better.
If sounder projects delivered a nominal ten percent efficiency gain across the roads budget, this would save over $3 billion annually and add very reliably to productivity yield from this infrastructure class.
Future savings need not stop at $3 billion. Sydney’s Westconnex had an initial $10 billion budget which grew to over $14 billion and is supposedly now nearer $17 billion[iii]. Westconnex stated a BCR of 1.8:1[iv], which has presumably now dropped to only a very marginal 1.1:1, assuming that nothing else has changed except for the blow-out in costs. Unfortunately, however the assumptions have never been made public and in addition the appetite for tolls upon tolls has recently come under serious question[v]. How would this project have fared if subject to full business case transparency?
2. Incentivise a market for better road proposals
Morrison can shape a genuine market for those projects which do indeed display very productive BCRs, but which to date struggle to attract much market or budgetary attention.
He could instigate a ‘priority funding’ category for projects which displayed higher economic benefit-cost ratios (say, 4:1 and above). Any project which could demonstrate robust assumptions at this hurdle rate should be afforded immediate access to limited taxpayer funding.
Such projects exist. There are fine minds in the engineering and traffic planning sectors capable of produce extremely innovative and practical solutions:
Elsewhere, thousands of modest rural, regional and suburban road projects can prove enormously productive in BCR terms. In 2011 the author identified a business case for Infrastructure Australia to improve several hundred yards of road at Chullora in Sydney which cut off a national trucking route from Australia’s largest rail freight terminal: the overlooked problem was costing millions in additional freight costs every year – fixing it required less than a one-off cost of half a million dollars [ix]. Many such projects could be bundled together to form large, inherently productive and even commercial portfolios.
Why don’t these projects win out for funding already? It’s because they are rarely advanced. Usually they aren’t the largest or most profitable to build – Managed Motorways projects are in the low hundreds of millions, not billions. So long as billions flow without molestation to dubious mega projects, there will be little market self-interest in outlaying the considerable time, cost and effort to identify and bundle small but high-yielding projects together.
Bestowing priority funding status for high BCR projects would change this dynamic overnight and produce maximum bang for minimum bucks.
Very few politicians appear willing to stand up to the major road project builders and their lobby cheerleaders to demand more productive solutions. Will this change? Prime Minister Turnbull has called for boldness and innovation. His Treasurer can facilitate this in roads with the stroke of a pen. If not, more and more of the $30 billion roads budget will be consumed by low-rent civil engineering free-for-alls.
Taking bold but sound steps in roads can save billions. It will increase national productivity, rather than piss it up against the wall.
Luke Fraser is founder and principal of Juturna, a public policy firm specialised in road and rail and infrastructure investment reform. With Dr Michael Keating AC he co-authored the infrastructure contribution to the recently-launched Fairness, Opportunity and Security essay collection (ATF press). He is also a former national trucking industry CEO who in 2012 was appointed to the COAG Road Reform Board. He was for a time a chief of staff in the Howard government.
Notes
[i] See https://publish.pearlsandirritations.com/blog/?p=3834 published in May and reproduced in the book Fairness, Opportunity and Security ATF Press (2015)
[ii] http://www.robbain.com/Toll%20Roads.pdf site accessed 20 November 2015
[iii] http://www.smh.com.au/nsw/westconnex-motorway-cost-blows-out-by-14-billion-20151119-gl3isl.html site accessed 20 November 2015
[iv] http://infrastructureaustralia.gov.au/projects/files/NSW-WestConnex.pdf site accessed 20 November 2015.
[v] http://www.smh.com.au/nsw/sydney-motorists-unwilling-to-pay-for-more-toll-roads-study-20151110-gkv5b3.html accessed 25 November 2015
[vi] http://infrastructureaustralia.gov.au/projects/files/Qld-Gateway-Motorway-Upgrade-North.pdf site accessed 20 November 2015
[vii] http://infrastructureaustralia.gov.au/projects/files/SA_Northern_Connector_Brief.pdf site accessed 21 November 2015
[viii]http://infrastructureaustralia.gov.au/projects/files/VIC_Brief_National_Managed_Motorways_Program_VicProjects_2012.pdf site accessed 19 November 2015
[ix] http://infrastructureaustralia.gov.au/policy-publications/publications/files/Competition_Reform_of_the_Road_Sector.pdf p. 19 site accessed 23 November 2015
Australia’s new Prime Minister demands boldness and innovative action. Amen. To date road and rail reform has proven too dry and monolithic for most Prime Ministers. But failure to act is now accruing several billion dollars in road debt annually. Transport consumes over $30 billion of taxpayer treasure annually. Boldness and innovation here can bankroll many other solutions across Australia’s economy.
Recently I juxtaposed the continued failure of Australian rail with the US experience, where Jimmy Carter’s bold market reforms have seen $AUD 800 billion of market money invested in rail since 1980. But what are the solutions for Australia?
I propose five matters which promise to not only solve our core rail freight issues, but which will also bring responsible and productive reform – indeed, tax reform – to our road sector:
Inland Rail is a $10 billion dollar project conceived by the transport bureaucracy to link Australia’s east coast freight task. Good in theory, but execution falls flat: several hundred pages of government business case fail to present a plausible commercial prospect to investors at even the thinnest rates of return. Even at a lower government investment rate, Inland Rail only shows an economic benefit cost ratio of 2.6:1 – and a great deal needs to go right to make even that ratio realistic[i]. Spending taxpayer treasure to build this would be lunacy. Inland Rail only works in the context of pricing reforms for east coast highway trucking.
Is our economy big enough for a fully commercial east-coast freight railway? Probably. But for now over 85 per cent of Australia’s east coast interstate freight runs on trucks[ii], because they offer a more efficient service than rail can provide. This is primarily due to the antiquated way trucks are charged and the overwhelming historical expenditure bias towards highways. No other modern large economy is so truck-dependent for long haul.
While highway trucks pay steep fuel tax and registration charges for their contribution to road damage, the devil lurks in the detail of this charging system: it is an entirely averaged charge across all trucks and roads nationwide. In other words, charges don’t reflect the true costs of maintaining the major east coast highways which out-compete rail: a semi-trailer pays the same taxes and charges, whether it is hauling interstate freight on the Pacific Highway or delivering to a farm on a dirt road in the outback. Not all roads need to attract a direct charge, but the major highways which compete directly with railways should be so charged (initially the charge might not even need to be actually levied, but rail investors at least need to see what it might look like).
To put this in context, average road charging of trucks on the major rail-competitive highways would be like our electricity providers charging a flat connection fee for suburban homes and large factories alike: the quantum of fees raised might be right, but home-owners rightly would be furious at having to cross-subsidise the business sector.
In some cases, developing direct prices on the intercapitals might make some road freight routes even cheaper. So be it: rail and road investors and their financiers simply need certainty and transparency around pricing before anyone will open their chequebook on any projects. This step would bring competition reform to roads in a controlled and useful way, one designed explicitly to minimise unintended consequences.
The government signalled the sale of Australia’s national railway (the Australian Rail Track Corporation – ARTC) in its 2015 budget. This is the right outcome: Experienced market proponents are the only people to run commercial rail. As in the United States, the new owners should be relieved of all commercially-crippling passenger train responsibilities.
But if a ‘quick and dirty’ asset recycling of ARTC occurs without first establishing the fair direct price trucking should be paying for use of competitor highways to the railway, the new owner of Australia’s railways will be buying a pig in a poke.
Tasmania and Victoria allowed this to happen to their grain branch lines around 15 years ago – railways were sold, the new commercial owner found them mostly non-commercial against trucking and promptly began ‘asset stripping’ to make what was left viable. this resulted in the Crown buying back railways at a cost of hundreds of millions of dollars and great embarrassment. Western Australia and its grain growers are living through precisely the same stuff-up today. To allow this to happen to Australia’s national mainline network would be not far short of economic vandalism. An ARTC sale could consider appropriate enforceable obligations, such as allowing connected rural branch railways to be run profitably by farmer cooperatives to the mainline, as often occurs successfully across North America. But the vendor should not be too prescriptive about what stays, what goes and what new railways get built.
Inter-capital highways are the only parts of the road network competing directly with national rail for freight custom. Highways are also one of the biggest spending pressures on our spiralling, debt-laden roads budget. They should be the first subject for innovative and responsible road reform.
Since Whitlam, most ‘national’ highways have been the sole funding responsibility of the Commonwealth, yet for over 40 years Canberra has taken no responsibility whatsoever for their delivery. This disconnect encourages Federal transport ministers to throw vast taxpayer dollars at highway ribbon-cutting and then blame the states for failure to deliver when anybody criticises highways. The States should stop being made the whipping boy here and call Canberra’s bluff in an important reform to Federation: hand full responsibility for all national highways to the Commonwealth – make Canberra directly responsible to the voter for the outcomes of profligate, politicised and erratic highway spending patterns.
It would be logical for Canberra as sole owner and financier of a national highways network to examine more productive commercial operation of these highways, with trucks paying a fair and transparent direct charge in return for pro rata fuel tax and registration rebates: in short, productive fuel tax reform.
Throughout Europe, professional road services companies have managed highways very effectively for decades, providing good service levels far more efficiently than bureaucracies with their large fuel taxes and inflationary construction costs. Bringing pricing and spending disciplines to the expensive highways might even reduce the cost of truck charges overall because the quantum of non-commercial road spending would be reduced significantly.
The alternative to bold and innovative future with a competition reform pedigree is more mindless, politicised highway spending, more State and Commonwealth transport blame games, billions in new government debt accrued each year, no national rail sector of any substance and little if any productive market investment in either rail or highways.
That is not a future that squares with our new Prime Minister’s narrative.
Luke Fraser is founder and principal of Juturna, a public policy consultancy specialised in road and rail freight and market investment reforms. He is a former national trucking industry CEO and has authored several reform studies for Infrastructure Australia. In 2012 he was appointed to the COAG Road Reform Board. He was for a time a chief of staff in the Howard government.
[i] Remarkably, the Inland Rail business case appears to overlook specific new motorway infrastructure in northern Sydney – Northconnex – which is likely to reduce interstate road freight travel times significantly on the run through Sydney. This might render Inland Rail’s stated improved delivery times thoroughly uncompetitive.
[ii] Bureau of Infrastructure Transport and Regional Economics Interstate Freight in Australia Research Report 120 (2010)
Infrastructure Australia (IA) has truly become something to conjure with; it has even spawned a comedy series. Where is it headed? Last week Federal Opposition Leader Bill Shorten outlined Labor’s vision. This involved:
The problem here lies in promoting more investment in infrastructure along the same lines as today.
Lack of infrastructure spending is the least of Australia’s problems.
Michael Keating and I demonstrated in an article ‘Infrastructure: Improvement or Impoverishment?‘ the Fairness, Opportunity and Security series just how vast infrastructure spending has become in less than a decade: between when Kevin Rudd assumed power in 2007 and relinquished it in 2013, public capital formation – mostly infrastructure investment – rose by over a third. Capital formation in transport, postal and warehousing grew by almost 50 per cent; net capital stock grew by an almost incredible 39 per cent. If spending is your goal, then as Harold Macmillan said, stop complaining – you’ve never had it so good.
The real problem is what we spend the money on and at what cost.
In roads, Australia spends over thirty billion dollars each year without recourse to independently verified business cases for most large projects. Few appear economic, even fewer bankable. Some are community service obligations and probably justified on this basis. Other very clearly are not: they are simply enormous wastes of money. Non-bankable projects pose a problem for Shorten’s hopes to unlock trillions in superannuation finance. East-West Link was an $8 billion dollar project with a business case delivering as little as 45 cents in the dollar, yet it was supported at the very highest levels of Victorian and Commonwealth transport bureaucracies and treasuries. Shorten’s reforms are silent on this sort of incompetence, but it is the main game. There have been plenty of similar duds promoted under Labor state governments. Both sides of politics are caught in a ridiculous system: political will for infrastructure is all-consuming, but the appetite for clear-sighted microeconomic reforms which nurture more productive investments is absent.
What is this costing? Modern road spending above available fuel tax and vehicle registration revenue saw roads generate multi-billion dollar new government debt in each year from 2007 onwards. The last reported figures (2012-13) work out to over $26 billion; today’s real figure is probably more like $38 billion. This is a worthy challenge for a new Commonwealth Treasurer keen on arresting wasteful spending.
IA’s assertion that all this spending is about busting congestion is based heavily on long-discredited data around urban car use: actual growth in capital city car use from 2007 to 2014 has been overstated by factors of between around six and eight for all state capitals. In Adelaide, 2014 government figures show car growth actually dropped over those years in net terms, rather than grew[i]. Yet the 2007 forecasts continue to be quoted.
Australia can do better.
IA should list all projects it has rejected and publish the detailed reasons for rejection. This would inform better policy making. Conversely, it would be cause for concern if IA hadn’t rejected any projects lately: it should be either helping projects towards productive inception or showing them the door.
An ambitious government should support IA to walk and chew gum at the same time: to get its head above projects and call out the structural reforms that – if pursued – could attract large, bankable new investments. IA has developed a reputation for too carefully picking and choosing its fights on this higher plane. It was entirely silent on the National Broadband Network. Since 2013 it has maintained silence on government road debt. It offers little on some other highly-prospective areas for investor upside.
Take irrigation: there have been no IA calls to roll back the flawed Murray-Darling Basin Plan, corporatize the delivery of water in the basin, rein in the over-allocation of water licenses and establish the necessary structural adjustments for those affected. This is a sector crying out for plain speaking: superannuation funds and banks should have reforms explained to them in longhand that if pursued could unlock productive, multi-billion dollar investments in irrigation infrastructure. Farming should be engaged on how irrigation reform can present Asian markets with a far greater Australian farm value proposition than it does today.
In contrast, IA’s limp 2015 Infrastructure Audit offered only a line on page 127 of a report few will ever read, saying ‘more market reform in rural water is warranted’. No data quantifying how flawed the sector is to shame to action. No sketch of bankable deal structures that might be on offer to commercial investors if Australia reformed rural water. In short: not serious.
To be fair to Mr Shorten it is hard to capture public attention with a vague call to put steel and leadership into Infrastructure Australia, yet these are the qualities most lacking. The new PM’s call to boldness should be heeded: IA should call a spade a spade on the wasteful, unreformed and unimaginative infrastructure sectors which hold Australia back. If those in charge can’t or don’t want to do so, they should hand in their badges. Government too should be bold enough to demand better solutions from its infrastructure tsar.
Solutions are there for the asking. Investors are waiting.
A forthcoming post offers some possible reform solutions and deal structures for the road and rail sectors – a follow up to an earlier piece on rail.
Luke Fraser is founder and principal of Juturna, a public policy consultancy specialised in roads, freight and market investment reforms. He is a former national trucking industry CEO and has authored several reform studies for Infrastructure Australia. In 2012 he was appointed to the COAG Road Reform Board. He was for a time a chief of staff in the Howard government.
[i] Sources: Bureau of Transport and Regional Economics, Estimating urban traffic and congestion cost trends for Australian cities Working Paper No 71 www.bitre.gov.au/publications/2007/wp_071.aspx;
Bureau of Infrastructure, Transport and Regional Economics, Australian infrastructure statistics yearbook 2014, December 2014
On Father’s day, anybody around the world lucky enough to have been woken by a happy young son (as I was) would have been hard-put not to have paused and thought of the image of the young Ardyl Kurdi, washed up lifeless on a beach.
Millions are again on the roads of Europe, running away, looking for safety and stability. Perhaps these are ‘the best of times and the worst of times’ that Dickens wrote of: The worst explains itself in Ardyl Kurdi. Perhaps we see the best in Angela Merkel and a relatively prosperous Germany planning to accommodate 800 thousand Syrian migrants. This will no doubt be resisted by many in that democracy, understandably: it comes with enormous risks. But perhaps Merkel’s pact recognises that Germany – the country of the Berlin airlift and a Marshall Plan beneficiary – still owes some debt of gratitude. If so, it is proposing to pay that debt out in spades. And in doing so it shames many of its neighbours, including countries whose own peoples were on the road not so long ago.
In Australia things are moving rapidly as politicians grasp at what the public might want and their own ideologies might cope with.
We have been here before. In 1999 I was a Defence infrastructure public servant charged with selling the surplus Brighton Camp Army Barracks outside Hobart. There were plans for a housing subdivision. Then the decision to grant safe haven to several thousand Kosovans came: the sale of the camp was suspended and work began preparing the camp for its new inhabitants.
During that process I was a minor cog in a big machine, but I recall the tone set informally from on high: “we aren’t using the term refugee”. “They won’t be staying”. “They won’t be encouraged near the community, or anywhere where the ‘immigration industry’ can get to them”. None of this was official, but the sense of it permeated the exercise.
Many Tasmanians overcame this callousness through their own acts of welcome and support for the Kosovans.
The first question for Australia to ask is what to do. John Menadue has proposed an intake of ten thousand. Presumably the UNHCR is equipped to establish bona fides at source and genuine refugees will be flown out. Just as in 1999, there are facilities around the country that could do a job. These are mechanical things.
The bigger question is how we choose to treat these people once they come.
Do we treat the arrivals in the way that the Human Rights Commission has witnessed boat people treated in our offshore detention centres? Do we take all candy off the table? This appears to have been the subtle tone of the Kosovar exercise. That tone has lost all subtlety since and has become macabre. Will our Syrian refugees be given a Manus welcome for the sake of consistency? Or will we allow real people in real Australian communities the opportunity, organically, to show our better side and work with these people to help them along? This is the approach of some Scandinavian countries. Social media helps it along.
Australian communities never fail to make an effort for neighbours when houses are flooded or burnt down. They don’t wait for a form to be filled out, or to be coerced to assist. We celebrate that quality. We don’t lock flood and bushfire survivors up until new housing can be found for them.
New South Wales Premier Mike Baird has shown moral leadership by stating publicly that humanitarianism towards Syrian refugees must begin now.
Once the question of the size of intake and where they are housed is settled – as it surely will be soon by the Commonwealth – will we acquiesce to those political leaders who would be happy to parcel off the inmates in a flat-pack solution? It is passing ironic that we Australians pride ourselves on being laid back and friendly, but increasingly we deputise politicians and bureaucracy to shut out such elements from our lives.
Presumably smart people will eventually work out a longer-term solution for preserving something of a Syrian diaspora of scale that might one day return to revitalise that country. But for now, our immediate moral challenge seems to be allowing the Syrian intake to co-exist with us in a way that reflects our best selves.
Our laid-back selves. Not our Manus selves.
Luke Fraser is an infrastructure policy and investment specialist who contributes occasionally for Pearls and Irritations.
RAIL: FEWER SPENDING CHEERLEADERS, MORE JIMMY CARTER.
In June the Australian Financial Review hosted an Infrastructure Summit of the great and good in Sydney. It heard about the need for much more infrastructure: Australia was ‘well behind’ other countries in such matters. Nobody dwelt on the possibility that in transport at least, Australia might suffer from a tired and patchy regulatory inheritance and an extremely lazy generation of regulatory policy makers.
Thankfully, at least one new project is complete: an Inland Rail. New freight ‘inland ports’ are in place along its 4,000 kilometre length. It out-competes trucks for speed and cost of delivery. In its first decade of operation, it’s expected to drag down freight prices, save almost $6 billion in congestion costs, remove 13 million long-haul trucks from the road, save over 8 billion litres of diesel fuel and reduce carbon emissions by 71 million tonnes. It’s a simple public-private partnership: the operator finances commercial aspects; government chips in based on estimated economic benefits.
The only problem for our infrastructure cheerleaders is this project happened in the United States, not Australia: it’s the $AUD 3.4 billion dollar ‘Crescent Corridor’ – linking Louisiana with New Jersey[i].
It could happen there because US rail is on a market footing. It wasn’t always so. Until 1980, perverse regulations hampered US rail. Here is what President Jimmy Carter said then, when signing into law the Staggers Act of rail reform:
‘By stripping away needless and costly regulation in favor of marketplace forces wherever possible, this act will help assure a strong and healthy future for our Nation’s railroads and the men and women who work for them.
Carter’s efforts didn’t deregulate rail – it remains thoroughly regulated to this day. His administration’s genius lay in recognising and rewarding commercial rail motivations in a cleaner regulatory framework. Amongst other things, Staggers saw loss-making passenger train obligations removed from US freight rail companies. Freight railways were free to decide where to build new productive rail and where to abandon costly ‘basket cases’. Owners were allowed to sell failing rural rail branches to niche operators who could do a better job. After considerable turbulence, all of these measures succeeded. US rail’s share of long-distance interstate transport now stands at around 40 per cent – on Australia’s east coast it is just over 10. Many smaller regional branch lines work efficiently to support the big ‘Class-1’ railways – in Australia these branch lines languish, museum pieces propped up by taxpayers. Since 1980 US rail has made a stunning $AUD 800 billion of new investment into itself. This underlines what happens when regulations encourage the animal economy:
US Freight Railroad Performance Pre and Post-Staggers Act Reforms
https://www.aar.org/Pages/US-Freight-Rail-Performance-Since-Staggers-Act.aspx
Source: Association of American Railroads
Back in Oz, a government-owned entity – Australian Rail Track Corporation (ARTC) still owns the interstate rail system and mostly decides what will be spent, when and where. It preserves an historic network, whether it makes money or not. ARTC in turn relies on meagre taxpayer funding from the transport department: excepting the Keating years, this agency has eschewed serious rail investment in favour of roads: 2014’s 5-year budget saw over $46 billion dollars going to more national highways, city motorways and tollways, while less than a billion flowed to interstate rail.[ii] One of the constants of US rail regulation has been that all railways must be interoperable – a common gauge of track and trains. This promotes scale, competition, flexibility and cheaper prices; 114 years after Federation, Queensland is not yet even on the national standard gauge of rail.
This year the Commonwealth flagged the sale of ARTC. Tellingly, it didn’t prefigure an effort to review the sector’s regulations or provide a stable, market-led road and rail investment environment. What is in prospect is undoubtedly just a rude carve-up: hire a bunch of merchant bank advisors to auction-off government rail assets, then bank the sale price. This is both primitive and highly irresponsible: it will lead variously to rent-seeking and stranded assets if no thought is given to how the newly-privatised market should be structured for maximum long-run national efficiency. In reform terms, it’s the very shallowest part of the pool. Some call it ‘asset recycling’.
Meanwhile, Australia’s own Inland Rail project – a line between Brisbane and Melbourne, west of the Dividing Range – is more Eeyore than Tigger: it languishes unbuilt, a feeding frenzy for consultants and a superannuation plan for administering public servants, who at last count have been voted around $400 million dollars by the Commonwealth. Funds are not earmarked for actually building an operational railway, but mostly just for producing designs, route analysis and ‘preparatory works’ – in the belief that if something is begun, a white knight will surely arrive to finish and operate it. But this project is never likely to become efficient: the regulatory settings are non-commercial, so global commercial rail leaders rightly don’t take it seriously.
For now, such criticisms and alternatives remain academic. Instead of embracing productive reform lessons from elsewhere, our transport bureaucracy’s boilerplate response is to acknowledge any challenge, establish a grand new committee and ask for more money. But what if the agency itself was the problem? Removing the dead hand of agencies on freight solutions and forcing indolent transport regulators to make improvements in the spirit of Carter[iii] should be imperatives for Australia.
The next summit would benefit from locking out the infrastructure cheerleaders – those unfazed by seeing taxpayers blow yet more billions on dumb projects (to be fair, it’s easier to remain unfazed when your company might be landing the contracts). An alternative would be an adult discussion about how we improve on the specific regulatory settings which are retarding a brighter future for Australian transport consumers and patient capital investors alike.
A future post will address desired Australian land freight reform in more detail: it will attempt to sketch out more productive regulatory settings, funding arrangements, matters of financial and economic viability and their implications for pricing as well as the important matter of a better approach to road pricing for the trucks which (mostly) outcompete Australian rail freight.
Luke Fraser and former Secretary of the Department of Prime Minister and Cabinet Michael Keating AC recently co-authored the transport and infrastructure paper in John Menadue’s Fairness, Opportunity and Security series.
Luke Fraser is founder and principal of Juturna, a public policy consultancy specialised in roads, freight and market investment reforms. He is a former national trucking industry CEO and has authored several reform studies for Infrastructure Australia. He was a member of the 2008 review of NSW grain railways and in 2012 he was appointed to the COAG Road Reform Board.
[i] See http://www.nscorp.com/content/nscorp/en/shipping-options/corridors/crescent-corridor.html or a promotional video at https://www.youtube.com/watch?v=M1m_8jRlIwY
[ii] The National Land Transport Funding Agreement 2014-2019 refers.
[iii] Carter’s 1980 rail reforms were complemented by sweeping market reform of the aviation and trucking sectors (1978 and 1980 respectively).
Infrastructure Australia’s Infrastructure Audit was released to the press in May this year. It circulated quickly across the nation’s media houses. They all parroted Hanrahan: ‘we’ll all be rooned’ if we don’t resign ourselves to a big, new wave of investments.