July 18, 2012
New infrastructure does not come from wishful thinking.
YOU get what you pay for. It is a principle people readily accept in their private lives, but all too often, when it comes to things that are publicly shared such as roads, hospitals and railways, they would prefer someone else to pick up the tab.
Tolls are irksome, but so are tax increases. And governments are loath to remind citizens that these are the revenue options - yet continue to insist that they will maintain and extend necessary infrastructure. So they can end up in the bind experienced by the Baillieu government, which came to office vowing to end Melbourne's traffic congestion and overhaul public transport while neither imposing tolls on existing roads nor imperilling the state's AAA credit rating by increasing public debt.
As The Age reported yesterday, the federal government advisory group Infrastructure Australia has issued a timely warning about the consequences of being reluctant to invest in infrastructure. In its report, the group has even questioned whether the AAA rating, hitherto considered untouchable by both sides of politics, really should be considered sacrosanct. If a case can be made that the need to comply with strict borrowing limits to preserve the credit rating is outweighed by the need for new infrastructure, why not sacrifice the rating for a time? It is a question that ought not to be dismissed, and Infrastructure Australia should not attract opprobrium for asking it.
The group is not saying that a government's credit rating does not matter, only that it is not necessarily the indicator of fiscal responsibility that matters most. After all, there are governments in other parts of the world with ratings below AAA that still manage to borrow money, and do so without public debt escalating out of control. And although Australian governments proudly wear their AAA ratings as merit badges at election time, it may be doubted whether voters are ever very impressed. The rating did not help the Brumby government when it succumbed to mounting public anger over the state of Melbourne's rail network: Mr Standard and Mr Poors evidently do not travel on the Frankston line, and they haven't been seen on the Pakenham line, either. Having promised to fix public transport, the Baillieu government should at least consider Infrastructure Australia's warning about AAA obsession if it hopes to avoid its predecessor's fate.
There is an alternative to debt-financed infrastructure spending, and Infrastructure Australia has some advice in that regard that the Baillieu government will probably find unpalatable, too. Not only does it urge the states to build all new major roads as tollways, it proposes that they privatise existing ones. In Victoria, this could mean that the Eastern and West Gate freeways and the Western Ring Road would be sold, providing revenue to help build hospitals - and perhaps even do something about that ailing rail network.
This is a far more radical proposal than the observation that the world would not end if a government temporarily lost its AAA status. It might not seem so, since the state already has toll roads. But a joint venture with a private business to build a road that allows the private venturer to recoup its costs over time is not the same as the sale of a freeway to a private operator.
Australians have grown used to privatisation since the economic deregulation of the 1980s, but it is not clear that citizens would regard the sale of a road that all can use daily and think of as their own in the same way as the sale of a government bank or airline. Governments might be able to persuade people that there is a revenue case for the sale, and drivers should recognise that they can always choose alternative routes. But governments can be sure voters will blame them if the private operator fails to deliver an acceptable service. Infrastructure may be sold, but the obligation to provide it cannot be.
Infrastructure Australia has reminded Australians of both points.