Sir Rod Eddington AO
Sir Rod Eddington AO Australia’s governments must commit to a rational, evidence-based debate about how market creations can play a role in solving the infrastructure stasis, says Sir Rod Eddington AO.
My message today is that without substantial changes, Australia’s governments cannot afford the level of infrastructure investment demanded by both the economy and the community. Victoria and New South Wales have just a few billion dollars left in additional investment opportunities that they can make without constraining their credit ratings. Queensland and South Australia have both been downgraded because the call for public expenditure on recurrent capital items has outstripped the capacity of those states’ budgets, and this story is replicated across the Federation. While the Commonwealth itself retains substantial budget capacities, these would quickly evaporate if the Commonwealth sought to fund the backlog alone, without leveraging investments to drive substantial changes to state finances. The Commonwealth’s capacity is real, but it is by no means adequate. The private sector is the key. To deliver a sustained increase in the level of infrastructure investment, Australian governments must undertake substantial and wide-reaching reforms to fund infrastructure. This includes through increased revenues via targeted taxation, tolling and other user charges; reducing operating expenses to deliver substantial operating surpluses; experimentation and refinement of models to increase private investment; and the recycling of capital by privatising appropriate existing public assets to fund new infrastructure and shifting the investment burden for these assets to private owners. The debate about productivity must mature beyond simple restatements of the problem. We must move further towards a genuine process to examine, debate and resolve the reforms needed to bring forward major transport utility and social
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infrastructure projects that will, in large part, underpin national productivity. In the mid-1980s, Australia’s governments faced similar challenges of inflexibility in their balance sheets, and declining productivity. Policymakers responded with the progression of market-based reforms that underpinned our growth through two decades. The floating of the dollar; the deregulation of the financial sector; the lowering of tariff and trade barriers; National Competition Policies and related, but incomplete, deregulation of infrastructure markets; the progressive liberalisation of labour markets; the reform of taxation and prudential regulation; and the development of the Commonwealth superannuation guarantee all represented part of a continuum of reforms that benefited the wider economy and spurred both innovation and investment across the nation, including in infrastructure. The National Competition Policy (NCP), in particular, seeded bold reforms to create efficient infrastructure markets in areas including freight rail, aviation, telecommunications and the beginnings of a National Electricity Market (NEM). Taken together, these reforms, and others that followed through the 1990s, facilitated Australia’s most sustained period of economic expansion and productivity growth. For instance, the liberalisation of the banking sector in 1985 was a fundamental step forward. It allowed the entry of both foreign capital and global expertise, and saw the development of worldleading innovations, including the public private partnership model. While the impact of China’s, Japan’s and Korea’s appetites for our resources must be acknowledged, two decades of uninterrupted economic growth
Volume 3 Number 2
3/25/13 12:44 PM
