Why so much money is wasted on the wrong infrastructure
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Why so much money is wasted on the wrong infrastructure

It’s the great conundrum of government policy: we have a big shortage of infrastructure, but also waste billions on it.

This seeming contradiction is easily explained: particularly in recent years, and at both state and federal levels, much money is being spent on infrastructure projects.

Trouble is, a lot of the dough’s being spent on flashy or low-priority projects, at the expense of more important but less sexy projects, particularly in the overcrowded outer suburbs.

I suspect we spend more than we should building expressways and too little on public transport – and within the latter, some argue, too much on rail and not enough on busses.

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Why? Well, I’m sure it wouldn’t be because the big heavy engineering companies are better at lobbying politicians than public transport providers.

There aren’t many aspects of government spending – many contributors to debt and deficit – more in need of reform than spending on public infrastructure, or with more scope for making a bigger contribution to national productivity and a smaller contribution to budget pressures.

But you’d never know that from the way our politicians, the business lobby and Treasury obsess about tax reform for decade after decade. We’ve had lots of tax reform over the years, but it’s never been enough to satisfy their appetite.

So why is infrastructure spending so rife with wastefulness? Mainly because it’s one of the few areas of policy left where the pollies themselves have much scope for playing Santa Claus in particular states and even particular electorates, at times of their own choosing. Byelections, for instance.

It’s often too tempting for pollies to pick projects according to the votes their announcement is intended to bring, rather than the extent to which the public benefits they bring exceed their costs.

Last week the boss of Infrastructure Australia, Philip Davies, who leaves the job next month, made his last contribution by unveiling a list of 11 principles governments should follow in making decisions about infrastructure, so as to lift the quality of those decisions.

“Businesses and households across the country rightly want to know that governments are investing limited public funds in infrastructure that will bring strong productivity benefits to the economy, support our quality of life, and help to deliver a collective vision of a strong, fair and prosperous Australia for many years to come,” the document states.

Departing chief executive of Infrastructure Australia Phillip Davies.

Departing chief executive of Infrastructure Australia Phillip Davies.Credit:Anna Kucera

It nominates some respects in which governments’ decisions on infrastructure still leave “room for improvement” – to coin a bureaucratic euphemism.

One is that there should be more transparency – that is, information about the stages of the decision process and the public release of analysis – in making decisions about projects.

This includes reviews on the completion of projects, showing the lessons learnt and application to future investments. Everyone agrees they’re a good idea, but such reviews are rarely done and rarely made public.

Taxpayers pay a high price for the political and public service predilection for never admitting anything they’ve done was less than perfect, for fear of what the opposition and the media would say. Much better to always be up-front about failings, so critics stop getting overexcited but lessons are learnt.

Taxpayers pay a high price for the political and public service predilection for never admitting anything they’ve done was less than perfect

Further room for improvement arises because “projects are often developed without fully considering all available options to solve an identified problem, including potential solutions that make better use of existing infrastructure through technology and data”.

Too true. This happens because pollies love announcing that they’re spending big bucks to build something new and wonderful – then come back five years later to cut the ribbon.

They don’t get as much media attention when they merely upgrade existing infrastructure – and none when they spend money every year ensuring existing assets are well maintained.

And they’d get adverse media attention if they did what the bureaucrats were hinting at with their reference to making better use of existing infrastructure “through technology and data” – charging motorists directly for their measured use of roads and the time of day they made that use.

Yet more “room for improvement” arises because “too often, we see projects being committed to before a business case has been prepared, a full set of options have been considered, and rigorous analysis of a potential project’s benefits and costs has been undertaken”.

Why such travesties of good management? Because spending on what we used to call “capital works” is so closely associated with politicians using the first announcement of projects to win votes at elections. All this expediency and lack of courage is another reason we should be slow to believe politicians promising to fix budget deficits (or pay for tax cuts) by cutting government spending.

Ross Gittins is the Herald’s economics editor.

Ross Gittins is economics editor of the SMH and an economic columnist for The Age. His books include Gittins' Guide to Economics, The Happy Economist and Gittins: A life among budgets, bulldust and bastardry.