Infrastructure policy lost touch with economic reality

That means that governments are now being forced to cut back on infrastructure that is supposed to help reverse the slump in the economy’s supply-side productivity. Yet, just as it was hard to find shovel-ready projects during the global financial crisis, it won’t be easy to dial down an infrastructure boom that has not been put through sufficient scrutiny in the first place, including by previous federal Coalition governments.

Before the era of privatisation and financial deregulation, the federal government sought to discipline state government capital works borrowings through the Loan Council. In the modern era, governments were supposed to be disciplined by credit rating agencies and by rigorous scrutiny of projects to ensure they stacked up on cost-benefit grounds. Anthony Albanese’s innovation of Infrastructure Australia under the Rudd Labor government was a genuine advance in principle.

Election promises

In practice, Infrastructure Australia was largely sidelined under successive Coalition governments and ignored by federal and state governments by a simple expedient. Federal and state governments, both Labor and Coalition, simply announced projects before elections that then had to be implemented, regardless of merit, as an election promise.

The result, as Infrastructure Australia’s chief executive Adam Copp told day one of The Australian Financial Infrastructure Summit on Monday, is that there isn’t enough money or workers to deliver the announced pipeline of works over the next decade.

Federal Infrastructure Minister Catherine King will on Tuesday release an infrastructure policy statement that is designed to guide the government’s response to its review of 700 infrastructure projects estimated to have blown out in cost by $33 billion.

The task of winding back this pipeline to merely the original 10-year budget of $120 billion will include a focus on “nationally significant” projects. Such projects would require no less than a $250 million federal contribution, and would require the states to fund at least half of each one. But this on its own is unlikely to prevent the winding back of the national infrastructure blowout from degenerating into a political squabble between the Albanese government and the Labor states.

The question is whether Labor will choose just to target Coalition pet projects such as former Nationals leader Barnaby Joyce’s Brisbane to Melbourne inland rail project, while ignoring the Victorian Labor government’s Melbourne Suburban Rail Loop project. The lame justification that Federal Labor is contributing $2 billion towards the Suburban Rail Loop – which has never had a proper cost-benefit test – because it fulfils a 2022 election promise is the same shoddy defence the Coalition proffered for its 2019 election car park rorts boondoggle.