Abbott's building bonanza must bridge the gaps

During the election campaign, Kevin Rudd told a people's forum that he was "in the building business".

Tony Abbott countered that he wants to be remembered as the "Infrastructure Prime Minister"."Let's not say I'm Mr Cut cut cut. I want to be Mr Build build build, to create more jobs, jobs, jobs."

The idea was more than just a thought-bubble from Abbott.

The Coalition's real solutions document released in January pledged: "You will see cranes over our cities as we get on with the job of building modern infrastructure."

Sadly, building infrastructure is something politicians often pay lip service too but fail to deliver.

But we can't afford to keep let it slip this time.

With the mining boom ending and a high Aussie dollar keeping pressure on key parts of our economy, we need another string to our economic bow.

The Reserve Bank has already slashed interest rates to record lows to try and breathe some life into the non-mining parts of the economy. But households seem reluctant to take the reins with big spending,

It's time for the government to help do some of the heavy lifting to ensure Australia survives the end of the mining boom without a recession.

Tony Abbott is right: a new wave of public investment in roads and rail would help to fill some of the gap.

Reserve Bank board member John Edwards warned me back in January that continuing Australia's two-decade long run of growth after the mining boom would require building a more diversified economy, based on high-skilled jobs and high-value manufacturing exports.

"Success will take substantial investment in factories, offices and mines, roads, bridges, ports, railways, broadband and, above all, in education and training," he said.

Fellow Reserve Bank board member and a former adviser to the federal government on infrastructure, Heather Ridout, also told me Australian governments had failed to invest enough in key urban roads, railways, bridges and ports.

"Congested roads in major cities are a major sign that we're not doing well enough," she said. "We have under-invested. We just keep putting short-term considerations before the real work of building a productive economy."

But wait — shouldn't we be worried about the budget and going into debt?

Well, yes and no.

We should not lump infrastructure spending into the same bucket as spending on heath, education and other public services.

It is one thing to go into debt because you can't afford to pay your regular bills. It is quite another to take on debt to invest in assets that grow in value.

Households know this. Two thirds of households have taken on mortgages at some point to invest in housing, which grows in value over time. If the value of your home grows by more than the interest you pay on your loan, you're ahead.

It's the same for roads and railways. These things enable us to produce more goods and services, creating more jobs and value that should eventually recoup the upfront costs.

At a panel discussion hosted by Women in Finance and Banking in Sydney on Tuesday, ANZ's chief economist, Warren Hogan, called for more spending on urban projects to ease congestion. "We need to build the road systems, the transport systems, and that becomes self fulfilling because you get business clusters."

Stephen Halmarick, head of economic research at Colonial First State, agreed. "We should not be afraid to borrow money to invest in infrastructure because the rest of the world wants to give us that money and we can get a pretty good rate."

But David Plank, head of fixed interest at Deutsche Bank, inserts a word of caution. "If you give a green light to governments to borrow around infrastructure ... what we'll end up with is lots of stuff that's driven by political considerations, not economic ones."

Plank warns we need a truly independent infrastructure adviser, one that can advocate for the projects governments are too scared to tackle. (He didn't say it, but a second Sydney airport would be an example).

We also need to explore using pricing, like congestion charging, to manage demand.

"If it costs you something to use a road, you would find the infrastructure shortage is a lot less acute".

It would also be wise to spent more on public transport and railways, not just roads — the Coalition's clear priority.

But this is the infrastructure conversation we need to have.

So if, in three years, there are no cranes in the sky or your commute to work is not shorter, you will have good reason to demand of your new infrastructure prime minister: why not?

Jessica Irvine is News Corp Australia's economics editor. View more articles at www.jessicairvine.com.au