There can be little doubt that the biggest threat today to the Australian economy is that the receding mining boom will not be replaced by a sufficiently strong recovery in the non-mining parts of the economy, like construction, housing, tourism and manufacturing.
This debate is often painted as something we can’t do much about. We can only slash interest rates, and then hold our breath for the boom to come.
But that’s not the truth of it.
There is much we could do to generate a new phase of prosperity after the mining boom.
Australia has a significant urban infrastructure deficit, and a deep pool of superannuation savings but lacks the political will to unleash a much-needed wave of infrastructure spending.
As things stand, all hopes are currently pinned on an interest-rate fuelled recovery in the housing sector. But those holding their breath for a housing boom may be left blue-faced.
The Reserve Bank is hoping low interest rates will relight a fire under house prices. It has abandoned its previous distaste of rapidly rising house prices and now considers this as better than the alternative: a moribund property market.
But the response from home borrowers so far been disappointing. Dwelling investment remains low. Local councils and a ‘not in my backyard’ attitude to new development among existing owners remain intractable barriers to urban infill.
Hope as the Reserve may, a housing recovery is unlikely to fill the gap of the receding mining boom.
We need something bigger, like a new boom in road, rail and public transport construction.
The mining boom is already becoming less jobs intense as we move from the investment and construction phase to the export phase.
There is a window of opportunity to redeploy workers in engineering and construction to public or private urban infrastructure projects before they lose their skills.
Life at the nation’s mines may be about to get a lot more quiet.
But our capital cities remain hopelessly congested and home to many workers who need jobs too.
Now is exactly the right time to be encouraging and facilitating infrastructure investment.
A casual glance at the website of the federal government’s debt manager, the Australian Office of Financial Management, shows the government is currently borrowing at rates households could only dream of.
The day after the federal budget, which revealed - shock horror - a $18 billion expected deficit, the AOFM issued $600 million of 13-year bonds for a bargain basement average weighted yield of 3.63 per cent.
Headline writers may fret about our debt situation, but international investors aren’t having a bar of it.
It’s time to put the nation’s credit card, and its ultra low interest rate, to work.
First, an incoming Coalition government’s review of the public accounts should include a study of ways to reform the budget documents to separate out spending for recurrent expenditure and capital investment. The previous Coalition government was fond of creating infrastructure funds.
But it’s time to go further.
Australia needs an independent agency, on par with the Reserve Bank, with the power to decide infrastructure priorities.
Labor, to its credit, invented Infrastructure Australia. But it is hamstrung in important ways. It can only provide a cost-benefit analysis of projects submitted by governments. It can’t make recommendations on other projects, such as a second Sydney airport for example.
It consists of 12 board members, chaired by Sir Rod Eddington and including the Treasury Secretary, Martin Parkinson, but its support agency, the Office of the Infrastructure Co-ordinator, is run on a shoestring.
According to IA estimates, Australian governments have about $100 billion in assets that could be sold, like electricity, utilities, gas, to fund important infrastructure investments. Even a small portion of that would represent significant seed funding for a beefed-up national infrastructure agency.
Such an agency could, like any other business, have the ability to borrow to fund important work. Investors could purchase longer term (20-year or 30-year) bonds to fund its work.
It could conduct rigorous cost-benefit analysis of all potential infrastructure projects.
Its board could meet monthly and produce statements of infrastructure priorities like the Reserve Bank.
It could better coordinate interest from private sector investors, like super funds, and lower the cost for bidding for projects that is currently a major deterrent to private sector investment.
An independent infrastructure agency could remove from politicians the honey pot of infrastructure spending. It could put an end to election year vote buying and the politics of state federal relations.
It could lead a sorely needed national debate about the nation’s infrastructure backlog and future needs.