Labor's failure on infrastructure

Amid growing speculation that Prime Minister Julia Gillard will have to abdicate or face a beheading at the federal election, talk is turning to the country’s infrastructure as suggestions of pork barrelling and policy backflips emerge.

It is a sad indictment on a government that returned to power in 2007 promising to rebuild the nation and lift productivity using infrastructure as the centrepiece.

To this end it gave the country its first infrastructure minister and set up an independent advisory body, Infrastructure Australia (IA). IA was designed to eliminate pork barrelling by creating a priority list of infrastructure projects based on a cost-benefit analysis and advising on major policy reforms – including how to make public private partnerships (PPPs) work and rational tolling.

Fast forward to today and outside of the NBN – which has its own set of controversies – the government’s grand plan for infrastructure is in tatters and sound policy and decision-making have been hijacked by real politics.

To put it into context, $3.6 billion was outlaid in the last federal budget to support state infrastructure, compared with $7.69 billion in the previous year. This is a drop in the ocean compared with what is required to bridge the country’s $770 billion public infrastructure backlog.

The neutering of IA became apparent when the government rolled out the NBN without consultation and 10 days out from an election it committed $2 billion to the Parramatta to Epping Rail Link project in Sydney.

The rail link didn’t qualify for IA’s priority list or the state government’s Metropolitan Transport Plan 2010. It did qualify for votes though. So did a series of rail, road and port infrastructure projects that qualified for funding despite their absence from the IA list on the basis that more work was needed.

As the 2013 federal election looms and pressure mounts on the Labor Party to preserve as many seats as it can, backflips on infrastructure policy are becoming more blatant – and desperate. These include Treasurer Wayne Swan’s threats to Queensland based on the state’s blueprint for better healthcare, the WestConnex project and the ATO draft determination.

The Queensland government’s blueprint was an attempt to cut costs and create efficiencies in an unsustainable health sector by opening it up to new financing models, privatisations, outsourcing and exposing its health services to contestability.

The Treasurer’s reaction was almost hysterical as he warned the reforms posed a ‘‘threat to Medicare and the values behind it – particularly quality healthcare through free public hospitals’’. He also said the government would do what it could to stop the reforms.

This was seen as an attempt to placate the Health Services Union and the public sector, given there is no evidence the blueprint would have any impact on Medicare or public hospitals as the only difference is there would be a different contracted employer.

Then there was the Prime Minister’s $1 billion pledge during last week’s stint at Rooty Hill to ease congestion in Sydney’s western suburbs by building the WestConnex (M4 East, M5 East and inner-west bypass).

Funding came on the proviso that tolling would be banned on existing sections of the M4 and M5 motorways. Under the proposal, Gillard has also said that the scope of the project would be extended, to provide commuters travelling on the M4 with a direct link to the city and freight travelling on the M5 with a direct link to Port Botany.

Given it will cost up to $15 billion to complete, such a condition effectively rules out private sector interest, which makes the announcement look like a cynical attempt to claw back votes.

Ruling out tolls also puts it in direct contrast to advice put forward by IA – the body it set up – in its last two reports to COAG.

The brutal reality is there are two ways to fund public infrastructure: taxes or tolls.

But examples of cynical announcements don’t stop there. Reports emerged on Monday that during Gillard’s trip last week 19 proposed western Sydney infrastructure projects that had applied for Regional Development Australia Fund grants had made it to the fourth round. Only three projects from other regional areas managed to get through to the next stage.

There are also questions over the release of the ATO draft tax determination, unveiled in December without industry consultation. In summary, debt deductions for PPPs will be reduced, making them less viable, changing a project’s economics and ultimately making the capital program more expensive.

Infrastructure Partnerships Australia said in a submission: ‘‘The draft taxation determination is impacting both existing and future projects, by creating uncertainty for project arrangers, investors and the various state governments. It has also created uncertainty among lenders to such projects. We ask that, as a matter of priority, the draft taxation determination be resolved quickly to remove this uncertainty. We are willing to assist in this process.’’ Indeed.