Navel gazing and infrastructure buck passing

As the state with the largest population and biggest economy in Australia, NSW has long served as one of the main battlegrounds for funding disputes with the Commonwealth government. For some time now, inadequate processes and buck passing between the Commonwealth and NSW governments have been holding up crucial infrastructure projects in the state.

Sydney's second airport hasn't progressed beyond navel gazing even though the recently released Joint Study on Aviation Capacity concluded that Sydney airport will have no peak hour slots left by 2020 and no new slots at all by 2027. Failure to act could mean a loss of $34 billion in GDP by 2060.

Meanwhile, divisive bickering over funding upgrades to the Pacific Highway continues – a $7 billion-plus project with a multi-billion dollar funding shortfall – not to mention a decade of aborted rail projects in Sydney's northwest which has seen few outcomes beyond expensive "planning".

A similar kind of navel gazing is occurring in the cruise industry. Although this sector is expected to generate more than $1 billion a year for the NSW economy by 2020, it is facing a critical shortage of docking space because half the cruise ships visiting Sydney in 2020 won't be able to fit under the Harbour Bridge.

Typical of the ad hoc process that seems to have become the norm for infrastructure projects in NSW, no realistic long-term plan to address this infrastructure shortage is in sight.

Instead, a stop-gap solution was recently announced wherein three large cruise ships will be docked at the naval base at Garden Island each year over the next two cruise seasons. The Hawke Review into this very topic had found that this arrangement couldn't work in the long term because the requirements of the Australian Navy and the cruise ship industry were "essentially incompatible".

Hawke estimated that building a new naval base would cost more than a billion dollars, while expanding Garden Island to host cruise ships would cost nearly half a billion dollars and is likely to have a negative impact on the local community and require additional investment in transport links to the area.

A new cruise terminal should be the perfect project for a public private partnership. There are clearly identified stakeholders (large cruise ship operators) who would profit from such a facility, and the PPP could recoup the initial investment on a user pays basis. There is strong future demand and incentives for both the state and federal governments in the form of increased tourism revenues.

Unfortunately, PPPs in NSW have had a nasty habit of going bankrupt and building costly "white elephants" such as the Cross City Tunnel. In this case, however, the elephant in the room is the increasing disconnect between the federal government, which pays for an increasing proportion of infrastructure projects, and the states, which receive most of the benefit from such projects.

By decoupling responsibility for the costs from the benefits, and adding another layer of bureaucracy and political priorities in between, strategic planning gets replaced by blame-shifting and finger pointing.

The public, who tend to care a lot more about which bottomless black hole their tax dollars are cast into than which level of government is holding the bucket, are the losers in this infighting.

The public also lose out at the other end of the spectrum where pork barrelling, such as new hospitals and roads for marginal seats, and expensive projects like the National Broadband Network are fast-tracked without any real planning or scrutiny. This leads to curious decisions like rolling out the NBN in Tasmania rather than in areas where greater demand might help pay for the rest of the project.

While there is no easy solution to these problems, a good first step would be to try and depoliticise infrastructure development by agreeing to a robust, bipartisan approach to infrastructure needs analysis (e.g. routinely submitting proposals for rigorous, independent cost-benefit analysis). Publishing reports isn't enough; a process for all levels of government to consider and implement advice is needed as well.

Coupled to this must be consideration of how best to fund projects, including a logical method for determining who should pay and a more realistic approach to risk (especially in PPPs). This process should build on recommendations in the recent Infrastructure Finance Working Group report on finance and funding reform.

An additional option is to revisit the alignment of infrastructure responsibilities between the states and the Commonwealth. Responsibility for carrying out major projects (such as roads) could be returned to the states, as long as they were also given the ability to raise enough funds to pay for new projects again.

This limits the ability to shift blame and encourages states to consider innovative funding arrangements. The NSW government could then properly be held responsible for the state of Sydney's infrastructure.

Finding a long-term solution to the problem of infrastructure funding is in the interests of both the federal and the NSW governments. If solutions can't be found only because the two levels of government can't agree on how to account for the costs, then they should both be held accountable – at the next election.

Simon Cowan is a Research Fellow at The Centre for Independent Studies.