Time for Rudd to look at big picture
There's a mixture of hints and hope that Kevin 2.0 will be doing just that, but so far it sounds more like tinkering than substantial change; a tidier broom rather than top-of-the-line Dyson. By all means move to an emissions trading scheme as soon as remotely possible after the outright stupidity of lifting the carbon price today and the threat of the Coalition's wacky "direct action" after the election - but that's only bringing forward something already programmed. What would be more interesting is a genuinely Big Idea.
Kevin 1.0 seemed to like a Big Idea, or even a summit of them that didn't come to much. Kevin 2.0 promises to be steadier, but he still might like a single Big Idea that would clearly set him apart from the narrowing and flawed orthodoxy of his predecessor and the Coalition.
He could do much worse than to take the advice of five present and former Reserve Bank board members and propose to build a better Australia, to turn the orthodoxy of "all government debt is bad" on its head with a lesson about what good debt can achieve: Borrow to build, de-risk and then privatise vital infrastructure, lifting our potential productivity in the process and helping to fill the gap created by resources construction peaking.
With the water poisoned by both sides through their simplistic "surplus good, deficit bad" chanting, it would take a very serious effort to explain the Big Idea to the electorate. However, done properly, there is a broad church from big business and organised labour to the social sector who could be enlisted. Wise infrastructure investments can pay lasting economic dividends.
Heather Ridout, John Edwards, Warwick McKibbin, Bob Gregory and Bernie Fraser aren't a particularly radical bunch in the usual left/right sense, but to a greater or lesser degree they've all said it could be a good time for the federal government to be borrowing more, not less. The caveat is what that borrowing is spent on: not recurrent expenditure at this stage, but on capital improvements.
Professor McKibbin has been the most radical, suggesting the government borrow big, in the hundreds of billions of dollars big, at low single-digit interest rates and use the money to build infrastructure that offers double-digit rates of return.
A refinement of that broad proposal that would require less borrowing is that the government builds the infrastructure, de-risks it by maintaining ownership for a while (as it turns out the private sector has no idea how many cars might want to go through a tunnel) and then flog it off to the private sector, using the money gained to build the next stage.
Encouragingly, the NSW state budget contained an element of that thinking in funding the $10 billion WestConnex toll road. The government will build the road, using its access to cheaper finance, and subsequently privatise it.
The NBN model goes part of the way along the Big Idea superhighway, even keeping the funding off the immediate government balance sheet, but it fails on one major test: demonstrable and independently adjudicated double-digit internal rate of return.
McKibbin admits the problem with his plan is that you couldn't trust any politician with the money - the temptation to cater for a vested interest here, marginal electorate there, some generous political donors everywhere, is too great.
Which is where the establishment of a genuinely independent, arm's-length body to supervise the process becomes paramount - a Reserve Bank of infrastructure. Infrastructure Australia is a step in that direction but not good enough, being more of a wish-list body than a ruthless taskmaster.
The Productivity Commission's rigours would need to be employed for a start. Those who have abused government programs in the past would need to be excluded - for example, the Victorian CFMEU after the desalination plant rorting.
It wouldn't be easy to reverse three years of surplus worship, particularly with the opposition sure to run the obvious lines about Labor just wanting to spend and go further into disastrous debt, but it could be done. I'd argue that the last politician with the ability to explain complex policy to the electorate was Lindsay Tanner - there's no sign of anyone on either side of politics with that talent.
But the combined efforts of the super industry, big business and the rational elements of the labour movement could help, with the former two perhaps capable of bringing some pressure to bear on the Liberal Party to put the nation's interests ahead of winning the keys to The Lodge. It's a little late to start this Big Idea, this investing in Australia, as the resources construction phase will peak quicker than solid projects will be shovel-ready, but that's not an excuse to rule it out. Our infrastructure backlog remains, whatever the timing.
The question is, are we still capable of grasping a big idea, or has the divisiveness of the past three years diminished our aspirations?
Frequently Asked Questions about this Article…
The article describes 'borrow to build' as the federal government taking on targeted debt to fund capital improvements — not recurrent spending — in order to lift national productivity. For everyday investors this can mean long-term economic benefits: better infrastructure can boost business efficiency and growth, and subsequent privatisations of de-risked assets may create investment opportunities.
Five present and former Reserve Bank board members argued it could be a good time to borrow more because cheap finance can be directed to capital projects that raise potential productivity and fill the gap as resources construction peaks. Their caveat is the borrowing must be spent on high-quality capital improvements rather than ongoing operational costs.
Professor McKibbin suggested the government could borrow very large sums — in the hundreds of billions — at low single-digit interest rates and invest in infrastructure projects that deliver double-digit rates of return. The article notes his plan is bold but cautions about political risk and the temptation for misallocation if safeguards aren’t put in place.
Under the model the government builds infrastructure, keeps ownership initially to remove key uncertainties (for example demand), and then sells the asset to the private sector once it’s de-risked, recycling proceeds into new projects. For investors this can produce privatisation opportunities and better-priced assets, provided projects truly deliver the expected returns and risks are managed.
The NSW budget included funding for the $10 billion WestConnex toll road where the government uses its access to cheaper finance to build the road and plans to privatise it later. The example shows the practical application of borrowing to build, de-risking and then selling to recover funds for further investment.
The article notes the NBN kept funding off the immediate government balance sheet, which aligns with the concept, but it failed a key test: it did not demonstrate an independently adjudicated double-digit internal rate of return. That lack of clear, high returns undermines the case that the project was the ideal template for borrowing-led infrastructure investment.
The article recommends establishing a genuinely independent, arm’s-length body — likened to a 'Reserve Bank of infrastructure' — and applying the Productivity Commission’s rigour to project selection and supervision. It also suggests excluding entities that have abused government programs in the past (the article cites the Victorian CFMEU in the desalination case) to reduce rent-seeking and ensure funds are used effectively.
Politically, the shift would be hard to sell because opponents can accuse the government of reckless spending and voters are accustomed to 'surplus worship.' Economically, success depends on picking projects with demonstrable high returns and insulating decisions from short-term political pressures. If done properly, though, the article argues wise infrastructure borrowing could deliver lasting economic dividends and help bridge the productivity gap.
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