Politicians and experts: who can we trust in infrastructure financing and PPPs?

The Sydney tram extension to Summer Hill and Dulwich Hill will promote densification and property value appreciation but without a mechanism for some of the accretion to go back into the infrastructure provision.

Professor Bob Walker, Ian Spring from 2007, and others, have pointed to shonky numbers, poor thinking, misstated impacts (such as loss of AAA ratings), and the horrible risks of continuing with one-at-a-time projects divorced from public professional analyses of overall systems and cities/regions.

Infrastructure generates short- and long-term jobs and increased economic activity. Several studies have been conducted showing that $10 billion spent in Sydney - if the projects are soundly-based - would produce about 20,000 construction jobs, 24,000 permanent jobs and ongoing annual economic efficiency benefits of over $3.5 billion. Tax yields would rise in line with the increased economic activity.

The SMH and Premier Keneally ignored the main way to fund infrastructure in a generalised way. Tax Incremental Financing (TIF) would siphon off increases in the tax base that relate to the resulting economic growth. This is common in American States.

The Property Council of Australia, in a submission to Infrastructure Australia, showed that the South West rail link would pay for itself in this manner in about 20 years, in a submission to Infrastructure Australia. They only considered transfer or sales tax, not land tax as well, and covered 75 per cent of the initial cost (the balance coming from say Federal, State and local governments). It seems that including land tax and adding a levy on council rates would roughly halve the repayment period.

Ian Spring’s “Borrow and Build” calculations showed that national infrastructure programs could be funded this way within debt limits. In his words, “A 20 year $250-300b Federal borrow and build program, involving extra expenditure of $10-$15b pa, will be necessary to deal with (the national backlog), and bring the country into a fully competitive position by 2027 … There will be no need to repay this debt, it will be self funding from the tax dividend …"

There seems to be no awareness of the incremental betterment regimes applying in the US which would be more effective than levies with less impact on affordability. Incremental capture depends on having an initial valuation then calculating the increase in values arising from an infrastructure development over time - probably 20 years (the usual life of US bond issues). A statutory share of the increase goes back into the infrastructure that produced the increase in values.

Taxpayers need to see that their contributions go into services that benefit them rather than disappear into areas that are well-provided for already or schemes which waste taxpayers’ and investors’ money.

So there are ways to pay for improvement schemes without whacking households and businesses unduly. A well-informed debate is possible at this time of national stress. The benefits would be seen over the coming centuries - just as Sydney’s “improvement generation” 100 years ago pushed that city into the forefront of world performance, we would leave our successor generations a balance of terrific benefits and affordable burdens.