Infrastructure: the new hot topic

Infrastructure is fashionable again. For the past six months or so, media and political attention has focused on the state of Australia’s infrastructure. An often neglected aspect of economic debate is back at centre stage.

Over the past year or two there have been numerous problems around Australia. The inevitable interest these problems have generated has been heightened by recent concerns about the capacity of Australia’s transport infrastructure to handle our commodity exports.

It is important to examine the issue in some detail. Is there an infrastructure crisis? Have state or federal governments neglected our infrastructure in times of prosperity? Do we need major reforms in the way we invest in and manage our nation’s infrastructure?

Infrastructure is often divided into economic infrastructure, such as transport, energy, communications and water infrastructure, and social infrastructure, such as schools and hospitals. The current debate focuses primarily on economic infrastructure, and whether Australia has neglected necessary investment in recent years.

There is no shortage of anecdotal evidence suggesting that Australia’s infrastructure is crumbling, but the overall picture is more complex and harder to interpret. Reports by Engineers Australia on Australia’s infrastructure (2001) and New South Wales infrastructure (2003) present a mixed picture.

These reports draw attention to particular problems, such as inadequate road and rail infrastructure, but also indicate that in some areas, such as New South Wales electricity generation and distribution, existing infrastructure is adequate. Nevertheless, in its report to the Property Council of Australia on urban infrastructure, the Allen Consulting Group concluded “there is increasing evidence of an emerging infrastructure deficit in Australia”.

The common thread running through recent studies is although Australia does not have a generic infrastructure crisis, we are quickly approaching the point where if appropriate decisions are not taken, such a crisis will become unavoidable. There are numerous signs of economic infrastructure reaching capacity or approaching the end of its useful life. Even where existing infrastructure is working well, the need for upgrading arises periodically.

Planning and funding infrastructure is a difficult task, because it relies on forecasting future use, and often involves very large financial commitments. Various state governments have established infrastructure councils and published strategic infrastructure plans in recent years. The federal government’s Auslink strategy is a long overdue attempt to build an integrated approach to investment in land transport in Australia.

The debate on infrastructure investment often revolves around comparisons of total spending over a number of years. As infrastructure investment, as a proportion of Gross Domestic Product (GDP), has declined over a long period, such figures are often cited as evidence of inadequate infrastructure spending. The OECD noted recently that total government spending on infrastructure fell from 2.6 per cent of GDP for the 1991-97 period to 2.2 per cent in 1997-03. Government capital formation as a percentage of GDP has fallen from 7.5 per cent to 3.9 per cent between 1984 and 2002.

Such figures need to be treated with some caution. Privatisation and Public-Private Partnerships (PPPs) have moved a significant amount of previously public investment in infrastructure into the private sector. The changing structure of the Australian economy, and in particular the increasing dominance of services, has reduced the level of reliance on infrastructure.

There is also evidence to suggest that greater efficiency in infrastructure construction and operation has contributed to the proportionate reduction in infrastructure investment.

Recent Australian Bureau of Statistics data also casts doubt on the claims of infrastructure neglect by state governments. Figures for gross fixed capital formation, as a percentage of Gross State Product since the early 1990s show New South Wales, Queensland and Western Australia fairly steady over the period, Victoria and South Australia slightly higher after a slump in the mid-90s, and Tasmania slightly higher after a slump around the turn of the century. It is difficult to discern unequivocal evidence of neglect by governments, state or federal.