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Miracle cure that wastes tax dollars

By Henry Ergas - posted Friday, 10 October 2008


Additionally, given that the states' record of implementing big projects is so shockingly poor, no additional funding should be provided before a careful, expert assessment is made and published of why that is the case and how institutional capabilities can be improved. Absent such improvements, good money will be thrown after bad. Set against those requirements, the government's announcements hardly inspire confidence.

It is surely striking that on the day the Prime Minister said that the process of allocating infrastructure funding would be free of political influence, The Sydney Morning Herald reported that NSW was told it was unlikely to get funding for a project yielding few benefits to marginal federal Labor seats.

However, even were that report incorrect, the PM's criteria for project selection read less like the principles one would expect and more like a bad haiku. The criteria are merely a list of questions such as: How does a project expand Australia's productivity capacity? How does it develop our cities or our regions, reduce greenhouse gas emissions and improve our quality of life?

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These criteria are almost comical and might be expected to invite applications for taxpayers to fund a shared tourism-wheat export inland railway, running on ethanol, with a jazz band playing on the last carriage. More seriously, they completely miss the point: it is not whether a project affects cities or regions, greenhouse gas emissions or our quality of life that matters but whether it yields benefits that credibly outweigh the costs, including the high cost of the taxes being used.

In other words, the relevant criterion is far simpler yet more complex to get right than the PM's buzz words: it is whether the proposed infrastructure projects will genuinely make Australians better off. Whether they do so by reducing or increasing greenhouse gas emissions, for example, should be completely irrelevant, so long as all the relevant costs (including those of the added emissions) are taken into account.

There are few ways of wasting more taxpayer money, more quickly, than large-scale infrastructure spending. Without far-reaching safeguards, the Building Australia Fund could set new records in that respect. Whether the government's legislation provides for those safeguards deserves to make or break its fate in the Senate.

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First published in The Australian on October 8, 2008.



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About the Author

Henry Ergas is chairman of Concept Economics. His new book is Wrong Number: Resolving Australia's Telecommunications Impasse (Allen & Unwin).

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