On the night of the opening ceremony, 24 January, Cyclone Wanda crossed the coast at Double Island Point north of Noosa. It didn’t have the devastating winds of cyclones like Ada and Althea that smashed the Whitsundays in 1970 and Townsville in 1971, and it weakened rapidly, but the monsoonal trough it forced south to Brisbane stayed there for days. Small oscillations in its movement and intensity generated many stretches of drenching rain.

Across Brisbane, 600 millimetres fell on the first three days of competition in Christchurch — twenty-four inches, or two feet, in the language of the time. This was three times the city’s average rainfall for January, its wettest month. On 28 January the trough weakened and retreated north. A drier, cooler air mass from the south finally brought some blue sky to the capital of the Sunshine State.

The river peaked in the early hours of 29 January at a height not seen since 1893. Residents woke to find about 13,000 buildings damaged. Children due back at school that morning got an extra week added to their Christmas holidays.

Across the Tasman in Christchurch, Australia had won a bag of gold medals while the river rose. Raelene Boyle retained the 100 metres sprint title she won in Edinburgh, fourteen-year-old Newcastle schoolgirl Sonya Gray won the women’s 100 metres freestyle and Mexico Olympic champion Mike Wenden the men’s. As the waters receded, Boyle and Gray added the 200 metres to their 100-metre golds and Don Wagstaff completed a double in the diving pool.

The deputy lord mayor reported Brisbane’s promotional T-shirts “were without doubt the most sought-after item at the Games.” Its souvenir match boxes and coasters “were widely distributed and caused much interest.” Sandwiched amid coverage of the floods, the full-page advertisement for Brisbane’s bid in the Christchurch’s main paper, the Press, caused “some concern,” but it was not fatal because “most people realised that occurrences such as these were not the normal thing.”

Whether or not the 1974 flood was abnormal depended on the time scale. The “River City” had not seen a flood as high in the twentieth century. During the nineteenth century it had seen four as high, including three much higher, and a total of eight floods classed as “major” according to the Bureau of Meteorology’s current classification system (3.5 metres at the City Gauge). Only two other “major” floods occurred in the twentieth century, the last in February 1931. This century is different again. The February 2022 flood was Brisbane’s second major flood after the even higher one in January 2011, and a further “minor” one occurred in January 2013.

The inaugural meeting of Brisbane’s Commonwealth Games Committee was held two months before the Christchurch Games. Chaired by lord mayor and sports fan Clem Jones, the meeting was told an application had already been lodged for Brisbane to host the 1982 Games. Business representatives thought the city council’s report on possible venues was technically excellent but lacked ambition. By 1982, they thought, the city “would deserve a sporting complex of world-wide standard.”

Council representatives baulked at the zeal. They “could not commit the City to structures which could become ‘white elephants,’ or to a financial burden which it might be virtually impossible to meet.” After the floods, the committee’s next meeting was deferred, but not for long. Lord Mayor Jones and his deputy flew over the city in the 4KQ helicopter and were “amazed at the number of places which could be regarded as possible sites for the Games.” A sites sub-committee was whisked around nine possible venues in a council bus just three months after the flood’s peak.

The choice narrowed to the Northside versus the Southside. Deputy Mayor Walsh, representing the Chermside ward on the Northside, wanted Marchant Park redeveloped. Mayor Jones, representing the Southside’s Camp Hill ward, liked a site in the new suburb of Nathan, adjacent to the Mt Gravatt Cemetery and Griffith University, which would accept its first students the following year.

In late July, six months after the flood, a decision was reached: the Southside. It would be closer for visitors staying at the Gold Coast and more convenient for residents of the rapidly expanding southern suburbs.

The campaign for Brisbane to host the 1982 Games succeeded, although the likely “phenomenal” cost was much criticised. At the Montreal Olympics in 1976, where the Commonwealth Games Federation met to decide the venue for the ’82 Games, Brisbane found itself the only bidder. Montreal’s diabolical financial outcome scared others away.

New lord mayor Frank Sleeman assured Brisbane ratepayers they would pay only for the “bare essentials.” A new stadium would be built in the new suburb, but it would have a permanent grandstand seating just 10,000. “Temporary” seating would accommodate another 48,000. Work began immediately and the venue was first used in late 1975. Two years later, the twenty-fifth anniversary of the coronation of Queen Elizabeth II, it was named the “Queen Elizabeth II Jubilee Sports Centre,” or “QEII.”

There was one big problem with siting the main stadium on the top of a hill. One of the signature events at major games, the marathon, traditionally starts and finishes in the stadium. After the local distance-running community rejected a plan for the runners to complete three laps along the nearby South East Freeway, ending with a sharp climb back up to the stadium, organisers agreed to start and finish the race away from the stadium. (It was men’s only; the first women’s marathon was run at the 1986 Games in Edinburgh.)

A flatter, “city” course was mapped, like those becoming popular in places like New York, Chicago and London. For Brisbane, this meant using the river. The new route started and finished on the south bank, opposite the CBD. It headed out through the city and “The Valley,” across Breakfast Creek to the river at Kingsford Smith Drive, then doubled back to the river bank around the University of Queensland. TV cameras would capture the city at its most picturesque, spectators would get accessible viewing spots, runners would appreciate the cool breeze and flat ground in a city that doesn’t have much of it.

Held the day before the closing ceremony, the marathon did not disappoint. Big crowds lined the route. Australian favourite Robert De Castella found himself well behind two Tanzanians who were close to world record pace at the halfway mark. He set off to chase alone, catching Gidamis Shahanga just before they passed a heaving Regatta Hotel, then ran side-by-side with Juma Ikaanga for a kilometre along Coronation Drive (named in 1937 when George VI was crowned). Morning peak hour traffic on the Sydney Harbour Bridge slowed as commuters tuned car radios to the struggle. Finally, “Deek” made a decisive break and won by twelve seconds.

Building the main stadium for the Commonwealth Games on a hill in the southern suburbs had helped, paradoxically, and indirectly, to re-energise an old conceit. Decades earlier, tourism promotions dubbed Brisbane the “River City.” Soon, the first of several major arts and cultural organisations began setting up on the South Bank. Expo 88 would draw millions of people from the suburbs, the state, the nation and the world to the banks of the big river.

Despite the best intentions, QEII struggled to avoid the fate those Brisbane City Councillors feared: becoming a white elephant. Track and field events take centre stage in Olympic and Commonwealth Games but local athletics events, even the biggest interschool carnivals, attract much smaller crowds at other times.

For a while, in the 1990s and early 2000s, QEII was back in business. On joining the national rugby league competition in the late 1980s, the Brisbane Broncos played at the sport’s traditional home in the city, Lang Park. A few years later, after the temporary seating at QEII was made a little more permanent, they moved there and started drawing Commonwealth Games–like crowds to the renamed “ANZ Stadium.”

Annual State of Origin matches against New South Wales, though, stayed at Lang Park. The regular monster crowds at ANZ declined. Eventually the state government and others decided to revive the old cauldron. The two “Origin” matches played at ANZ in 2001 and 2002 while Lang Park was rebuilt were the last.

In 2003, the Maroons and Broncos returned to the new “Suncorp Stadium.” They have been there ever since, sharing the venue with the Queensland Reds (rugby union) and Brisbane Roar (soccer). Last year, it was at Suncorp that the Matildas played their World Cup quarter-final against France, which ended in that epic, victorious penalty shoot-out.

QEII went back to being a track and field venue, the Queensland Sports and Athletics Centre, “QSAC.” It was used as an evacuation centre during the 2011 floods. After Brisbane won the right to hold the 2032 Olympics, there was a chance it might be revived again as a temporary venue for cricket and AFL while the traditional home of those sports in Queensland, the Gabba, was being remade as the main Olympic stadium at a cost of $2.7 billion.

That was until Monday, when QSAC got an even bigger future. Queensland’s government considered the recommendations of a committee set up to propose further options after the earlier rejection of the Gabba rebuild. The committee recommended that a wholly new stadium be built at Victoria Park, at a cost of over $3 billion, and eventually replace the Gabba as the home of cricket and AFL in Brisbane. Both recommendations were rejected. (Victoria Park was one of the sites rejected by Clem Jones’s 1974 committee.)

The Gabba is going to stay the Gabba, with a modest upgrade. Victoria Park is going to stay Victoria Park.

The winner is… QSAC! The stadium on the hill will rise again to host the track and field events at an Olympic Games fifty years after it staged them for the Commonwealth Games. At a cost of $1.6 billion, permanent seating will be increased to 14,000, and total capacity will touch 40,000 for the period of the Olympics, some way below the 1982 full houses.

The other winner is Suncorp Stadium, with its larger capacity of more than 50,000, which will get the opening and closing ceremonies.

The marathoners? They will surely follow the river again, winding out, back, out and back, sticking to the old, deceptively gentle watercourse that has always drawn people to this place. •

Information about Commonwealth Games planning is taken from Brisbane City Council committee minutes and files, and about the 1974 floods from the Department of Science/Bureau of Meteorology’s “Brisbane Floods January 1974” (AGPS, 1974). Other information drawn from Melissa Lucashenko’s Edenglassie (2023), Margaret Cook’s A River with a City Problem (2019) and Jackie Ryan’s We’ll Show the World: Expo 88 (2018), all published by UQP.

The post Olympic origins appeared first on Inside Story.

To be sure, it is a familiar enough sight in Australian politics more broadly — ours is a political class obsessed with infrastructure boondoggles — but for the Andrews government major projects were more than a recurring theme; they were the state religion. The premier performed the rites of sod turning and site inspecting as regularly as Mass and recited figures on level crossings removed or hospitals built like counting rosary beads.

And he backed up these prayers and incantations with billions of dollars. As of the last budget, Victoria had approximately $200 billion in projects under way, and was planning to spend an average of almost $20 billion a year over the coming four years on its infrastructure program.

So big was the Big Build — fiscally, politically, physically — that it competes with the state’s traumatic lockdown experience as the dominant element of Daniel Andrews’s legacy. The psychological scars of that time will stay with many of us for a lifetime, but Andrews’s projects are the very fabric of our daily lives. Millions of Victorians use the infrastructure built over the past nine years several times a day. They envelope Melbourne and wind out into the regions, many of them dominating our skylines or otherwise rearranging our neighbourhoods. It is a legacy inscribed in the physical, in concrete and steel; Danist monuments in nearly every quarter of the state.

But what does this tangle of level crossings and tram upgrades, flyovers and tunnels, hospital wards and transmission cables add up to? What, beyond a personal message from Dan to “look on my works, ye mighty, and despair,” does all this stuff actually mean? What is the Andrews infrastructure legacy?

The first thing to say is that the Big Build’s message isn’t coherent. The Andrews government has never adopted a formal, public, long-term infrastructure strategy. It has published documents that claim to put the state’s many and various projects together, but these are retrofilled scrapbooks based around projects chosen with little consideration of how they all work together. As I have argued previously, the Big Build is ad hocery writ large. That makes the program especially vulnerable to the seductions of the boondoggle — projects that look impressive on paper but don’t work out to be all that helpful in practice.

These problematic projects are easier to catch out in the framework of a long-term plan — new schemes only get in if they actually fit into the bigger picture, meet the overarching goals, work well with the other elements. Andrews’s Big Build fails to do this. At best, it speaks of expedience and pragmatism — build now; don’t let the perfect be the enemy of the good. At worst, it is cynically opportunist — build something, anything, and we will get the political dividend. Who cares if it works in the long run? They might as well be pyramids.

And, in many cases, unfinished pyramids at that. The Melbourne Metro, the megaproject Andrews spruiked on his way out the door, is one of vanishingly few projects running ahead of schedule — and even that project has run billions over budget. Others have been bigger fiascos: the West Gate Tunnel, meant to be a simple project to better connect the Melbourne’s port with road freight, has become a quagmire — ensnared in complicated disputes over contaminated soil, three full years behind schedule and in the neighbourhood of $4.5 billion over budget, or almost double the initial price tag.

The Melbourne Airport Rail, meanwhile, due to connect Tullamarine Airport to the metro rail system in 2029, has been put on pause, alongside the Geelong Fast Rail, pending the federal government’s infrastructure review findings. The Suburban Rail Loop’s total cost has been estimated by the Parliamentary Budget Office at double the original forecast — more than $100 billion for the full project, which isn’t due to be fully complete until the 2080s. These half-built, might-never-be-complete projects stand as monuments to the government’s naivety, its impatience, its imprudence.

Finally, the Big Build tells us interesting things about the role of the state under Andrews. Labor brought with it a renewed commitment to an active and interventionist state — a profound step away from the neoliberal model that had dominated state politics since the coming of Liberal premier Jeff Kennett in 1992. This more active posture has held across a broad range of policy domains, including housing, energy, domestic violence, industrial relations, TAFE, early childhood education, and health product subsidies. The Big Build is the big outlier.

True, the government’s infrastructure program constitutes public investment on a scale unseen for a generation. But the Big Build has also been big business. If Daniel Andrews’s rail bridges and road tunnels, hospital wings and prison expansions had credits chiselled into them, top billing would not belong to the State of Victoria but to private contracting companies, private consultancies, private financiers and toll road operators.

They have been the ones actually doing the building, often at considerable profit. Billions upon billions of public dollars have helped engineering firms, design consultancies, contract lawyers and construction companies not only keep afloat but expand massively. At times, private companies have also been the ones to own the assets at the end — or else new public infrastructure has been financed by the sale of old public assets, as with the Port of Melbourne sale that funded many level crossing removals.

More than this, the private sector is also deeply involved in planning, assessing and even suggesting major projects. These are all roles that were once the domain of the public service. Yes, they have been increasingly outsourced since the Kennett era — it is not a wholly new phenomenon. But under Andrews the trend towards contracting policymaking out has accelerated rather than abated. The private sector now intrudes further into the process than ever before.

Some of the Big Build’s biggest projects have been devised from their earliest stages by the likes of PwC and Transurban. It is companies like this that are setting the priorities, developing ideas, planning routes, proposing programs — policymaking on a vast scale, with an eye-watering budget and long-term consequences for millions of people, devised by private, profit-driven, non-transparent and unaccountable businesses.

The Big Build, then, illustrates the profound alliance Daniel Andrews has forged with big business. While he may have brought back a more interventionist state in many realms of Victorian life, he has also given over swathes of the state’s treasure and territory to the private sector. RMIT politics scholar David Haywood calls it the rise of the Rentier State.

Did it all come to an end this week? Does the exit of Dan, alongside the recent departure of his longstanding infrastructure tsar Corey Hannett, and the end of the cheap finance that fuelled the infrastructure boom, spell the end of the Big Build? We should doubt it. In her first press conference as Labor leader yesterday, Jacinta Allan pointed to her experience as the minister for infrastructure as one of the things that prepared her for the premiership. The projects have been as much hers as Dan’s. When Andrews has been on site, in hi-vis, Allan has been at his side, hardhat fastened. The Big Build will plough on.

But can Allan use the chance of a leadership reset, and a faltering budget situation, to rein in the Big Build’s excesses — to transform it from boondoggle city to a coherent plan that prioritises the needs of the public over the profits of the private sector? Or will she simply continue digging the hole deeper? •

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As well as rising mortgage costs, families on the fringes face steep increases in energy prices. Across most of Australia, the wholesale price of electricity has more than tripled in the past two years; retail prices have followed, and are generally double or triple what they were two years ago.

A big contributor to those cost hikes is the price of gas, which has risen sharply as a result of Russia’s invasion of Ukraine. As one of the world’s largest gas exporters, Australia had been immune to such risks because of its plentiful local supplies. But we lost that immunity after 2015 when large-scale exports from the east coast led to domestic scarcity and the imposition of global pricing. The looming rundown of Victoria’s big Bass Strait gas fields poses a further risk to supply and prices.

High commuting costs, like energy market failings, result from poor planning. But they have another thing in common: transport and energy infrastructure are often financed by pension funds rather than governments. The people who administer these funds are the subject of political economist Brett Christophers’s new book, Our Lives in Their Portfolios: Why Asset Managers Own the World. These asset managers, he writes, “increasingly own and control our most essential physical systems and frameworks,” and their financial priorities are not aligned with social priorities unless governments impose that requirement.

While his style is somewhat dry and a little didactic, Christophers highlights three tendencies that raise big questions about how we finance infrastructure: the investment priorities of pension funds often determine which infrastructure projects go ahead; governments often take on risks that should belong to investors; and the conditions imposed by one infrastructure project can corrupt the process of providing public services or assets.

Christophers probes these interactions of public and private interests in detail. But I’m not sure he has stepped back to see the bigger picture. For starters, these investments aren’t big enough to justify the suggestion that asset managers rule society. Assets under management might total as much as US$1 trillion, he says, but that’s less than a third of the infrastructure investment undertaken last year by the fifty or so largest economies in the world.

The pension funds need reliable, predictable income to meet their obligation to pay regular returns, and the fees charged by proven asset managers are correspondingly generous. It’s no coincidence that the pioneering firm, Macquarie Bank, is called the “millionaires factory.” Macquarie, adept and innovative, has found new ways to skim earnings from unlikely places.

Asset management took off after the global financial crisis, partly because some assets — housing in the United States being the prime example — became relatively cheap and yet still offered good rental income. In the aftermath of the crisis the world was seemingly awash in savings; as interest rates fell, infrastructure assets became much more attractive to big investor organisations.

Christophers is inclined to focus on the incidental pitfalls of the asset managers’ investment in essential infrastructure rather than look at the design of the system that encourages this kind of asset. In many cases, these managers are standing in for governments. They raise money, just as governments do. Once an investment in a road or a tunnel or a power generator has been made, they generally manage the asset just as a statutory authority or government department would — or they outsource that function.

This form of asset management is created by government. Because the assets are often singular — a freeway or tunnel required to meet social needs — governments own the project from the start and set the terms. Asset managers often, perhaps always, get near-monopoly rights, and the primary tension between them and government is usually price.

What is this monopoly worth? If governments get that wrong, they miss out on some, or even a lot of, cash. If investors get it wrong, they don’t make much money — or sometimes go broke.

Interestingly, Christophers doesn’t examine two other fundamental questions: why roads are financed using tolls, and how better government might deliver more equitable and efficient results. And though politics can be  heavily influenced by real estate interests, he leaves property-sector influence in Western economies largely unexamined.

Our Treasury officials carry on quite a bit about rent-seeking by industry, but rarely do you see much pushback when developers demand taxpayer support as they convert broad acres into housing, often kilometres from schools or hospitals or even shopping centres. Looking back on the recent history of urban expansion, it’s fair to ask whether urban planning is extinct.

Poor planning exaggerates demand for some assets, like outer-urban freeways, that neatly fit the economic interests of asset managers. But you can’t blame asset managers for that. They might, however, have contributed to the illusions that have led governments down hazardous paths.

How did we get here? Australia’s economic debate has evolved over many years. In the decades after Federation an accord between capital and labour manifested in the Harvester judgement — our first national minimum wage — and relatively high levels of industry protection. During the 1970s and especially the 1980s a more laissez-faire consensus emerged, opening Australia up to trade, among other things, and sharply increasing the role of finance.

Once-passive pension funds, closely aligned with employers, became active investors largely driven by arithmetic. Asset trading became a big driver of Australian economic activity. And politicians became unused to thinking about public investment in any sector where business might have a role, even when the involvement of business depends on government.

One example Christophers highlights is renewable energy. He notes that asset managers haven’t much interest in large-scale traditional power stations, which are too complex and risky. He suggests that the set-and-forget nature of solar cells and wind turbines has attracted very big players to the energy transition. Government-backed purchase agreements are undoubtedly a factor, too, providing taxpayer assurance of investment returns.

One challenge of the energy transition derives from the fact that the energy itself is only part of the price consumers pay for electricity or gas. A cursory look at a typical electricity bill reveals that the supply charge is large relative to the price of the energy consumed. This charge is largely made up of the cost of wires, poles and maintenance, a monopoly activity delivered by privately owned companies largely in the hands of asset managers.

Less transparently, energy is only partly priced by markets. Australia’s National Electricity Market is good at pricing the least-cost source of power at any time of day, effectively delivering a competitive outcome. But consumers expect power when they flick a switch, and that level of reliability depends on investment in generation that isn’t needed all the time. This raises a challenge for the energy transition, and it cannot be resolved by the NEM.

The electricity supply Australians have today was built almost exclusively by state governments. Over time, New South Wales and Victoria sold power stations and other elements of their state energy authorities to private owners. In general, much of the money raised has been redirected to other infrastructure. Only Queensland and Western Australia still have a public power utility — though Victoria intends to resurrect the State Electricity Commission and the new NSW government has indicated it might have similar plans.

So far, though, state governments have been unwilling to deal in any concrete way with the reliability part of electricity supply. Yet the crucial question, occasionally hinted at by the national regulator, AEMO, but only raised in blunt terms by people like former Snowy Hydro chief executive Paul Broad, is this: will we have seriously unreliable power during the transition?

Without going into the specifics, the key point is that our power supply is a basic service that we experience in a certain way because of choices made decades ago, mostly by state governments. Today’s governments don’t appear to accept that part of their role is to ensure the next system is at least as effective as the old one.

While asset managers are certainly investing in the energy transition in a big way, they are not utilities. In fact, most of them behave more like property speculators, acquiring a right and setting up renewable generation before flipping the asset to a fund.

What seems to have happened since the 1970s is that Australia’s public management has retreated from any activity that has commercial potential, assuming instead that “the market” will deliver the right outcome as long as the “settings” are right.

In the case of power, a debate actually took place about the need for a publicly funded “capacity” payment to ensure that backup power was available for times when the system was not adequately supplied. But the states couldn’t agree. Instead, it was assumed that the very high prices that arise when normal supply is interrupted will encourage private investors to build storage capacity or “peak” gas plants that can be brought on quickly. For a variety of reasons, that latter outcome now seems less likely.

Meanwhile, we are getting good at bringing forward the dates on which the big, concentrated coal-fired plants will close, but less adept at rapidly rolling out the transmission and other investments needed to make sure those closures don’t bring serious problems.

Christophers’s exploration of the remarkable global reach of private asset managers into social assets is interesting and informative. But the other side of the asset management trend is a passivity among governments at a time when demands for active management of public assets are intense and have the potential to rise to unprecedented heights. •

Our Lives in Their Portfolios: Why Asset Managers Own the World
By Brett Christophers | Verso | $39.99 | 320 pages

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This is the feel of a city being remade. Jackhammers, excavators and earthmovers dig up and demolish. Heavy machinery moves in and out of construction sites across the city, breaking up bitumen and disrupting traffic, ushered along by weary traffic wardens whose authority is proclaimed by hi-vis gear.

The tumult was set in motion last year. With the cities furloughed and workers told to stay home, governments at all levels got busy announcing policies to speed up planning and development approvals. “By fast-tracking assessments,” said NSW premier Gladys Berejiklian, “we will keep people in jobs and keep the construction industry moving, as we ride out the Covid-19 pandemic and set our sights on economic recovery.”

Anything “shovel ready” was good to go: just cut through the red tape to make sure the job numbers don’t plummet. Here in New South Wales, more than $100 billion in infrastructure spending was announced in November: $30 billion to be spent in 2021 alone, $14 billion of it on Sydney-based transport projects. In Canberra, the territory government promised $4.3 billion over four years.

The Victorian government earmarked more than $10 billion in its November budget for landmark transport and infrastructure projects like the Suburban Rail Loop, and speeded up approvals for other significant new developments. The Queensland government pledged more than $13 billion for big infrastructure schemes like the Building Acceleration Program, which offers interest-free loans for new projects.

While it made a smaller contribution than many were seeking, the federal government also stepped in, with $11 billion allocated in its latest budget for infrastructure spending and targeted incentives for construction projects.

Using infrastructure spending as an economic recovery tool makes a lot of sense, especially when the construction sector is as important as it has become in Australia in recent years. Without most of us realising it, the sector has reached the point where it employs around one in ten Australian workers.

A construction workforce of that size means our cities must be dug up, revitalised and rebuilt at an ever-quickening pace. Otherwise governments risk dire job-loss announcements from the industry’s powerful lobby groups, like the Master Builders Association’s declaration last June that hard-hat companies faced a “valley of death,” with the loss of hundreds of thousands of jobs.

In the language of media-friendly announceables, keeping the construction pipeline flowing means not just jobs but also “better services” for communities, including better roads, better bridges, better rail and, potentially, more — and therefore more affordable — housing. What’s not to like?

Quite a bit, it turns out. Using construction to keep the economy buzzing has downsides we hear much less about.

“Shovel ready” projects often proceed without proper consultation, as state governments override local planning processes. Some local councils are receiving more infrastructure investment than ever before, but they lack the resources to properly plan and consult. Cutting through red tape and “green tape” is, of course, code for sidelining environmental and community-impact assessments.

Alarmingly, public-benefit tests for many fast-tracked projects also fail to consider the environmental impact of construction itself. Construction accounts for almost 40 per cent of global carbon emissions, and many worry that rapidly scaling up the industry threatens nations’ ability to meet their Paris Agreement targets.

In Australia, the construction sector generates the same amount of waste as all households put together; it is also in the top three most waste-intensive industries in the country. According to the Australian Bureau of Statistics, for every $1 million in value generated for the economy, construction generates eighty-seven tonnes of waste. The sector’s rapid growth means this problem is increasing at a truly alarming rate: since 2016–17, construction waste grew by as much as 22 per cent.

Making matters worse, Australia’s construction sector is a laggard in adopting innovative techniques and using materials efficiently. Globally, the Construction 2.0 agenda — a push for modern, emissions-limiting building practices — continues to accelerate, with a focus on new materials and technologies to better manage building supplies, reduce waste, improve working conditions and reduce environmental harm. Simply throwing money at the sector to keep workers on the tools feels like a very Australian way of managing our way out of a crisis, particularly when investment in research and development remains notoriously low.

For Australia’s cities, the focus on construction also represents poor long-term planning. A new wave of “circular economy” industries is emerging with a focus on recycling building waste materials into new building products like the “green ceramics” being developed by the University of New South Wales’s Veena Sahajwalla. But the new apartments, new freeways and new transport corridors are swallowing potential sites for light industrial or mixed-use development and leaving little space for these industries to grow.

We tend to think of “innovation precincts” as hubs for technology and knowledge workers, like the Australian Technology Park in Sydney. In fact, cities need innovation in the very nature of building — especially in managing construction waste and using materials efficiently — to meet the challenges thrown up by accelerating urban growth.

It’s hard to make space for this kind of innovation precinct when our methods of measuring the value of land tend to favour short-term over long-term value. As the industry website The Fifth Estate recently reported, residential land is priced at $2000 a square metre, double the value put on industrial land. Rezoning favours the outcomes with highest short-term yield.

These are complicated issues. But how the construction industry is allowed to operate and how we think about the waste it generates tell a big story about how this country plans to meet its targets under the Paris Agreement and deal more energetically with the climate emergency.

Meanwhile, seemingly oblivious, the earthmovers and dozers and diggers are being kept busy, the waste keeps piling up, and the emissions continue. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

The post Jackhammer nation appeared first on Inside Story.

Let that soak in. This year, Victorian government spending will grow by more than 25 per cent. The additional spending will amount to close to $3500 for every man, woman and child in the state. That’s roughly $70 per person, per week, in new spending.

There are tax cuts too, but they are dwarfed by the new spending. If the Morrison government’s budget relies too much on tax cuts to stimulate consumer spending and business investment, the Andrews government’s budget does the reverse: just as its coronavirus strategy was an extreme in top-down control, so is its economic strategy.

Most of that is genuine stimulus: one-off measures in response to the economic devastation of the state by months of lockdown, such as a single line item in the budget papers, with no further breakdown, assigning $2163 million to “business support.”

Some of it is transport and other investment proposed for other reasons, but brought forward as a stimulus to economic activity in a year in which Victoria’s gross state product, even on optimistic assumptions, is projected to be 4 per cent lower than a year earlier. That includes $2.7 billion in this fiscal year that will rapidly, if only briefly, scale up the previously pitiful level of state investment in social housing.

And some of it is not stimulus at all, but uses the cover of stimulus action to step up Victoria’s routine budget spending in areas that interest Labor activists, and to commit to long-term infrastructure investments that would almost certainly fail a genuine cost–benefit analysis.

In short, there is much to praise in this budget, but also much to regret. That includes the government’s commitment to build the worst transport project Melbourne has ever seen: the so-called Suburban Rail Loop, in reality a twenty-six kilometre tunnel under the middle southeastern suburbs from Cheltenham to Box Hill. Tunnels eat money, and the demand for this one is likely to be small. No business case has been produced, and no cost–benefit analysis, but it will cost taxpayers tens of billions of dollars.

It is not the first lemon a Victorian government has tried to sell to voters. The Andrews government won power in 2014 partly because the Liberals thought it would be a great idea to spend $7 billion of taxpayers’ money to build a 4.4 kilometre tunnel under the inner suburbs to link two freeways; the taxpayers disagreed. But the Suburban Rail Loop is the lemon that makes other lemons taste like oranges.

Not surprisingly, the ratings agencies yesterday implied that this budget could lose Victoria its AAA credit rating. Standard & Poor’s said there was a 50–50 chance that the state could be downgraded, and this would happen if it came to the view that “the state’s financial management has weakened.”

Well, with respect, it clearly has: as far out as 2023–24, well past the time for stimulus, the budget projects $3.6 billion a year of new routine spending — $1.6 billion of it net of spending cuts and contingencies allowed for in the budget — plus roughly $6 billion a year of additional investment in assets.

Stimulus is certainly what Victoria needs right now, and this budget delivers it. But it has to be paid for, just as investments in roads, rail, schools and hospitals all have to be paid for one day. Governments should be brave and bold about delivering stimulus at this time. On that front, this budget succeeds admirably.

But equally, governments should be wary about the long-term costs of doing so, knowing that the bills will come in at some point, to be covered either directly or through permanently higher interest bills. They should not use the cover of stimulus to smuggle in a step-up in spending levels, and they need to prioritise asset investments that will deliver most bang for buck. This budget fails on both counts.

A bit of background is necessary here, because Twitter gives me the impression that many Victorians have little idea how different their state’s economic position is from that of the rest of Australia. Not only was Victoria home to 90 per cent of the Australians who died of coronavirus, but even after the unexpectedly large rebound in jobs last month, the state accounted for 94 per cent of Australia’s net loss of jobs in the year to October: 124,000 jobs lost in Victoria but just 8000 in the rest of Australia.

Female employment year on year grew by 24,000 in the rest of Australia, but shrank by 105,000 in Victoria, where hospitality and entertainment were largely shut down. For the same reasons, employment of workers aged fifteen to twenty-four shrank by 4000 in the rest of Australia, but by 92,000 in Victoria.

We won’t know the full devastation of lost businesses until JobKeeper ends, but the intensity and duration of Victoria’s lockdowns make it likely that it will also lose more workplaces than the rest of Australia combined. Even with that massive increase in state government spending, projections by the Victorian Treasury and its federal counterpart together imply that while Victoria’s output this fiscal year will be 4 per cent lower than a year ago, output will be only marginally lower in the rest of Australia.

And even that forecast relies on the government’s huge spending increase igniting an extraordinarily rapid recovery. The budget projects that real gross state product will grow by 9 per cent over the course of 2021, the sort of growth rate normally claimed only by China. And most of that would happen in the first half of the year — assuming no more coronavirus and no more lockdowns. As financial market insiders would put it, the risks in that forecast are on the downside.

The level of stimulus is extraordinary, however, and it’s welcome. Unlike the Morrison government, the Andrews government is doing as economists have suggested. In response to the slump in housing construction, it has introduced several new policies, but the big one is a crash program of building social housing, for which waiting lists now extend many years. The promise of another 9000 homes for some of those unable to afford secure and suitable housing in the private market is a marriage of good economic and social policies.

One hopes the government will not then just revert to the inadequate investment levels of the past, as the Gillard government did when Kevin Rudd’s 2009–10 public housing stimulus expired. In fairness, this depends even more on what the federal government is willing to do — which, at present, is not much.

The budget also commits $250 million to the Grattan Institute’s proposal for a two-year program to hire tutors to help struggling schoolchildren catch up, particularly those most affected by the lockdowns. While most stimulus programs, including new infrastructure, provide jobs for blokes, this one will provide much-needed jobs for women.

The budget also envisages lifting the current level of infrastructure spending by almost half, which would be welcome if it also included a transparent, independent way of selecting priority projects. No such luck. In Victoria, as elsewhere, the choice of projects is driven by what the government thinks will give it the most political bang for buck. What will give Victorians the most social/economic bang for their buck is irrelevant.

The Victorian Liberals are still clinging to the East West Link as their branded project, even though it has twice been rejected by the voters and three times by cost–benefit analyses. Labor has done much better with its branded project of removing level crossings, but with that scheme now growing familiar, Andrews has been keen to find a new project.

The federal Liberals have focused on getting a train line built to Melbourne Airport. It might not be needed — it will offer no more than Skybus already provides, except easier access from other suburban lines — but the polls show it is the top project among voters. Saturday’s agreement between the Andrews and Morrison governments means it will now become reality, with the two governments adopting the cheaper of two alternative proposals. The cost is pencilled in as $10 billion, and the completion date as 2029.

Andrews’s own new branded project, however, is the Suburban Rail Loop. It appears that this emerged from his political circle rather than from the railways, let alone transport economists. As originally presented, it was intended to run for ninety kilometres around Melbourne’s middle and outer suburbs, largely in tunnels, with a number of stations in the southeast but very few in the west. The cost was claimed to be $50 billion, which no one believed.

But the government is now proposing to build only the southeastern quarter of the loop, running underground from Southland shopping plaza through Monash and Deakin universities and selected suburban shopping centres (which developers own the redevelopment rights, I wonder?) to Box Hill station in Melbourne’s Chinese heartland.

The budget commits $2.2 billion to the initial stages, primarily for planning, land purchase and so on. Treasurer Tim Pallas promised that a business case will be presented next year, and no contracts for construction would be let until the voters have their say at the 2022 election.

Even the cost of this twenty-six kilometre tunnel might well be $50 billion: no one knows, including the government, which has committed to build it regardless. It is economic lunacy to choose infrastructure projects in this way. Infrastructure Victoria, which was set up to provide objective advice to the government on priorities, has been ignored and sidelined.

No government can build every project we want: it has to prioritise, and select which projects will give the community most value for money. Building the Suburban Rail Loop means the government will not have the resources to take up other, more urgent projects such as the second line of the Metro, intended to run from Clifton Hill to the massive redevelopment site of Fishermans Bend.

Choices have implications. In the ACT, the Labor–Greens government had to shelve its hospital redevelopment plan for a whole four-year term to pay for its own branded infrastructure project, Canberra’s first tramline. The huge cost of building a long underground railway to meet scant demand will push many other projects to the sidelines, possibly for decades.

It would be welcome if, in 2022, the Liberals ditched the East West Link and promised instead to ask Infrastructure Victoria to carry out cost–benefit studies of the key infrastructure choices under discussion. Get the facts, then decide. By contrast, the Andrews government has taken its lead from the Queen of Hearts in the trial scene of Alice in Wonderland: “Sentence first — verdict afterwards.”

The Suburban Rail Loop is the prime example of a problem that afflicts not only the Victorian budget but also Australian politics generally. Just as the hard right sees every issue through the prism of its fixation on waging culture war, so governments focus on what they brand as their projects, and which projects are politically rewarding to announce, rather than on delivering services to us that provide the best bang for buck.

Then, once the political gains of the announcement have been banked, they lose interest in delivering outcomes. The $5 billion the federal government promised for projects in northern Australia, and failed to deliver, is a classic example. But all governments now make wide use of another form of it: financing new projects by “reprioritising” old ones.

This budget has a beauty: a one-line item “reprioritising” $1836 million (2 per cent) of government spending this year alone, and a similar amount over the next three years. It was obscured so well in the budget papers (as one line in table 4.5 of Budget Paper 2) that as far as I can see, no one in the mainstream media reported it. It’s a way of saying: “Oh, by the way, $3.7 billion of the spending we promised you in past budgets won’t be delivered. But just look at what we’re offering you this time!”

There is no information on what past promises have been discarded in this way. It’s politically much easier to make spending cuts that are not announced than to make ones that are. This budget appears to have no announced spending cuts, but if you can cut 2 per cent from spending without announcing what you have cut, why go to the trouble of being transparent about it? This is an issue that oppositions and transparency reformers need to focus on.

One of the budget papers was also discarded: the old Budget Paper 4, the detailed statement of the government’s investment program. Treasurer Pallas blamed the rush of getting the budget ready, and promised it would be back for the budget next May. We have to take him at his word, but the issue matters.

Among other things, BP4 told us exactly how much the government has spent, is spending, and plans to spend on each project, and when it is expected to finish. It is the annual fessing-up to any blowouts in cost or completion dates. It is also a full account of the government’s investment priorities. It should be required by other governments as well, not least the federal government.

It’s also notable that policy commitments are now being made under increasingly long timespans, to make them look bigger. The budget papers tell us Victoria has now committed to $134 billion of new investments, which is roughly ten times the level of its annual investment up to now, and seven times the level projected from here on.

There is only one tax rise in this budget: the little tax on electric vehicles ($250 a year for fully-electric vehicles, $200 for hybrids) to ensure that they pay something towards the cost of providing the roads they drive on. This has provoked predictable outrage, but I seriously question whether it will change anyone’s decision on whether to buy an electric car. Pallas said yesterday that Treasury assumes it will have no impact on vehicle demand.

Politically, despite all the problems it has/had created with Covid-19, the Andrews government remains dominant. This budget comes at the midway point of its four-year term, and the polls tell us Labor would comfortably win any election held now. The apparent eradication of the virus, at least while Victoria was isolated from the world, has turned a looming disaster into a political triumph.

Coronavirus is an ongoing story, with more twists and turns to come. Economic concerns have been ignored by Victorians and their government, but they will become more prominent as fears of the virus recede. This budget seems to leave out nothing in its willingness to lift the economy out of recession through government spending. But I did find one place where the government had exercised spending restraint.

On the same page as the commitment to spend $2200 million on the preliminaries of the Suburban Rail Loop, the government has committed to spend just $4 million over the next four years to improve bus services — the form of public transport that residents of the outer suburbs most rely on. •

The post Stimulus, and more, for Victoria appeared first on Inside Story.

The commission called the results “mediocre” and “troubling,” but for some sectors they were downright appalling. In farming, mining, construction, transport and retail, labour productivity went backwards. In other words, workers in those sectors were producing less per hour than they had the year before. The latest numbers continued a trend of weakening productivity growth that the commission dates back to 2013.

To understand why Australia’s productivity crisis is so serious, it’s worth recognising why productivity matters. Through Australia’s history, our economy has become massively more productive. Australian workers today produce nearly four times as much output every hour than in the 1960s. This has been a central driver of rising living standards.

Productivity measures how efficiently the economy turns labour and capital into goods and services. When the Australian economy becomes more productive, we are producing more output from a given level of inputs. Higher productivity creates the potential for household incomes to rise faster than the rate of inflation. A more productive economy can be more generous to the disadvantaged, can reduce its impact on the natural environment, and can play a bigger role in international affairs.

Productivity doesn’t automatically bring fairness: in recent times, workers haven’t received their fair share of the modest productivity growth delivered by the economy. But without rising productivity, wages will eventually stagnate and living standards will stop increasing. Whether your priority is longer lifespans or lower taxes, raising Newstart or building motorways, you should be in favour of productivity growth. Productivity is the engine of the economy, and right now, that engine is making a nasty rattling noise.

A few weeks after the Productivity Commission delivered its damning annual update, a group of boffins gathered together in Sydney for a conference about productivity. Convened by the OECD, a global think tank for advanced countries, the event brought together international experts to discuss the problem and suggest solutions.

For Australia, the most hard-hitting presentation came from Treasury’s Meghan Quinn, who revealed that researchers in her department, led by Dan Andrews, had been investing in a new analysis that links together workers and firms, and delving deeply into fresh data about the dynamics of the Australian economy. Since 2002, Quinn showed, the most productive Australian firms (the top 5 per cent) had not kept pace with the most productive firms globally. In fact, Australia’s “productivity frontier” has slipped back by about one-third. The best of “Made in Australia” hasn’t kept pace with the best of “Made in Germany,” “Made in the Netherlands” or even “Made in America.”

And then there’s the other 95 per cent. For these firms, productivity seems an alien concept. In the past two decades, their output per hour worked has barely risen. In other words, nineteen out of twenty Australian firms don’t produce much more per hour than they did when Sydney hosted the Olympics,

What’s going wrong? Part of the problem is that many firms aren’t investing in new technologies. Less than half have invested in data analytics or intelligent software systems. Only three in five have invested in cyber security, making them vulnerable to hacking and ransomware attacks.

It’s not just that companies aren’t investing in technology — they’re not investing in anything at all. This year, the Productivity Commission had to use a new term in its report. Typically, the commission measures how the amount of capital per worker has increased — a concept known as “capital deepening.” This year, for the first time on record, the amount of capital per worker went backwards. The economy had experienced “capital shallowing.” Given that capital deepening has accounted for about three-quarters of labour productivity growth, this is frightening.

Across the economy, businesses are cutting back on research and development and investing less in good management. The share of firms that are “innovative” is no longer growing. A survey of management practices in manufacturing firms found that Australia’s managers rank below those in Canada, Sweden, Japan, Germany and the United States.

It’s been said that you could already tell in the 1950s that Detroit would one day suffer a crash. Although automakers were thriving, the city lacked start-ups. Once the traditional car-manufacturing plants got into trouble, the city slumped. What is true for Detroit holds for cities, regions and countries across the globe: newborn firms are as critical to an economy as newborn babies are to a society’s demography, bringing fresh approaches, shaking up existing industries, and offering new opportunities to workers.

Yet for all the talk of Australia as a “start-up nation,” our new-business creation rate isn’t accelerating. In fact, our start-up rate seems to be stalling, though it’s partly masked by a quirk in the way we measure new businesses. The conventional start-up figures, which are rising, include anyone who registers for an Australian Business Number. This means that when a public servant takes a voluntary redundancy, only to come back the next month as a consultant, he is registered as a new business. Likewise when a tradie is “encouraged” by her boss to become a sham contractor. Neither of these cases involves true business formation, so each distorts the data.

The way to get around this issue is to look only at “employing businesses”: firms that hire at least one worker. On this metric, Treasury estimates that the new-business formation rate in the early 2000s was 14 per cent a year. Now, it’s down to 11 per cent a year. Strip out non-employing businesses and it turns out that our economy simply isn’t hatching new firms like it used to.

Another sign that the economy may be stagnating comes from figures on job-switching. A common myth is that changing jobs is bad for workers, and is happening more frequently. In both cases, the reverse is true. Workers who switch jobs typically experience a significant pay increase. In fact, if you study wages over a career, the largest salary rises tend to come when employees switch firms. Occasionally, job changes will be involuntary and painful — but more often they are voluntary and beneficial.

To see why, imagine for a moment that Australia instituted a rule saying that no one can switch jobs. People who don’t like their boss or want to try working in a different sector wouldn’t be allowed to make the change. Growing companies couldn’t attract workers from their competitors. Such a rule would be profoundly anti-worker. Consistent with this, Treasury’s analysis finds that a drop of one percentage point in the job-switching rate is associated with a 0.5 percentage point drop in wage growth across the economy.

While changing jobs tends to benefit workers, it is happening less often than in past decades. Forget what you’ve read about a fast-churning labour market and the end of “jobs for life”; workers are staying longer in their jobs. In the early 2000s, the rate of job-switching was 11 per cent a year. Now, it’s down to 8 per cent. It’s not the fault of employees: there are simply fewer good opportunities available. According to Treasury’s analysis, much of the drop in job-switching is because workers are less able to transition from mature firms to young firms. With fewer start-ups firms, it stands to reason that there are fewer start-up jobs.

What is to be done? Some people see productivity as a matter of cutting: cutting protections for employees, cutting environmental regulations and cutting the social safety net. Yet when the Productivity Commission was commissioned by the Coalition to compile a list of reforms that might raise national productivity, weakening workplace protections didn’t appear among its top twenty-eight recommendations. Rejecting claims by groups such as the Institute of Public Affairs and the Minerals Council of Australia, the commission’s 2017 Shifting the Dial report noted that “most of the workplace relations law works well to get the balance right between the desires of firms for a fully flexible resource and the need to protect workers from exploitation.”

By contrast, a progressive plan to raise productivity would recognise that the productivity slump has coincided with the marked rise in inequality over the past generation. Earnings inequality, household-income inequality, wealth inequality and top-income shares have all risen in Australia since the 1970s. In several advanced countries, including Australia, productivity growth has outpaced real wage growth: a problem the OECD calls “the productivity–inclusiveness nexus.” Ensuring that workers get an equitable share of productivity gains isn’t just a matter of fairness. Middle-class growth supports consumer demand, which in turn allows businesses to grow. It is not a coincidence that household consumption is languishing at the same time as real wage growth has slowed.

A progressive agenda for raising productivity would fall into three categories: investing in individuals, investing in infrastructure, and investing in institutions.

Investing in individuals: Education is a critical component of productivity. The median woman with a bachelor’s degree earns roughly $800,000 more in a lifetime than a year 12 graduate who completes no further study. For men, the lifetime difference is $1.1 million. This represents a 65 per cent earnings boost for men and an 80 per cent earnings boost for women.

Graduates are more likely to start new enterprises, and more likely to engage in social entrepreneurship. Education also has positive spillover effects, with better-skilled employees raising the productivity of their co-workers.

Over the past generation, the average educational attainment of the workforce has significantly increased, with Australians more likely to complete year 12 and more likely to attend university. But the share of people completing an apprenticeship or traineeship has collapsed, and is currently at its lowest rate since at least 2005. Scandals among private vocational education providers have eroded confidence in that system.

At a school level, completion rates are up, but we have a massive challenge with test scores. The OECD’s PISA tests show a troubling trend, with teenagers’ scores in literacy, numeracy and science declining significantly since the turn of the century. This continues a pattern that Melbourne University’s Chris Ryan and I documented some years ago, when we showed that teens’ literacy and numeracy levels had failed to rise between the 1960s and the 2000s.

At a university level, arbitrary caps on domestic student places were removed several years ago. The principle was simple: if a young person is talented enough to complete a degree, why not allow universities to make a place available? The policy significantly expanded university places, and therefore the productive potential of the economy. But since the beginning of 2018, the federal government has frozen university grants, which has effectively ended the demand-driven system. This has particularly hurt universities with expanding enrolments, and has hit students who want to study in disciplines that rely heavily on government funding, particularly engineering, sciences and allied health.

In a changing labour market, we should aspire to an Australia in which all young people get a great high school education and a post-school qualification. A much stronger focus on teacher quality would improve the performance of Australia’s schools. Pre-apprenticeships can reduce dropout rates in vocational education (currently half of those who start an apprenticeship do not finish). Restoring the demand-driven funding system would enable almost 200,000 more Australians to attend university by 2030. Many of those new students would be Indigenous, from low-income families, or the first in their family to attend university.

To be productive, people also need to be healthy. As the Productivity Commission’s Shifting the Dial report highlighted, it is also vital to ensure that the healthcare system is run as productively as possible. Medicare needs to adapt to provide comprehensive care that rewards general practitioners and other providers for managing complex cases of chronic illness. An examination of the primary care system by the Grattan Institute found that the dominant Medicare fee-for-service model encourages “reactive rather than systematic care,” and that “much greater emphasis needs to be placed on service coordination and integration for people with chronic disease.” Where interventions have been identified as low value, more effort should be put into informing healthcare providers, including through “do not do” lists. Electronic health records can also improve the productivity of the healthcare system by avoiding duplicate tests and ensuring that physicians have the information they need to make the right decisions.

Investing in infrastructure: As technologies advance, no piece of infrastructure is more important than high-speed internet. The difference between fibre-to-the-premises and fibre-to-the-node is critical for applications such as cloud computing, high-definition videoconferencing, telemedicine and distance education.

Choosing to replace the fibre rollout with a multi-technology mix has led to services that are slower, less reliable and more expensive. Time without internet connectivity is a critical source of lost productivity for students and professionals working from home. Unreliable copper services are letting many companies down. The immediate needs for the NBN sound like the advice parents might give a wayward teen: more fibre, higher standards, and proper accountability when providers fall short. It’s also vital that Australia gets the rollout of 5G right, providing the enabling infrastructure not only for smartphones but also for the Internet of Things.

Open data innovation can also be a major driver of economic growth. Four-fifths of American smartphone users use an app that relies on open data every day. The British Open Data Institute has identified open data–driven businesses that employ more than 500,000 people and turn over £92 million. New Zealand’s Integrated Data Infrastructure approach combines anonymised information on health, education and crime to offer insights to policymakers and researchers. Governments at all levels should be identifying high-value datasets that can be anonymised and made available to boost productivity.

Governments also need to improve their data policies. Reinventure’s Danny Gilligan points out that government policies on privacy and cybersecurity are like a brake, while innovation policies are like an accelerator. Yet unlike a car, governments often put the brake and the accelerator a long way away from each other. “Brakes” like the Critical Infrastructure Centre don’t spend enough time talking with “accelerators” like Data61. Gilligan contrasts the situation with Singapore, which coordinates how government engages with data-economy policies to minimise the costs and maximise the benefits. Data could be a significant source of productivity gains for the Australian economy in coming decades, but only if we get the infrastructure right.

Information superhighways aren’t the only kind of highway. Traffic congestion erodes our quality of life and acts as a handbrake on productivity. A fast-growing nation clearly needs better road networks, urban public transport projects and additional parking spaces at public transport hubs. But the answer isn’t merely to “build more stuff,” it’s to build the right stuff. Infrastructure spending must be based on economic cost–benefit analysis, not political calculus. This means giving greater focus to projects that are on the Infrastructure Australia priority list, and for which a business case has been completed.

Real social gains can sometimes come from arrangements such as value capture and public–private partnerships, but the trickiest infrastructure question is “should we build it?” not “how do we finance it?” If the benefits don’t exceed the costs, transport infrastructure is a bad idea, regardless of whether it will be paid for by today’s taxpayers or tomorrow’s taxpayers. And there’s a semitrailer barrelling towards us: as the Productivity Commission’s Shifting the Dial report notes, road-user charging is set for a shake-up whether we like it or not. Right now, the system depends almost entirely on fuel taxes, which will disappear with the advent of electric cars.

Although a smooth transition to clean energy is critical to maintaining strong productivity growth, Australia’s emissions and energy prices are rising. That contrasts with twenty-one other nations — including the United States, Britain, France and Germany — that have decoupled their carbon pollution from economic growth since the start of the century.

Inevitably, our energy system will move from old coal generation to gas generation and renewables. A more productive energy system will improve the productivity of the whole economy. Delaying the transition will only push up prices and increase pollution. As the Reserve Bank warns, climate-related losses pose a risk for businesses and households, and financial stability “will be better served by an orderly transition rather than an abrupt one.”

Straightforward energy reforms can be introduced. The Productivity Commission estimates that reforms associated with the electricity transmission network — such as critical peak pricing and the rollout of smart meters — could generate large efficiency gains. It points out that plenty of other nations have replaced piecemeal solutions with a single price on carbon. It recommends that governments more clearly articulate the trade-off between reliability and cost. And it suggests that we get pricing right, so that producers pay for additional costs they impose on the system (such as frequency management), and users pay for access to the grid (so that people cannot simply use it as a back-up system).

Investing in institutions: The third part of the progressive productivity agenda is to improve institutions so that they support a more productive economy. This starts with how government institutions support innovation. As past Australian Innovation System reports have noted, innovation and adaptation to technology are vital for productivity growth. However, the 2019 Global Innovation Index ranks Australia just twenty-second in the world. Since the global financial crisis, the volume of venture capital investment has fallen by nearly two-thirds. Innovation collaboration between government, business and academia is less common in Australia than in many other OECD nations.

The economic rationale for subsidising research and innovation is that it is not only businesses that benefits from new techniques and products — the community does as well. Federal government funding for science, research and innovation through grants and tax subsidies amounts to at least $10 billion annually. But right now, there isn’t much incentive for firms to work with universities. The government has been slow to implement its proposed Consumer Data Right. Educational bodies and disability groups have complained about the stultifying effect of a copyright law that lacks fair use exemptions. Ironically, innovation policy isn’t very innovative, since the federal government doesn’t devote enough energy to evaluating the impact of its many innovation policies.

The institutions that support trade and investment are also essential to improving productivity. As a medium-sized economy, Australia’s productivity performance is invariably intertwined with our engagement in the region. World trade is just another form of comparative advantage, letting countries specialise in what they do best. Just as your hairdresser doesn’t defeat you when you get a haircut, Japan doesn’t defeat you when you buy a PlayStation. Sellers aren’t vanquishing buyers — both are benefiting from specialisation.

We must do openness better. When it comes to trade, it’s vital to recognise that the best type of trade agreements are multilateral agreements, followed by regional and then bilateral. Bilateral deals can have benefits but can also distort trade. One way of ensuring that trade agreements are in Australia’s economic interest would be to allow the Productivity Commission to scrutinise them before signing, and again a decade after they come into force. This would provide some certainty that vested groups had not captured the negotiation process, and ensure that if we make mistakes, we learn from them.

On foreign investment policy, it would be worth reviewing the plethora of screening thresholds. It is difficult to mount an economic justification for requiring the Foreign Investment Review Board to approve a $300 million business acquisition by a Canadian investor but not a US investor. It would help the public conversation on foreign investment if the Treasury set out reasons for all significant foreign investment decisions: both acceptances and rejections.

We can also be more productive through an institutional push to improve Asian engagement. As the Committee for Economic Development of Australia notes, Australia has less outbound foreign direct investment in China, Japan, Korea, India and all ASEAN countries combined than it does in New Zealand. Among year 12 students, only one in fifty study Chinese. Fewer year 12 students study Indonesian than in 1972. AsiaLink found that more than half of all ASX200 board members demonstrated little or no knowledge of Asian markets. If we are to grow services exports to our region, a higher level of Asia literacy is essential: from the classrooms to the boardroom.

And then there are the institutions that govern markets. In uncompetitive markets, firms have a weaker incentive to pursue productivity gains. One British study found that a 25 per cent increase in market concentration leads to a 1 per cent fall in productivity. Another study attributed about one-fifth of productivity growth to better competition policy.

Over recent decades, several sectors have become significantly more concentrated. The annual volume of mergers has increased fivefold since 1990. At the same time, as we’ve seen, the new-business formation rate has fallen. The result is a significant increase in market concentration across key industries in Australia. One rule of thumb is that a market is excessively concentrated if the largest four firms control more than a third of it. Under this definition, ANU’s Adam Triggs and I found that over half of Australian industries are overly concentrated. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms comprise more than 80 per cent of the market. The World Economic Forum’s Global Competitiveness Report found that Australia does badly on “the extent of market dominance,” ranking us fifty-third in the world.

Compared with many other countries, penalties for anti-competitive conduct in Australia are too low, and our competition watchdog is underfunded. Unlike in other countries, the Australian Competition and Consumer Commission lacks a market studies power, meaning it can’t use investigatory powers to explore public interest issues such as pricing discrepancies and increased market concentration. And after approving a merger, the commission has no systematic process of deciding whether it made a mistake. Like a coach who watches the video replays, post-merger reviews of productivity, wages and prices could help improve decisions in the future.

Tax institutions matter too. Good tax reform involves closing loopholes. As the late Harvard economist Martin Feldstein liked to point out, winding back tax concessions raises revenue more efficiently than increasing tax rates. In economic jargon, closing loopholes has a lower deadweight cost than raising rates. Yet, as the 2019 federal election showed, the economics are easier than the politics. Every loophole in the personal and corporate tax system has its ferocious defenders. If Australia wants to increase productivity, it needs to consider whether it can do so with a tax system that has more holes than a block of Swiss cheese.

Another key set of institutions are those governing management quality. Firms with a healthy management culture are places where employees look forward to arriving at work, where people respect one another, and where diversity flourishes. The best companies listen to their employees, implement good ideas regardless of their origins, and aren’t afraid of change.

The quality of management directly shapes the ability of businesses to adapt and innovate. Managers who lack appropriate technical and personal skills can’t provide the leadership that their firm needs to find continual productivity improvements. Managers who face overly short-term incentives may fail to focus on sustainability and longer-term productivity gains. Discrimination and unconscious bias may lead organisations to overlook talented applicants for appointment and advancement.

There are many creative ways companies can draw on the ideas of their workforce. In one large New Zealand dairy company, for instance, the union initiated a management improvement system with the aim of boosting productivity. Workers are trained in productivity measurement, and the concepts underpinning productivity growth, such as change management and improved teamwork. From their first day on the job, they are encouraged to take responsibility for raising quality, reducing waste, and even considering whether new products can be made with material that is currently being discarded. Managers play a role more akin to coaches than commanders, urging workers to think about improving the way the firm is run. The firm raised its output and quality, but without any loss of jobs.

On a systemic level, a number of German companies foster productivity growth by having worker representatives on company boards. There is even a word for it — Mitbestimmung — meaning worker participation in a company’s decision-making. Many of these firms find that a less confrontational approach produces significant efficiency gains. This occurs to some extent in Australia through our industry superannuation system. Industry superannuation funds are established jointly through employer and employee representatives, and as they become significant investors they have the ability to encourage corporate managers to make better long-term decisions.

There is some evidence that employees in worker-owned firms, such as cooperatives, are more productive and more satisfied. Government policy could do more to foster the growth of cooperatives and mutuals by facilitating greater access to capital for such firms, and access to government grants, particularly for Indigenous cooperatives under the Indigenous Advancement Strategy program.

Productivity gains also need to be shared. Just as business owners would have little incentive to invest in productivity-boosting improvements if none of the benefits translated into higher profits, so too workers have less incentive to support measures that increase productivity if they do not lead to higher wages.

In the 1970s, real wage growth outpaced productivity gains. Economists called it “the real wage overhang,” and the solution was to moderate wage growth so that it came back into line with labour productivity. Today, the economy faces the reverse problem. Even the modest increases in labour productivity that the economy has been producing haven’t flowed into workers’ pay packets. Australia is now experiencing a “real wage underhang.”

As in other nations, this decoupling of wage gains from productivity growth has led to a fall in the labour share of national income. Some estimates suggest that the drop in the labour share since the 1970s might have been as large as 15 percentage points.

One of the theories for the drop in the labour share is that monopolies don’t need as many employees. As economist Jan Eeckhout argued at a recent Reserve Bank conference, “market power depresses the demand for labour: firms set higher prices and therefore they produce less output, for which they need less labour. For the labour market to be in equilibrium, the economy moves along the upward sloping labour supply curve until a new, lower wage is obtained.” Other research presented at the same conference found that the wage slowdown was especially pronounced in sectors that don’t face international competition. Economists have long known that monopolies hurt consumers — now it appears they can harm workers too.

Left unchecked, this trend threatens to undermine the incentive for employees to continue to pursue productivity gains. A more collaborative approach to industrial relations is likely to be in the long-term interests of capital as well as labour. As economist Saul Eslake points out, corporate managers aren’t judged on their share of profits but on their actual profits. Firms would be better with a smaller share of a growing pie than a larger slice of a shrinking one.

Government institutions often pay lip service to evidence-based policy. Instead, they’re often driven by the idiosyncratic ideas of a few people in charge — what has been called “eminence-based policy.” In my book Randomistas: How Radical Researchers Changed Our World, I argue that agencies should be more modest about theories, and more willing to rigorously evaluate programs. One way of doing this would be to systematically conduct randomised policy trials, using treatment and control groups to test government programs in the way that companies test new pharmaceuticals. Already, randomised trials have provided unexpected insights about how to reduce recidivism by drug offenders, how to use video feedback in teacher training, and how to encourage new-business formation in developing nations. Building a better feedback loop helps drive continuous improvement in the productivity of government.

Too often, Australians see productivity as a dirty word — synonymous with working harder, rather than working smarter. But productivity should lead to a better quality of life, in which people have more choices in the workplace and more opportunities to spend time with friends and family. The path towards higher productivity should also allow us to live in a cleaner environment, and to be more generous to the needy. Tackling major challenges, from gender equity to traffic congestion, is easier in a highly productive economy.

Economists talk about the “rule of seventy-two.” If you want to know how long it takes to double living standards, just divide seventy-two by the growth rate. This means that a 2 per cent growth rate doubles living standards every thirty-six years, or about once a generation. But a 4 per cent growth rate doubles living standards every eighteen years, or twice a generation. That’s why we should invest in individuals, infrastructure and institutions, to lay the groundwork for lasting improvements to Australia’s productivity growth rate.

Australia doesn’t have to choose between fairness and productivity. We should be aiming to achieve inclusive growth by sharing productivity gains across the community. This not only creates greater wellbeing but also supports ongoing reform. If an elite cabal captures all of the benefits of reform, its members should not be surprised if the next round of reforms meets a public backlash. The goal should be to raise productivity to the benefit of all Australians. •

The post A progressive agenda for tackling Australia’s productivity crisis appeared first on Inside Story.

Only with a lot of guile and resourcefulness have treasurer Tim Pallas and his Treasury team delivered a projected budget surplus, using a mix of cash-and-grab raids on obscure state funds, small tax rises in obscure areas, and unstated, obscure and unidentifiable spending cuts.

How much could go wrong when your state is booming economically — real spending in Victoria grew almost 5 per cent in 2018 — and is one of the nation’s two growth engines? When your party is fresh from a sweeping election victory in which it decimated the opposition? And when a flood of migration from overseas and interstate keeps creating jobs and new spending like a magic pudding?

Well, plenty has gone wrong for Tim Pallas in the past year (offset by his stunning success in losing weight). For example:

• Housing prices in Victoria have slumped by 10 per cent and home sales by 15 per cent, cutting more than $1 billion off the state’s stamp duty receipts in 2018–19 alone, and even more in the years ahead.

• New national accounting standards will require governments to bring many of their public–private partnership projects back on the budget books — a long-overdue move that Victoria supported. But it abruptly lifts the state’s net debt by $9.6 billion, accounting for the bulk of a spectacular growth in net debt from $23 billion to $39 billion. It also shifts $481 million of previously off-budget interest bills onto the budget.

• Labor won its second term last November on a platform that committed it to more free-spending budgets to boost investment in transport infrastructure and social spending alike. And it doesn’t pay to break promises.

The last four years have been high summer for the Victorian economy. In 2018, real spending in the state was almost 20 per cent higher than in 2014. The state now has 433,000 more people in jobs, three-quarters of them full-time, than when Labor took office in November 2014. And growth has been so high because the state’s population has increased by 570,000 in four years, or almost 10 per cent; Melbourne alone has grown by roughly 500,000 in that time. It’s been boom time.

But this boom time has not seen the state salt away funds to tide it through the inevitable bust. On the contrary. The budget surpluses have been kept small because Labor had other priorities — many of them. In the Andrews government’s first term, the state’s wage bill jumped by a third, total spending on services rose 30 per cent — and, after a slow start, transport investment almost trebled, spearheaded by its policy of removing fifty level crossings from Melbourne’s congested roads.

Sure, taxes rose in line with the increased services. Debt was piled up to finance the road and rail projects, justifiably, given how cheap it is for governments to borrow. It all went down well with the voters, who gave Labor a landslide win at November’s election.

By then, however, the housing boom had already bust. The Victorian Treasury estimates that falling home prices and sales cost the budget more than $1 billion in 2018–19, and roughly $1.25 billion a year for the next three years, relative to its forecasts in last year’s budget. (Peter Martin, then at the Age, warned at the time that Treasury’s forecasts were far too rosy. He sure was proved right.)

The boom saw stamp duty on property transfers become Victoria’s biggest tax. Its collapse has punched one hole in the budget, the new accounting standards have punched another, and the surplus was always more slender than it should have been. So how could Pallas deliver the new spending Labor promised in the campaign — on services alone, $3.7 billion in the coming financial year, plus record infrastructure spending — without big tax rises?

The answer is the real core of this year’s budget. The government leaked its own tax rises to the media early — basically, because they were surprisingly small and obscure, targeting groups with little public support: primarily, foreigners buying property, people buying luxury cars, and company restructures. They add up to just $180 million a year in a budget spending $80 billion a year. The tax hikes on foreign property buyers simply replicate what the Coalition did across the border in New South Wales.

Instead of raising taxes, Pallas and his team used a clever mix of measures to fill the financing gap and emerge with a projected surplus for 2019–20 of just over $1 billion. Their recipe (explained nowhere in the budget papers) was this:

• Spending was cut in the way governments now prefer to do it: by “reprioritising” existing spending plans (no dollar figure given); delaying projects yet to begin (saving $694 million in 2019–20); and cutting every department’s funding by 0.5 per cent, except for frontline services such as teachers, nurses and police ($251 million, but rising steeply thereafter, as a taskforce reviews all spending to search for efficiencies).

That’s on top of the annual “general efficiency” spending cuts, which in Victoria see every department start off with effectively the same nominal funding as the year before, even though inflation means that buys it about 2.5 per cent less. Sadly, often essential maintenance bears the brunt of the cuts, as you can see when you visit a Victorian national park or tourist spot and find it full of weeds. In principle, though, it’s as good a way of cutting spending as any other — and after four years of big spending increases, most departments should have plenty of fat to cut.

• Other taxes came to the rescue. Payroll tax soared as jobs boomed. And while stamp duties fell, new land tax valuations took effect, based on property values close to the height of the boom. Land tax bills in some areas are now double what they were four years ago — with disastrous effects for some, but highly beneficial effects for the budget. (Labor has promised annual reviews in future to prevent such big hikes again.)

• Commonwealth grants came to the rescue. The budget excludes all of the federal Coalition’s election promises — such as spending $7 billion itself to build the controversial East West Link (a politically inspired project that has failed three cost–benefit examinations) and $2 billion to extend the Geelong train line to Waurn Ponds — as these are not yet part of any agreement with the Victorian government (and the first is unlikely ever to be). Even without them, grants are forecast to swell by 50 per cent in five years, as Victoria’s population growth, low mineral royalties, and real estate slump qualify it for a larger share of GST funding.

• The government set up a new Victorian Infrastructure Fund and raided the “hollow logs” of the state insurance agencies to pay for it. The Transport Accident Commission, Worksafe and the Victorian Managed Insurance Authority will pay for their (in the government’s eyes, excessively) prudent management by being forced to cough up $2.3 billion in the next four years to finance priority infrastructure projects.

• Victoria’s Treasury has been optimistic in forecasting the economic parameters. In Victoria’s budget, as in Canberra’s, wage rises are assumed to rise rapidly in coming years — which many economists think unlikely. The slump in property prices and sales is assumed to turn around in coming months, giving way to a gradual recovery. And in summing up the state of the economy, Treasury argues that “the risks to the Victorian economic outlook are broadly balanced.” That’s an optimism you don’t see too often these days.

The net effect is that the state is forecast to generate a $1 billion surplus of revenue over services spending in 2019–20, and bigger ones ahead. They would help finance its record infrastructure spending, which Pallas says will average $13.4 billion a year over the next four years. Most of that is on transport, with four projects dominating: the West Gate road tunnel ($1.6 billion), the Melbourne Metro rail tunnel (also $1.6 billion), the level crossings removals ($1.45 billion), and a much-needed investment in new trains ($910 million).

The government is also planning its next wave of mega-projects: the North East Link to complete Melbourne’s ring road and widen the Eastern Freeway (total cost $15.6 billion), the Melbourne airport rail link ($8 billion to $13 billion), and its worst decision, the Suburban Rail Loop ($50 billion). The federal government, which for political reasons usually opposes whatever Victoria proposes, is however funding the planning work on the airport rail link.

All these, of course, are politically driven choices. The last thing a government on either side of politics would do is to ask the experts which projects would do most per million dollars spent to reduce traffic congestion and/or make public transport more reliable, more consistent in speed and quality, and more useful to the people it is meant to serve.

I suspect the experts might recommend that the mega-projects be replaced by spending on making what we’ve already got work better. Duplicate congested roads, remodel intersections, build more overtaking lanes and highway dividers, and lift the priority given to road maintenance. Give the rail network a twenty-first-century signalling system, more frequent services, and more maintenance. And please, focus attention on what this budget ignored: the under-resourced bus systems that serve the middle and outer suburbs of Melbourne, and country Victoria.

The infrastructure spend will see the state’s net debt rise to a forecast $50 billion by 2021–22, or 10 per cent of gross state product. I have long argued for putting infrastructure needs before debt concerns when borrowing is so cheap. Labor won the state election by doing so, but lost the federal election partly because so many voters believed the Coalition’s taunt that “Labor can’t be trusted with money.”

In politics, wheels can turn. The Andrews government would be far more secure against such taunts in 2022 if it stopped choosing infrastructure projects for political reasons and started selecting the ones that would deliver most value per dollar to Victorians. Voters have given it their trust. It must now give them value for money. •

The post Victoria: where black is always in appeared first on Inside Story.

The merits of the first homebuyers scheme have sparked a lot of debate, but the key point to understand is this: it would be a niche operation. In a housing market that in recent years has lent purchasers about $250 billion each year, the new fund at its peak would take on liabilities equivalent to 0.2 per cent of annual lending.

The transport projects announced in Melbourne, by contrast, are seriously big — and seriously unviable.

East West Link, the freeway the Liberals want to build under the inner suburbs of Collingwood, Fitzroy and Carlton, would unquestionably be a useful addition to Melbourne’s freeway network. You could drive from the Eastern Freeway at Clifton Hill to City Link at Flemington in ten minutes. It is very likely that if it is built, it will also include outlets that would shorten the journey from the eastern suburbs into the CBD and surrounding areas — and it’s those cars that the locals don’t want on their streets.

But it would be horrendously expensive. Tunnelling at freeway width costs well over $1 billion a kilometre. The whole 4.4 kilometre freeway was estimated to cost $7 billion in 2013; Morrison optimistically assumes the same cost now.

The link has been subjected to cost–benefit analysis three times, and has failed every time. The first, for the Eddington report in 2008, estimated the cost was about twice the likely benefit. The second, for the state Coalition government in 2013, was hardly any better, so the government assumed a lot of “wider benefits” to try to make it look good. And even a sympathetic Infrastructure Victoria, costing the plan at its own initiative in 2016, found the benefits would be well short of the cost: $3 of benefit for every $4 of cost.

One must add that standard cost–benefit analysis uses interest rates that are now quite unrealistic: the 7 per cent interest rate assumed is more than twice what governments actually pay. But that is true for all infrastructure projects. East West Link might well pass the test if the test were more realistic — but other projects would still return much more benefit for the same cost.

The best one can say is that East West Link would probably waste less money than the rail line Shorten has now committed federal Labor to help build: a ninety kilometre rail loop — also mostly underground — through Melbourne’s middle suburbs, from Cheltenham to Glen Waverley, Box Hill, Reservoir and Melbourne Airport, where it would connect with the future Airport Rail Link to Sunshine, and eventually, on to Werribee.

We have no cost–benefit analysis for this project, and for good reason. The Andrews government has airily declared that it could be built for $50 million, but no one believes that. If it were subjected to analysis, the Suburban Rail Loop would make the East West Link look good.

The loop would work only if future Victorian governments could do what past Victorian governments have been unable to do: shift Melbourne’s future growth from the outer fringe and the inner core to middle-suburban centres like Box Hill — or Sydney’s Parramatta, a more successful example — which would then grow to become so big that a circular train line to link them would make sense.

It might be safer to bet on seeing pigs fly. At least you wouldn’t be likely to waste $10 billion, or $50 billion, or $100 billion, on that dream.

(I know that many readers assume that rail investments must be a Good Thing. There are a lot of good rail investments governments could make in Melbourne, as urban commentator Alan Davies has pointed out, but this is not one of them. And that view is widely shared.)

What do these three plans — the home loan guarantee, East West Link and the rail loop — have in common? None of them passed any economic assessment. All of them were dreamed up for political reasons. None was put through the normal policy process. Rather, in each case, the government first decided to commit to them — then let the experts work out what they would cost.

They were adopted, that is, because a government decided it needed them for political branding — not because they would be good investments for the state or nation.

When Labor governments set up Infrastructure Australia and Infrastructure Victoria, they promised us that the new agencies would provide open, transparent, honest assessments of proposed transport projects. It was like manna from heaven. But then reality struck.

Having set up Infrastructure Australia, the Rudd and Gillard governments refused to give it adequate funding. It had only eleven staff, and was unable to carry out more than a handful of project assessments. Its advice, when offered, was ignored. Under the Coalition government, it has been much the same, with frequent changes at the top leading to changes of assessments (of Brisbane’s Cross River Rail, for example) that appeared to be politically motivated.

Infrastructure Victoria has not been politically compromised in the same way, but it has been ignored. Its advice was exactly what Labor had promised: bold, insightful and independent. As a result, it was sidelined when Labor was planning its rail loop. Political staffers replaced the experts as the government’s sounding board, and source of advice.

As Marion Terrill of Grattan Institute has argued, most recently in its excellent Orange Book of advice to the next federal government, Australia must ditch this bipartisan addiction to choosing infrastructure projects on political grounds. Anthony Albanese too has sometimes voiced the same view, but as Labor’s infrastructure minister he would take office with his priorities already decided: a host of projects chosen for political reasons, with neither bipartisan support nor appraisal by independent experts.

Some government, some day, must be brave enough to break out of this habit of treating infrastructure as a political battleground. Two political leaders must be brave enough to take the lead to achieve it. Long ago in Victoria we had an all-party parliamentary public works committee that generally operated in a non-partisan way — as many federal parliamentary committees still do. That’s one key to a solution. The other is to let your infrastructure advisers do their job.

Scott Morrison’s housing plan is less a plan than a thought bubble with virtually no details attached. On Sunday we were told it would have a capital of $500 million, but by Monday Morrison was promising to increase that amount if there was more demand. His goal is to ensure that it helps homebuyers throughout Australia, but there is no mechanism to achieve that. Another goal is to favour homebuyers borrowing from banks other than the big four, but there is no mechanism to achieve that either.

The whole thing is a work in progress, made up in a hurry, so that the prime minister had something new to announce at his policy launch — which he fed to the Murdoch press first, so that they could mislead voters by making it seem much bigger than it is. Treasury had not been consulted on the plan, the Age tells us, and neither was cabinet.

But at least this policy will have small costs — which is why Labor was quick to sign on to it, to squash the issue. More than half a million properties change hands in Australia each year, but, as Morrison has presented it, no more than 10,000 would be eligible for this scheme. That’s just as well, because the way he’s done it makes it more risky than the New Zealand scheme it is based on.

Helen Clark’s Labour government introduced Welcome Home Loans, the New Zealand scheme, in 2003. It was then enthusiastically supported by John Key’s National government, although it remained small-scale. In 2017–18, it approved just 1674 loan guarantees, and its total liability was only around NZ$30 million.

Unlike Morrison’s idea, it is carefully targeted to help those in the bottom 60 per cent of the population — those who genuinely need the government’s help to buy a property. You can’t buy an above-average property using this scheme. To be eligible, you need to be on an income that’s at best roughly average. And you must be able to raise at least 10 per cent of the purchase price independently for your deposit.

(The New Zealand government and its offshoot, Kiwibank, have other ways to help you to do that, and they play a bigger role in helping young people buy a home. In a country without compulsory superannuation, the young are encouraged to save in a Kiwibank superannuation account, from which they can withdraw virtually all their money when buying a home, and receive a home-saver grant averaging about NZ$5000.)

To be eligible, assuming you’re buying an existing property, the property must cost no more than NZ$600,000 in Auckland, NZ$500,000 in the other cities, and NZ$400,000 in the rest of New Zealand. (A$1 is currently NZ$1.06.) Slightly higher budgets are allowed for new buildings. You must be a genuine first homebuyer — no investment properties — and your income must be no more than NZ$85,000 for a single borrower, or NZ$130,000 for a couple.

Morrison has blown out those limits. His idea has the thresholds higher by half as much again as the New Zealand version: A$125,000 for a single borrower, A$200,000 for a couple. He didn’t mention any cap on the price of properties — nor on the value of the guarantees offered.

Moreover, instead of requiring applicants to have a 10 per cent deposit, he set that bar at only 5 per cent — with the government guaranteeing the banks for 15 per cent of the purchase price should the borrower default.

The lower you set the bar, the more likely it is that falling prices will leave the borrowers with negative equity: having a property that is worth less than what you owe on it. The lower the bar, the greater the financial pressure that borrowers will be under, and the higher the risk that they will default. And, as the banks warned in today’s Financial Review, the higher the interest rate they are likely to ask borrowers to pay.

One of the reasons why New Zealand’s scheme remains so small is that three of the big four banks (the same as ours, although two have different names) have refused to take part. Westpac is the only big bank participating, and Kiwibank (New Zealand’s fifth-biggest bank) writes 40 per cent of the loans.

If Labor wins Saturday’s election, one hopes it will study the New Zealand scheme carefully before deciding the design of its own scheme: it is now committed to it in some form or other, but it needs to find a way to maximise the benefits while minimising the risks.

At best, this could be a useful niche measure to help those who have been squeezed out of home ownership. As Grattan’s Brendan Coates and John Daley have pointed out in the Conversation, in 1981 even the poor in the twenty-five to thirty-four age group were mostly homeowners. Now fewer than one in four own their own home. Coates and Daley warn: “At this rate, almost half of retirees will be renters in forty years’ time.”

No political party will advocate that outcome, but that is where the existing policy is leading us. The balance has been tilted for too long in favour of housing investors. The Coalition lacked the political courage to fix it. Now, if the polls are right, Labor will have its chance. •

The post Helping first homebuyers, and other misdirected pledges appeared first on Inside Story.

Yet-to-be-released budget figures show that the Turnbull government’s spending plans for infrastructure in Melbourne for 2018–19 amount to just $103 million — or less than a tenth of the $1.16 billion it has offered for equivalent projects in Sydney.

And most of its spending in Melbourne will be on putting together business plans and other preparatory work. It has committed just $49 million to build new transport infrastructure — mostly for the final stage of widening the Tullamarine Freeway.

But the new figures come in the midst of a startling shift in the long stand-off between Turnbull and Victorian premier Daniel Andrews. For years they have been at odds over the federal government’s refusal to invest in the transport projects of the Victorian government — a refusal that means Victoria has been badly shortchanged by the Turnbull government in favour of the prime minister’s home state of New South Wales.

Turnbull and Andrews, who have rarely if ever met one on one to talk about issues, will sit down soon to discuss how they can cooperate to build the Melbourne airport rail link, the proposed North East Link to join the Eastern Freeway to the Outer Ring Road, a tram or rail line to Monash University, and other transport projects.

Sources on both sides say they have already had several “productive discussions” by phone. “They’re as friendly as they’ve been in a long time,” one adviser says. Similarly positive discussions have taken place in recent weeks between Turnbull’s major projects minister, Paul Fletcher, and Victoria’s public transport minister, Jacinta Allan.

It’s too early to call it a bromance, but it is a sharp reversal of the longstanding hostility between the two governments, and it’s even reflected in 2018–19 budget allocations. The discussions, which were initiated by Turnbull, came after Victorian opposition leader Matthew Guy turned on his federal leader, accusing him of giving Victoria less than its share and favouring other states.

The budget papers for the last two years reveal that, under Turnbull, Victoria has received less than 8 per cent of federal spending on transport infrastructure, while New South Wales has received almost 40 per cent. Victoria is home to 26 per cent of Australians, New South Wales to 32 per cent.

Over 2016–17 and 2017–18, the federal government has given the states $14.7 billion of taxpayers’ money to build transport infrastructure. Of that, it gave $6.26 billion to transport works in New South Wales and just $1.15 billion for similar works in Victoria.

Melbourne, which absorbed almost a third of Australia’s population growth in 2016–17, will receive just 2 per cent of federal infrastructure spending in the coming financial year, according to the list of key projects prepared by the Department of Infrastructure.

But the long stand-off, which began with the Abbott government’s demands that Victoria build the financially unviable East West Link, a proposed road tunnel through the inner suburbs, appears to be coming to an end. Under pressure from his own federal and state MPs in Victoria, Turnbull announced last month that his government would “build the Melbourne airport rail link,” offering $5 billion in return for joint ownership of the project. While the offer was presented like a command, and was clearly intended to be abrasive — Turnbull told the Murdoch press first, then sent an email to the premier at around midnight — Andrews decided to ignore the slight and focus on the money.

After reporters criticised his negotiating style, Turnbull phoned Andrews, who thanked him and expressed a willingness to talk. Turnbull also played down suggestions in the Herald Sun that his government wanted the route changed to run through contaminated former defence land at Maribyrnong that the Commonwealth hopes one day to sell.

More phone calls have followed, including a warm one from Andrews on Monday after Turnbull announced that his government would offer $1.5 billion towards the $16 billion cost of the North East Link; $475 million towards the cost of a train or tram line from Caulfield to Monash University at Clayton, and then ultimately to outer-suburban Rowville; and funds to extend the Frankston line to Baxter and duplicate the line from South Geelong to Waurn Ponds.

“Rail link a reality,” blared the Herald Sun in its report on the Monash plan. No, it isn’t, and probably never will be. A tram line could become a reality, though; it would be very much cheaper and could go to Chadstone, the biggest shopping mall in the southern hemisphere, on its way to Clayton. A report earlier this decade for the Baillieu government warned that heavy rail would be the most expensive option to build and maintain.

Federal sources say they are open to either option. They also say Turnbull is not insisting on changing the route of the airport rail link, which is planned to go through Sunshine station to link with trains to Ballarat and Bendigo. Rather, he wants to be engaged in the project, and make it a genuine partnership between the two governments.

The sources would not be drawn on why the prime minister wanted half ownership of the rail line to Melbourne airport, whereas a month earlier he imposed no such condition when agreeing to pay half the cost of a rail line to Western Sydney airport. He still appears to have double standards when it comes to the two states.

The budget papers reveal that in the financial year just ending, his government has given New South Wales $2.7 billion for transport spending alone, roughly five times the $562 million it gave to Victoria. At least that was a more even split than the year before, when he gave his home state $3.6 billion, more than six times the $590 million given to Victoria.

But compared to its predecessors, this year’s budget seems almost egalitarian. On the figures in the budget papers, New South Wales will get a tad under $2 billion for transport spending, which is only a bit over twice as much as Victoria’s $890 million.

As I pointed out in my budget overview, despite the PM’s waving a list of new transport projects, the budget plans to cut federal investment in key transport projects by 13 per cent in 2018–19, compared to its equivalent list a year ago. Investment in Victoria, however, is projected to rise, mostly due to $504 million of spending on a package of regional rail upgrades negotiated by former infrastructure minister Darren Chester.

Even so, over the five years to 2019, the Abbott and Turnbull governments will have spent $12 billion of Commonwealth taxpayers’ money on transport infrastructure for New South Wales, but just $3 billion in Victoria.

Turnbull and his ministers blame the Victorian government for refusing the $3 billion they offered it to build the East West Link, which a conventional cost-benefit analysis revealed would return benefits of just 45 cents for every dollar it cost.

Fletcher has accused Victoria of sitting on a cash pile of $2.8 billion of money the federal government has allocated to it for projects that have yet to start, or are still incomplete. His office did not respond to a request for a list of these projects before publication.

Maybe that too is part of the warming of relations between the two governments. With an unfriendly redistribution looming in Victoria, the Turnbull government desperately needs to shore up its marginal electorates in Melbourne’s eastern suburbs — whose voters might not like seeing their taxes used to build the prime minister’s pet projects in Sydney when so much is needed in their own town. ●

The post Are Victoria and the feds back on track? appeared first on Inside Story.

In just a decade, Melbourne has added more than a million people. It began this century with 3.4 million people. By September, on current estimates, it will have five million. In less than twenty years, its population has grown by roughly half.

That’s exhilarating. The city today has a buzz that it lacked twenty years ago. In the year to last June, an extra 125,000 people packed into Australia’s fastest-growing city. They included a net 80,000 overseas migrants, students and workers, as well as a net 9166 people, overwhelmingly young, from the rest of Australia. It gained a net 14,400 migrants from Sydney (but lost some to regional Victoria and Queensland). And there were a record number of births, because the city is now full of people in their twenties and thirties, and so babies keep popping out.

In that one year, Melbourne’s population grew by 2.65 per cent, the rest of Australia by 1.35 per cent. If this pace keeps up — and it has, more or less, for far longer than any of us expected — it will overtake Sydney within a decade to reclaim the title of Australia’s biggest city, a title it lost in 1902.

If growth is what you want, Melbourne’s got it. More to the point, it’s got it whether you want it or not.

But for many, the population growth transforming the city is more disappointment than exhilaration. In theory, governments can manage any level of population growth as long as they match it by investing heavily in infrastructure and providing expanded services. That was the key issue behind yesterday’s Victorian budget, in which treasurer Tim Pallas set out to do just that — at least for the coming year, when the government is facing an election.

But until now, that is not how the Victorian government has been run. As the table shows, it has been a chronic under-investor. Even in 2017, its investment in transport infrastructure generally, as a share of economic activity, was the lowest of any state, whereas its population growth has been the highest. Victoria has lived off the capital built by past governments.

Tuesday’s budget papers confirm that the roads have become far more congested; the past five years have brought 14 per cent more people, but only 1 per cent more road space. The growth in public transport passengers has flattened off, perhaps because people now look back nostalgically to the days when you could board a train or tram and get a seat. And while there are several reasons why ordinary young couples can no longer afford to buy a house, population growth is certainly one of them.

If the city keeps growing at this pace, the five million Melburnians of 2018 will become ten million by 2045. Melbourne has prided itself on being, as one survey keeps reporting, “the world’s most liveable city.” It was less congested than Sydney, its houses were cheaper, its train and tram networks were something to be proud of. All that is now disappearing before people’s eyes.

While those issues underlay yesterday’s Victorian budget, the politics was front and centre. There’s a state election on 24 November, and the Labor government of premier Daniel Andrews wants to be sure it gets back. Policy debates are all very good, but the policy of this government is to stay in power. Yesterday it left nothing to chance, showering money for works on schools and roads, hospitals and sports grounds, mental health programs, regional Victoria, and trams, trains and TAFEs.

Treasurer Tim Pallas put out a positive spin, reeling off his own exhilarating numbers on the growth of the state’s economy, and on its budget spending. Since Labor won power three and a half years ago, he said, Victoria has become the fastest-growing state. The output of its economy has grown by almost one-seventh in that time. It has added 334,000 jobs, more than 200,000 of them full-time. Housing and investment are booming.

And so the budget is awash with money. In some ways, the key figures of this budget are its dramatic revisions to estimated revenue and spending in the election year, 2018–19. The state now expects to rake in $7 billion (11.5 per cent) more revenue than it had forecast just two years ago — and to spend an extra $7.6 billion (12.5 per cent) on expanding the services it offers Victorians, almost across the board.

Why is revenue so much higher than Victoria’s Treasury had anticipated? Partly because soaring house prices have pushed up land transfer duties and land tax revenues. Partly because the Turnbull government keeps wanting to spend more in areas the states run — even if it discriminates against Victoria on transport investment — and partly because even GST collections are booming, and Victoria’s share is being pushed up because its share of the population is soaring.

Because this is an election budget, there are no tax increases and no spending cuts — at least, none the government owns up to. But a table in one budget paper shows that almost $2 billion of unspecified cuts will be made over the next four years to “reprioritise” spending, so that existing programs will be dumped or trimmed to pay for new ones. And we’ll never know what will be cut.

The new spending initiatives go almost everywhere — social housing was almost the only area to miss out, despite the crisis facing low-income renters in Melbourne. The new mental health spending is significant, the list of schools receiving upgrades runs for twenty-six pages, and a catchy policy offers a $50 payment to any households that sign into the state’s Energy Compare website to investigate how they can reduce their power bills. (The budget numbers imply that they expect almost a million households to do exactly that.)

A lot of care has been taken to ensure that regional Victoria gets its share of projects in almost every area — highlighted by a decision to reduce payroll tax there to only half the rate paid in the city. Melbourne is growing twice as fast as the rest of the state, and the government wants to move more of the action to the bush. A recent audit report found that in the decade to 2016, economic output actually shrank in half the municipalities of regional Victoria, including Mildura, Wangaratta, the Latrobe valley, a vast swathe of western Victoria, and even East Gippsland, where the retiree population is booming but jobs are not.

But Andrews and Pallas highlighted two areas in particular: skills and infrastructure.

A package of reforms to the neglected TAFE system is headlined by a surprising initiative to make thirty courses free of charge throughout the state. At the highest (diploma or certificate IV) levels, they include accounting, ageing support, agriculture, building and construction, engineering, plumbing, nursing, mental health, and other health and welfare roles.

The government will also fund 30,000 more training places, upgrade or add seventeen new campuses, largely in country towns, expand career guidance in schools, and begin a program to allow students to enter an apprenticeship while still at school.

The aim, Pallas said, was to challenge the assumption that kids have to go to university if they want to succeed in life — and help them become the skilled workers needed for the future Australian workforce. “Skills are the centrepiece of this budget,” he told me. “This is a Labor budget that will deliver new skills and good jobs.”

The other main theme of this budget is infrastructure. In this coming election year, the state plans to invest $13.7 billion on infrastructure, including investments by private companies such as Transurban on projects they operate for the government. In its first budget just three years ago, the Andrews government invested a puny $4.8 billion. At first sight, that is some policy shift — and a recognition that the combination of rapid population growth and inadequate investment is destroying Melbourne’s liveability.

(This figure is much higher than the one in the table above for several reasons. The earlier figure measures engineering construction, which covers most infrastructure investment, especially in transport. The government’s figures also include investment in buildings, machinery and equipment, investments by its private-sector partners — and, of course, a sizeable increase in spending between 2017 and 2018–19.)

But it’s only temporary. For the Andrews government remains bound by its commitment to keep net government debt to a minuscule 6 per cent of gross state product, the share it inherited from the Liberals. The protracted sale of the Port of Melbourne brought the debt down, and now, over the three years from 2017 to 2020, a big increase in infrastructure investment will push it back up to that low ceiling. One might note that the federal government’s net debt, by contrast, is roughly 20 per cent of GDP — and it still has a AAA credit rating.

The budget also warns us that this investment surge is a one-off. After the election, as it nears its self-imposed ceiling, the government would go back to being a chronic under-investor. Its investments and those of its private sector partners will hit 3 per cent of gross state product in 2018–19, only to then slide back to 1.5 per cent in 2021–22, and resume its usual ranking at the bottom of the table.

Unless you believe it will have fixed the infrastructure backlog by then, that is economically indefensible. Bond rates have edged up a little, but it is still very cheap for governments to borrow, and with the population on track to double within a generation, Melbourne’s needs remain immense. The government’s decision to impose such a low debt ceiling, and to maintain a AAA credit rating at all costs, are driven by politics, not economics. Queensland lost its AAA credit rating when premier Anna Bligh rightly gave priority to infrastructure investment — yet the rates it pays on its debt are only between 0.1 and 0.15 percentage points higher than New South Wales. It really makes very little difference in the markets.

In effect, Victorians are paying the cost for believing that Labor governments are fiscally more irresponsible than Liberal ones. But there are many ways to be irresponsible, and investing too little can be as irresponsible as spending too much.

For these three years, at least, Victoria will be investing across a wide canvas of transport projects. Its own investment in transport infrastructure has risen from $2.5 billion in 2015-16 to a planned $7 billion in 2018-19. That includes:

• $1.1 billion on its blitz to remove fifty level crossings from Melbourne roads. That is one of Labor’s flagship projects, funded by the state alone — although unfortunately, as the auditor-general has pointed out, they are not the fifty most dangerous or congested level crossings in Melbourne. Inconsequential level crossings in marginal seats on the Frankston line are being removed while the level crossing in Liberal-voting Surrey Hills, which VicRoads has ranked as one of the city’s worst on both counts, has been left to keep blocking busy Union Road.

• $319 million as the state’s share of works on the controversial West Gate Tunnel project, a Transurban plan adopted by the government despite the best efforts of the Liberals, Nationals and Greens to block it. The government has adopted a sneaky plan by which most of the bill will be footed initially by Transurban, but the bill will ultimately be paid by drivers on CityLink, the overpriced inner-suburban freeway, for which Transurban’s lucrative franchise has been extended for another decade.

• $571 million for another of Labor’s flagship projects, the $11 billion Melbourne metro tunnel, also entirely state-funded, which will take a decade to build. (Why can they do these things so much faster in Asian cities like Delhi and Singapore?)

• $453 million of essentially Commonwealth-funded works to upgrade the Ballarat and Gippsland rail lines. This was the legacy of former federal infrastructure minister Darren Chester, Gippsland’s MP, who used the deadlock between Malcolm Turnbull and Andrews over almost every project in Melbourne to focus the small amount of funding the federal government gives Victoria on rural roads and rail.)

• $375 million to transform the rail line from Cranbourne/Pakenham through the city to Sunbury, including a new signalling system, longer platforms and upgrading those essential, inconspicuous and often-overlooked things like power supply. Another $58 million will complete the controversial Skyrail project, to open later this year, which has elevated the rail line through some southeastern suburbs to scrap level crossings. The Murdoch press, which supports the Liberal government doing this in Sydney, has depicted it as an outrage against human rights under a Labor government in Melbourne.

• $123 million to plan the $16.5 billion North East Link from Greensborough to the Eastern Freeway — to include a significant widening of the freeway through the middle suburbs. But in a marked difference from the way the Liberals rushed through the controversial and economically unviable East West Link before the 2014 election, Andrews says no commitments will be made until after the election. Liberal leader Matthew Guy says that, if elected, his party will build the East West Link first.

And there’s much more. A lot of money will be spent all over the state to upgrade, widen, rebuild and repair Victoria’s rural and regional highways and arterial roads, and a lot more to tackle urban congestion. There will be new trains, trams and rail carriages. The government deserves a pat on the back for committing $200 million or so of its revenue windfall to lift spending on road maintenance, where the statistics suggest an alarming deterioration. It needs to do the same for bridges, after a recent report rated two-thirds of the state’s bridges as being in poor condition.

Where is the Commonwealth government in all this? On the fringes. Its own figures have consistently shown that Victoria is getting only 10 per cent of its infrastructure outlays, even though it has almost 40 per cent of Australia’s population growth. Both governments share the blame for the juvenile stand-off in which the Turnbull government refuses to support anything that the Andrews government supports, apart from widening the Western Ring Road and the Monash Freeway.

Turnbull’s latest stunt is to offer $5 billion to build a rail link to Tullamarine airport — provided that the route is changed to run through land the federal government is trying to sell, and the federal government takes 50 per cent ownership of the rail line. The offer was shared with the Murdoch press before it was shared with the Victorian government — which understandably has ignored it. When the federal government announced its support for a rail link to the Western Sydney airport, it was with no conditions, and at a joint press conference with the NSW premier. That’s how governments are meant to act.

Whatever route is chosen, the rail link can’t run through the city before the new metro line opens in 2026. Infrastructure Victoria rates the whole project as only a distant priority anyway, given that the Tullamarine Freeway widening is almost complete, which will see Skybus get to the airport as fast as a rail link could. And the polls suggest that in a year’s time, Turnbull will no longer be prime minister, and a federal Labor government would finally treat Victoria with the respect — and priority — it deserves.

After a rocky period last year when the Herald Sun commissioned opinion polls whenever things looked bad for Labor, the polls in recent months have suggested that Labor is likely to be re-elected. It’s still close — Labor polled 51–49 in the last Newspoll, 52–48 in the one before, and even better in the latest Essential poll — but what is striking is that Andrews’s personal ratings have rebounded to roughly where they were at the 2014 election. Among the mainland state premiers, the only other to achieve that feat in recent times was Annastacia Palaszczuk, who was also the only one to be re-elected. The Liberals, who seem obsessed with battles within the party, have simply not cut through.

This is a soft budget. With all that new revenue and infrastructure spending, the anticipated surplus in 2018–19 is a skinny $1.4 billion, down from about $3 billion when Labor took office. In state budgets, the surplus is essentially the contribution current taxpayers make to infrastructure spending. With Victoria’s economy where it is, the surplus should be at least $5 billion now, but Labor has used the good times to put off hard decisions, allow wasteful programs to continue — for example, paying people in uniforms to walk up and down every suburban train station at night, to make passengers feel safe — failing to tackle tax reforms, and allowing the state’s wage bill to blow out by an extraordinary 38 per cent in its four years in office — including an 11.2 per cent increase in 2018–19 alone.

If the economy keeps going well, it will get away with it. If the economy turns down, as well it could, this slack management will cause Labor serious problems ahead. Right now, the public is paying no attention.

This budget was labelled “Getting things done.” Last year it was “Getting on with the job.” Whatever Andrews’s faults and limitations, he is dogged, competent and, yes, can say that he is getting things done. People might not like him, but he has earned a grudging respect. And he, and Pallas, have been lucky to be in office at a time when the state economy is booming. Naturally, they claim the credit. ●

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It probably won’t happen; both numbers rest on optimistic assumptions. But they imply that if this budget works as intended, 95 per cent of the job of turning our deficit to surplus will be achieved by Australians paying higher taxes, and only 5 per cent by spending cuts.

And this is a Coalition budget.

Last night treasurer Scott Morrison delivered what he called a “practical” budget. It is quite different from anything the government has delivered since taking office in 2013, quite different from all but one of Peter Costello’s budgets – the one that introduced the GST – and quite different from the rhetoric the Coalition has poured out for more than a generation in support of cutting taxes and spending.

This budget raises taxes and spending. It aims to repair the budget balance in the medium term yet weaken it even further in the short term. It is not that different from the budget that shadow treasurer Chris Bowen sketched out during the election campaign.

Labor lite? Some in the Abbott camp would call it Labor heavy, a tax-and-spend budget. Politically, this is a seachange for Malcolm Turnbull and Scott Morrison. They have dumped the concerns of the right and headed out to plant the Liberal Party’s flag on the political middle ground, and take it back from Labor.

To me, it tells us that Turnbull is no longer worried about a threat to his leadership from Abbott. The enemy he is now focused on is Bill Shorten. And this politically bold budget has made giant strides in narrowing Shorten’s room to manoeuvre.

Is this a one-off shift, to break the impasse on reducing the budget deficit, with no wider consequences? Or is this, and the emergence last week of Gonski 2.0 to increase schools funding, a lasting change of tack? Is Malcolm Turnbull taking charge of his party, rather than letting it take charge of him, and steering it back to his natural habitat in the middle ground?

In economic terms, the budget is not perfect, but there are many good things. If you believe its numbers – and in some cases that’s challenging – it’s more of a tax, spend and save budget. In the next four years it aims to raise a net $20 billion of extra taxes, spend a net $14 billion of them, and put the other $6 billion towards reducing the budget deficit.

By and large, Morrison and his colleagues have chosen their tax victims with care. It will not be easy for Labor to fight the tax rises (although, seeing the outrage Bill Shorten and Tanya Plibersek are now voicing on behalf of overfunded Catholic schools, anything is possible). By and large, they have boosted spending in places where Australians want them to spend more – abandoning the harsh “zombie” spending cuts of Abbott’s 2014 budget. And by scrapping “savings” they could not deliver, and (at least notionally) keeping that $6 billion, they have improved their chances of finally getting the budget back into surplus.

The economics of this budget are not bad; the politics are quite extraordinary. Let’s start with that first.

Since he lost control of the tax reform debate at the start of last year, Malcolm Turnbull has appeared to be a prisoner of the Coalition’s conservative wing. He has backed away from positions he was previously identified with, on issues from tax reform to same sex marriage and climate change. As Abbott’s intention to take back the leadership became clearer, so did Turnbull’s retreat from his own views. On issue after issue, he seemed to be looking over his shoulder at his rival, asking, “What would Tony do?” and then doing it himself.

But the more Turnbull tried to please the Liberal right and the Nationals, the more he alienated mainstream Australia, those in the broad centre of public opinion. They have little interest in politics, but on many issues they hold the kind of views the right-wingers disparage as “Labor lite.” They want the budget deficit fixed, but not by harsh spending cuts like those proposed in the 2014 budget. They want their kids to go to well-funded schools. They want to have good hospitals there when they need them, they want good public transport as well as good roads, and they don’t see why the Coalition is holding up action on same sex marriage and climate change.

Abbott made no attempt to appeal to this broad centre, which was why he lost thirty Newspolls in a row. When Turnbull became PM, mainstream Australia greeted him as a saviour, but gradually soured on him as he failed to deliver. The only really significant reform Turnbull drove personally was the proposed refugee swap with the United States – but then ran into President Trump, with the result that, six months later, not one refugee has yet been freed.

The Coalition resumed its slide towards life in opposition. Since September it has lost eleven Newspolls in a row. It had reached that danger point where people were starting to switch off mentally, and stop listening to Turnbull. Unless he did something dramatic, or some rainbow of luck fell on him, it would soon be too late to revive his leadership – or the Coalition’s fortunes, since it had no other viable leader. 

When the WA election ended in a thrashing for the Coalition, I argued that the 2017 budget was the Turnbull government’s opportunity to reboot, and reoccupy the political middle ground. I can’t claim any credit, but that is exactly what it did yesterday. In many ways, this was like an election budget, except that it hit enough revenue targets to let the government reduce its overdraft, rather than simply hand out more largesse.

Don’t underestimate this change. For years, Coalition treasurers and shadow treasurers have chanted the mantra “no new taxes.” In their policy decisions, the two parties repeatedly looked after the rich, and took money off the poor. Under the Howard government, the Bureau of Statistics estimates, the Gini coefficient, the measure of inequality, shot up from 0.29 to 0.34. Howard got away with it, because he was a masterly politician, and a lucky one. But that’s a rare combination.

The 2017 budget is quite the opposite. It plans to gradually withdraw money from overfunded schools, and distribute it where it is most needed. It puts a new tax on five big banks (the CBA, Westpac, ANZ, NAB and Macquarie, raising $6.2 billion over four years). It puts a new tax on employers who import skilled workers ($1.2 billion, earmarked for a fund to train Australians in skills), closes a loophole on rental investors claiming dodgy deductions ($800 million), and beefs up Tax Office resources to take on tax avoiders (hoping for $1 billion from the black economy and the Mafia, and another $1.6 billion from tax cheats in the building industry). Not too many votes lost there.

The banks of course will pass on the tax to their customers. Grattan Institute chief John Daley estimates that it could add an extra 0.03 or 0.04 per cent to mortgage interest rates. The government can’t stop them; Morrison’s only threat was to direct the overworked Australian Competition and Consumer Commission to investigate when they do so, and expose them for passing on a tax intended to be paid by their shareholders.

The tax is justified as an annual insurance premium for the implicit government guarantee of bank borrowing, which allows the banks to borrow money on global markets far more cheaply than otherwise. When Labor tried to impose a similar tax, at the urging of the Reserve Bank and other financial regulators, the Coalition blocked it in the Senate. How times change.

The biggest single revenue measure is an across-the-board tax on most of us: a further 0.5 per cent rise in the Medicare levy from 2019, in order to fund the unfunded half of the National Disability Insurance Scheme. I doubt that many Australians will complain about that. They want the NDIS in place, they know it has to be paid for, and the Medicare levy is a fair and appropriate way of doing it.

Yet you could not have imagined the government doing it a year ago, or imposing any of the other tax rises. It inherited a budget deficit of $37 billion, promptly blew it out to $48 billion with unfunded spending, and has reduced it only back to $38 billion for 2016–17. The Coalition’s first three years failed to reduce the deficit at all. Whatever it saved in spending cuts was immediately spent on other things, or given away in tax cuts. The budget is still spending $1.09 for every $1 of revenue it raises.

Morrison has again blamed the Senate for frustrating the spending cuts proposed in the 2014 budget – the 20 per cent cut in university funding, for instance, and making young people wait six months before going on the dole. In fact, those measures would have saved only $3 billion a year. The Senate has been used as a scapegoat for the government’s lack of fiscal discipline.

But on that front, Scott Morrison’s second budget has made three significant changes. First, if its numbers are right, its policy decisions will raise a net $6.25 billion – entirely between 2019 and 2021 – to reduce the deficit and then ensure a surplus. (The numbers are dodgy, though, because they assume a rapid rebound of wages growth from less than 2 per cent now to 3.75 per cent by 2020–21. Wages growth lifts income tax, which lifts the budget’s bottom line.)

Second, by committing the Coalition to raise taxes, Morrison has opened the way to finally getting the budget back under control, and not just promising to do it.

A relevant comparison: in the eight years after the Howard government introduced the GST, its revenues averaged 25.4 per cent of GDP and its spending 24.2 per cent. If these budget projections are right, by 2020–21 revenues will again be 25.4 per cent of GDP, and spending 25 per cent – of which roughly 1 per cent will be on the NDIS, which did not exist in Howard’s time.

Third, the budget abandons the remaining unpassed spending cuts from its first term in government. This worsens its bottom line by $13 billion over four years, but restores its honesty and credibility. Unfortunately, the budget also proposes new spending cuts that are unlikely to pass the Senate – its second attempt to squeeze billions of dollars from university students and new graduates is likely to die the same death as its first – but they are of a lesser order, and the bargaining on them has yet to begin.

The main spending cuts were flagged well in advance, with a bit of dissonance last week when, on successive days, education minister Simon Birmingham outlined big cuts to funding for the university sector – including a 5 per cent cut in university funding, and accelerated repayments by young graduates with HECS/HELP debts – followed by big increases in funding for schools.

Tertiary education is already Australia’s third-biggest export industry, and if nurtured well, it could provide a vital source of income for the nation for generations. Yet Birmingham was instructed to come up with savings as big as those the Senate has rejected since 2014. What is the benefit to Australia in cutting university budgets, or in creating disincentives for young people to study? I don’t get it, and I’d be surprised if the Senate does either.

The proposed freeze on family benefit payments, announced in March, continues a squeeze by governments of both sides, which is gradually turning family benefits from a near-universal right of parents into a welfare measure for the poor. I, for one, regret this. Children are the future of the country, and parents face high costs in raising them. The family benefit is a contribution made by society at large to those costs. A welfare system without universal benefits is one subject to perverse poverty traps, which reduce incentives to work. We should thoroughly debate this one.

Take away the decision to scrap the zombie spending cuts and, on paper, the rest of the budget’s new spending initiatives are roughly balanced out by spending cuts. In practice, the new spending is far more likely to get through the Senate than the cuts are. The cuts include the latest round of whack-the-unemployed, a new “three strikes” policy which would see repeat offenders lose half a payment the next time they breach the rules (such as missing an appointment), lose a full payment the time after that, and be thrown off all support for a month if they commit a third breach.

A second measure would allow welfare recipients to be put on the cashless debit card if they cite a drug episode or hangover as an excuse for missing an appointment. A third measure proposes a random trial in which 5000 young people on welfare would be tested for drug use, with a similar penalty if they test positive. Morrison told journalists this would help them get off welfare, since drug dependency is often a key factor keeping them out of work.

Other important spending measures include lifting the freeze on Medicare benefits, which was not going down well in the bush or in marginal seats. Some very expensive new drugs will be added to the pharmaceutical benefits scheme, and paid for by forcing manufacturers to reduce the price of older drugs. But how to restrain the growth in health costs is another issue we really need to debate.

There is no space here to debate the new school funding model, which has been well covered in Inside Story by Dean Ashenden and in the Financial Review by Tim Dodd.

Overall, this is a budget with more to applaud than oppose. But some of it is tricky, and nowhere more so than in one of its key selling points: infrastructure. 

You’ve heard the sales pitch. More than $70 billion of investment in new roads, rail, airports and bridges over the eight years to 2020–21. The Commonwealth to build its own rival to Sydney airport out in Western Sydney, and fund road and rail links to it. A $10 billion National Rail Program to fund regional and urban rail improvements. A further $8.4 billion to build the Melbourne-to-Brisbane inland rail. $1 billion for Victoria, half of it pledged to regional rail. The Commonwealth to help fund the new Labor government’s Metronet scheme in Perth. There’s a lot happening here.

Morrison has talked up this sort of spending as “good debt,” an investment in the future which should be paid for largely by the future taxpayers who benefit from it. If well chosen, projects like these generate economic and social returns which more than cover their cost. Borrowing to build them is different from borrowing to pay for your current spending, which – apart from education spending – generates no such benefit in future.

I’m with him on that, and with Treasury when it argues in the budget papers that for the Commonwealth, even the net operating balance used by state governments as their budget bottom line doesn’t work. The money the Commonwealth gives the states to invest in road and rail appears in the budget as recurrent spending, not investment, because the Commonwealth is not doing investing itself. Take that out, Treasury says, and by 2018–19 the net operating balance – revenues minus recurrent spending – would be virtually back in balance, two years before the underlying cash balance gets there.

But there is no sign of this infrastructure spending binge in the budget papers. The two big projects – the Western Sydney airport and Inland Rail – are both being funded off-budget, like the National Broadband Network. The government will borrow up to $13.5 billion to invest in both projects as equity; but in the case of Inland Rail, it concedes that the project will still be in the red in fifty years’ time. Moving them both off-budget, but under Commonwealth ownership, means spending on them will not be counted in the budget’s bottom line.

The infrastructure spending recorded in the budget papers is set to fall, quite steeply, over the next four years: from $9.2 billion in 2017–18 to $5.1 billion in 2020–21. That might mean the government has decided its plans for next year, but not for four years’ time, which is fair enough; but if so, it means future spending growth might not be as restrained as the budget papers suggest – making the 2020–21 surplus less secure.

And when it comes to Victoria, the government is using theatrics to substitute for delivering the goods. The $1 billion infrastructure package in the budget is just an upgrade of the $877.4 million it has already offered Victoria in place of the $1.45 billion the state claims it is entitled to under the Commonwealth’s asset recycling initiative. It’s just prolonging the argument. Why not fix it?

On the data provided in the budget papers and ministerial statements, the Turnbull government plans to provide $3.9 billion in 2017–18 for transport infrastructure in the PM’s home state of New South Wales – $4.6 billion if you include a concessional loan to the WestConnex road project – yet just $796 million for Victoria. Victoria will get just 9 per cent of Turnbull government spending, New South Wales 45 per cent.

The funding for specific projects includes $1 billion for Sydney (excluding the WestConnex loan) but only $193 million for Melbourne. Of the $5.7 billion earmarked as grants for specific projects next year, 18 per cent will be invested in Sydney, and 3 per cent in Melbourne – which is taking almost a third of Australia’s population growth.

The Andrews government is difficult to deal with, but the Turnbull government shows no interest in reaching a solution. It acts like its priority is to look after New South Wales and Sydney. The PM’s claim last week that Victoria receives 20 per cent of road funding was false, and he surely knows that. Why allow this silly little parochial anti-Victorian bias to continue? Why not fix it, and move on to bigger issues?

Big issues are lying in wait. Yesterday’s budget papers barely mentioned climate change. But next month, chief scientist Alan Finkel will deliver his report on how Australia should meet its goal of reducing greenhouse gas emissions in 2030 by 26–28 per cent from 2005 levels. That’s a 50 per cent reduction in emissions per capita – whereas, on the government’s own estimates, our emissions have risen by almost 2 per cent since the carbon tax was scrapped in 2014.

The budget brought back the old Malcolm Turnbull. It’s a long time since we’ve seen him around climate change policy; that’s been handled by the other Malcolm, the one who looks like Tony Abbott. His government’s budget shows a sea change in priorities – but will that extend to other areas? Its response on climate change will tell us. •

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A high-profile dispute last year saw Andrews intervene to hand a firebrand union leader unprecedented authority in the management of the state’s Country Fire Authority. That led to the resignation not only of the CFA’s leadership but also of highly regarded minister Jane Garrett. A Galaxy poll in February found the government’s honeymoon with voters well and truly over: Labor led just 51–49 in two-party terms, and Andrews had become Australia’s most unpopular premier, with a satisfaction rating of just 35 per cent, with 52 per cent dissatisfied. Even Colin Barnett was polling better than that before he was swept from office.

But the Andrews government is lucky that, unlike Western Australia, Victoria is booming. This is not really its own doing, but it can and does claim the credit. Melbourne has become a magnet for foreign students, Asian (especially Indian) migrants, and the young and cool from all over Australia. In the year to June, that city alone absorbed almost a third of Australia’s population growth. Housing prices and construction have boomed. The state’s payroll tax data confirms that Victoria is generating new jobs at an astonishing pace.

That should mean that the state budget unveiled yesterday by treasurer Tim Pallas is rolling with loot, and in some ways it is. Revenues for 2017–18 are now forecast to be $2.4 billion higher than Pallas projected a year ago, and $4 billion higher in 2018–19. This has allowed Pallas to deliver a budget that splashes money around Labor causes (especially for victims of domestic violence) while investing a record amount in transport infrastructure, schools, hospitals and so on, hiring thousands more police, handing out tax breaks big and small – and yet still end up with billion-dollar surpluses stretching out into the blue yonder.

Yet, for all the apparent prosperity, Victoria’s budget looks far more vulnerable than it did a year ago. The surplus for this year was then projected to be $2.9 billion; now it is expected to come in at just over $1 billion.

To balance the books, Pallas has had to lift the so-called “efficiency dividend” from 2.5 to 3 per cent into the future, saving $1.2 billion. Given the extraordinary growth in the Victorian public sector since Labor took office – the wages bill has swollen 17 per cent in just two years ­– that is certainly doable, but it is notable that Pallas did not even mention this large cost saving in his budget speech, and the one reference to it in the five-volume budget papers did not explain how it was to be achieved. It does not inspire confidence.

The key to Victoria’s budget boom is one figure. For the first time, stamp duty on property transfers has overtaken payroll tax as the state’s biggest revenue source. In just four years it has almost doubled, from $3.2 billion to $6 billion, as soaring population, soaring new construction and soaring house prices made it a treasurer’s dream tax. Even after removing the tax from most first home buyers, Pallas now projects its proceeds to shoot up another 25 per cent in the next four years, accounting for almost half the growth in future tax revenue.

Well, he might be so lucky. Or he might not. And that’s the risk. A property downturn, which is more likely than not in the next four years, would put the state’s budget surplus at risk. The future surpluses predicted now are skinnier than they were a year ago.

How can the surplus be shrinking when revenue is soaring? Because the Andrews government is spending the money faster than it’s coming in.

This year, revenues rose 8 per cent, but spending rose 10 per cent. Next year’s revenues are forecast to rise 4.4 per cent, despite several tax cuts, but recurrent spending is forecast to grow 4.9 per cent – and that leaves out a big, long-overdue surge in investment in new roads and rail.

Despite wage growth being at the lowest levels on record, Victoria’s public sector wage bill has shot up 10 per cent this year, and 17 per cent in Labor’s first two years. The forward estimates showing that growth shrinking to 2.5 per cent in the out-years have to be taken with more than a grain of salt. Or, to be less tactful, they cannot be believed.

That’s not the way Pallas presented his work, nor is it what Andrews wants us to focus on. Among the dozens of press releases, the ones the premier put his name on highlighted these elements:

• The “unprecedented investment to end family violence,” implementing every one of the 227 recommendations of the state’s royal commission on the topic, in a package that adds $400 million a year in new spending – overwhelmingly focused on caring for victims, rather than on prevention.

• $4 billion of spending directed at the regions, especially the regional cities where Labor has a swag of marginal seats, including new programs for public transport, roads and bridges, schools and housing, and, in a throwback to the Hamer government’s decentralisation push, an unexpected 25 per cent payroll tax cut for firms based outside Melbourne.

• Putting an extra 3135 police on the streets over the next five years, on top of the 13,525 already there. This initiative is aimed at countering the campaign of the Murdoch flagship, the Herald Sun, to convince Victorians that they are at daily risk from a new crime wave, despite the statistics showing that Victoria has the lowest crime rates in Australia. By the time it ends, almost one in 400 Victorians will be a police officer.

• The usual mix of new investment to build and upgrade schools, to upgrade hospitals, with almost $3 billion of new health spending – and invest in new transport infrastructure.

Andrews made his priority clear. “At the heart of this year’s this year’s budget is a historic and life-changing investment to end family violence,” he declared. Andrews is a political animal, but no one would doubt that he is genuinely passionate about the issue, and good on him; it is something society has tolerated for far too long.

But most of his new spending is not going to end family violence, but to treat its victims. It includes $95 million over the next four years for “family violence industry planning.” Maybe his government should have set aside some of those 227 recommendations – they include the right to “family violence leave,” at employers’ cost, which is sure to become a rort – and instead given more priority to prevention and tackling the causes. Why do so many relationships that begin in love end up in such extreme, obsessive hatred? What can we as a society do to prevent this, and help relationships work rather than fail?

Victoria’s low level of infrastructure spending has been a recurring theme in this column, and with good reason. As the accompanying table shows, even last year, when three out of eight Australians were settling in the state, the share of its economic activity going into public infrastructure spending was way lower than even in Tasmania, and barely half that of New South Wales – and that was after the Andrews government had lifted spending quite a bit.

Chronic under-investor: Victorian infrastructure investment as a percentage of total state spending, compared to other states, in 2016

Source: Australian Bureau of Statistics. Total spending (or state final demand) is the sum of all spending by households, governments and businesses.

The Turnbull government is largely to blame for this. Over the five years to 2020, the Coalition has allocated Victoria only $3 billion of the $31 billion it plans to invest in transport infrastructure across the nation: roughly 10 per cent, for a state with 25 per cent of Australia’s population and 37 per cent of its population growth. The Andrews government has also helped prolong this schoolyard stoush, but Turnbull controls the money; his and Abbott’s government created the problem, and it’s his responsibility to fix it.

Pallas, a genial, good-natured guy, told journalists yesterday, “The Commonwealth has made a very clear decision not to invest in anything that the state government believes is a priority for the people of Victoria. If Labor says it’s a good thing to do, then they will not do anything about it… There is a deliberate effort by the Commonwealth to frustrate and impede the economic potential of the state.” It is hard to disagree with him.

The good news is that the 2017 Victorian budget marks another big step forward, and for the first time in forty years, the state – and others investing on its behalf – are giving Melbourne’s transport needs the priority they deserve. Even if its transport investment is not quite what it seems, and still falls short of what Melbourne needs, it’s an impressive step.

The budget papers claim that the government will invest more than $10 billion in 2017–18 on infrastructure in all areas – schools, hospitals and police stations, as well as roads and rail – although this includes investments by Transurban and other private firms in private–public partnerships. The government’s own plans for transport investment for the year ahead amount to $5.77 billion – a 30 per cent jump from the $4.4 billion planned a year ago, and more than double the $2.8 billion year-ahead spending proposed in the last Coalition budget in 2014.

The 2017–18 activity will be dominated by Labor’s program to remove level crossings ($1.2 billion) and to build the Melbourne Metro ($855 million). But there will also be $80 million to plan the North East link between the Ring Road and the Eastern Freeway, and $100 million-plus budgets for road projects such as widening the Ring Road and the Tullamarine and Monash freeways, and rail works ranging from the Murray Basin project to serious upgrades of the lines to Ballarat, Hurstbridge and Dandenong and the extension of the suburban system to Mernda.

The government has also flagged that it will build the long-delayed north end of the Mornington Peninsula Freeway, now renamed the Mordialloc bypass, and, with the Commonwealth, investigate options for a rail link to Melbourne Airport, apparently to be privately owned. Why?

It’s still far less than Sydney is building, but that is partly because the Abbott–Turnbull government has been an ATM for projects in Sydney, while starving Melbourne. Most of the little it spends in Victoria goes to country roads. Perhaps next week’s federal budget will see a change that will astound us all.

The state budget also coughs up some money for a one-off maintenance catch-up, in both rail and road. That’s welcome, because politicians typically prefer to fund gleaming new projects than patch up the fraying edges of existing lines, or replace equipment that is long past its use-by date. Public transport advocates often argue that governments should fix up the lines we’ve already got, give them dedicated tracks and install modern signalling and control systems, before they start building anything new. Reports leaked to the Age on the state of the Melbourne and regional train networks, and the tram network, all suggest that far more than this one-off hit will be needed to tackle the decades-long backlog of essential maintenance and replacement of outdated equipment.

The budget has been well-received. Business likes it, the welfare groups like it, even commentators normally hostile to Labor couldn’t find much to criticise, while opposition leader Matthew Guy seemed to be saying the government should have spent more, taxed less, and run a bigger surplus. Thanks, mate.

I can’t join the party. To me, this budget reinforces the impression that this is a government that shies away from making hard fiscal decisions. Unlike the Victorian Labor governments of the previous decade, which leaned to the centre, this one leans to the left. Its priorities seem to be those of the activist fringe, and not the mainstream of Victorians. That is why the government, like its budget, is now vulnerable.

Steve Bracks and John Brumby were both economics graduates who spent years out in the real world – as teachers, youth employment workers and so on – before entering politics full-time. Daniel Andrews is just as bright as them, but he did an arts degree, and then went straight from university to politics, as a staffer. He has never worked in anything else, and it shows.

A surplus of $1 billion in Victoria’s current economic position is far too small. In state government accounting, an operating surplus is essentially the current taxpayers’ contribution to infrastructure spending. It is unambiguously a good thing. This year’s budget should have aimed at a surplus more like $3 billion, and got there by taking a much tougher line on spending.

There are many glaring examples. The state’s Night Rider experiment with all-night public transport has been an expensive failure, costing almost twice the original estimate, with each passenger journey costing almost as much as a taxi ride. Yet the budget pledges to continue it for another four years, booking it in at implausibly low costs.

Victoria does not need 3000 more police, and if it did, the obvious source of them should be to retrain the underutilised protective security officers, or PSOs, as police. The PSOs are another failed experiment, this time by the previous Coalition government, in which people in uniforms are paid by taxpayers to walk up and down every Melbourne railway station at night, supposedly to make passengers feel more secure. It is a breathtaking waste of money, and everyone knows it, yet no one apart from Age columnist John Silvester has had the courage to say so.  

I love the Australian Open, but why do Victorian taxpayers have to be an ATM for whatever Tennis Australia wants to build next at Melbourne Park? It has five show courts already. There are far greater priorities than spending $277 million to build it a sixth one.

One could go on. The government needs to spend a bit less on current services, and invest a bit more on the needs of the future. That’s why its budget is now vulnerable, and it sums up the problem of a government that appears to be out of touch with its electorate.

It is a government that puts a low priority on sustaining the health of Victoria’s private-sector economy, and a high priority on being state of the art on social policy. One might say the latter appears to be Andrews’ obsession, when most Victorians expect their leader to have a broader focus.

The polls suggest he has lost them; the Labor Party is far more popular than its leader. He is a bright guy, and could still grow into the job, but two and a half years in, an economic downturn could see this end up as a one-term government.

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But some things are eerily familiar to the east-coast-dweller’s eye, and none more so than the politics of the Roe 8 freight link. The parallels between that imbroglio and Victoria’s infamous East West Link saga, for instance, are too many to count. An enormously controversial inner-city toll road provoking rolling protests, “direct action” and court challenges; contracts signed with an election only months away, despite declarations by the opposition that they won’t go ahead with the project; sweaty state Labor leaders telling the press pack they will rip up said contracts if they win office (which, when they made those pledges, looked entirely likely); tussles with the feds over redirecting Commonwealth dollars promised to the projects… the more one looks, the uncannier things get. Sydney’s WestConnex is not far below on the déjà vu spectrum, but Roe 8 and East West are so incredibly alike it’s worth asking what exactly is going on here.

Well, what indeed? Why are these inner-city road projects crashing into elections again and again, and becoming the subject of messy politicking and brinkmanship? One common denominator is the Abbott government. Eager to go down in history as “the infrastructure prime minister,” Abbott pumped billions into a score of inner-city road projects within months of winning government. At the same time, he made a point of shunning public transport projects, even those deemed a higher priority by Infrastructure Australia, the independent umpire.

This change in Commonwealth priorities saw a bunch of projects leap the funding queue, despite many having not been fully planned or costed. With the states desperately reliant on Canberra to get any project rolling, all they could do was try to make up the time and get sods turned by the next election. According to this account, what we saw in Victoria and are seeing now in Western Australia is really an aftershock of Abbott’s brief but consequential time in the Lodge.

It’s a temptingly simple explanation, but it assumes some pretty debatable points, including the idea that power has become so centralised in Canberra, and especially the prime minister’s office, that whoever sits in the PM’s chair essentially dictates what happens at every level of government. Put a roads man in the chair and we get a massive realignment of policy and resources to favour roads; switch to an avid rail fan and we get a recalibration with some money shifting back to public transport. The PM says jump and the entire Australian political system asks how high.

In reality, these controversial schemes are the product of the enormous mess of bureaucracy and lobby groups, political imperatives and economic limitations that get between any leader and the rolling-out of a policy. It takes a lot of momentum and collaboration to turn a leader’s idea into reality, and often a lot changes in the process. Indeed, navigating a policy or a project through this maze of interests and institutions, players and processes can be so torturous and require such political dexterity that they often simply never make it through to the other side.

This seems to be the fate of more and more policy initiatives these days, whether it’s greyhounds in New South Wales, abortion law reform in Queensland, or pokies, negative gearing or carbon pricing in Canberra. Mobilising opposition to a project has never been easier, thanks to social media, and the fragmentation of the two-party system in recent decades has multiplied the number of fronts on which a project can be attacked. It has probably never been harder to pitch a project and get it through to the ribbon-cutting.

If that is indeed the underlying problem with all these infrastructure fiascos, then we’ve been thinking all wrong about infrastructure reform for the past ten years. Since Kevin Rudd took over the leadership of the Labor Party in the lead-up to the 2007 election, the big push has been to depoliticise infrastructure, to get it away from politicians and into the hands of independent experts. Not only has that push failed utterly – politicians have bypassed the new processes and authorities set up to make infrastructure non-political – but the thinking behind it is profoundly mistaken about the nature of infrastructure.

Infrastructure is inherently political. It involves the allocation of public resources (even when private capital features heavily) and appropriates space in the name of the common good. And once projects are announced, they necessarily have to run a political gauntlet to make it to completion. A thumbs-up from the brains trust at Infrastructure Australia, or one of the state-level authorities, will never change the fact that projects require political momentum to get up. Good politics – careful building of support, cobbling together coalitions, bringing together stakeholders and so on – is the foundation for good infrastructure. Until we accept that, expect to see more East West Links and Roe 8s on the horizon. •

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Baird’s 2015 election campaign in New South Wales featured a pledge to lease 49 per cent of the state’s electricity transmission and distribution network to a private operator for ninety-nine years. Applauded by many commentators for his honesty and courage, the NSW premier swept back to power and set about fulfilling that promise.

You won’t be surprised to hear that the full story isn’t quite as simple, not even in New South Wales. There have been times when electricity privatisation has proved to be pure political poison in that state. In 1997, premier Bob Carr and treasurer Michael Egan were forced to abandon plans for a power sell-off after a divisive clash with the extra-parliamentary Labor Party. They unblushingly turned around and used opposition to the Liberal Party’s electricity privatisation policy to help win the 1999 election. Carr’s successor, Morris Iemma, initiated a push that would finally privatise the state’s generators and retail electricity businesses, but he destroyed his premiership and weakened the government in the process.

It’s true that Barry O’Farrell, who led the Coalition to a massive victory in 2011, privatised major assets such as ports without the same level of controversy. But his approach was incremental and non-ideological, and his wariness of further electricity privatisation ruled it out during the government’s first term.

Baird, who succeeded O’Farrell in 2014, was a different type of politician. In some ways he was not a politician at all, rather a reformer who saw politics as a slightly distasteful means to a worthy end. A true believer in small government and market forces, he was convinced that privatisation was in the state’s long-term interest and was determined to pursue it regardless of the political cost. He openly acknowledged that it could end his career – and, indeed, polling repeatedly showed that the majority of voters opposed selling off electricity assets.

But Baird had some things going for him. His government was seeking re-election for the first time and was relatively fresh and popular, particularly compared to a Labor Party still tainted by the cloud of corruption surrounding former minister Eddie Obeid. Baird himself was travelling extremely well in the polls. The gamble paid off, and the government was returned – but at a cost. It lost seventeen seats and Labor more than doubled its numbers from fourteen to thirty-four. If Baird hadn’t run on privatisation, the opposition might not now be in with a chance at the 2019 poll. Electricity privatisation didn’t throw Baird a lifeline; he hauled it aboard against the tide.

In contrast, Barnett is leading an unpopular government and must combat the time-for-change factor. Privatisation is guaranteed to make powerful enemies, especially in the unions, and few electoral friends. (A statewide ReachTel poll last week found that 58.7 per cent of respondents either disagreed or strongly disagreed with the sell-off plan.) It might allow Barnett to pork-barrel without facing the old cry of “Where’s the money coming from?” but voters tend to be increasingly cynical about politicians’ promises. Some will think that if they vote against the government, Labor will deliver the goodies anyway. And arguing that the sale proceeds are needed to reduce major debt also raises the inevitable response: who got us into this mess in the first place?

The swing of the electoral pendulum is not inevitable, and long-term governments can renew themselves. One way of doing this is by bringing in a new leader with fresh appeal. The WA Liberals have obviously rejected this option. Another method is via policy rejuvenation; by emphasising increasingly discredited free-market policies, the government has rejected this one too.

All over the world, the tide has turned against the Reagan–Thatcher policies of the 1980s. In the wake of Donald Trump’s presidency, some US conservatives have undertaken the quixotic task of trying to create a philosophical backdrop to the on-stage antics. According to reporter Kelefa Sanneh, in an article in the New Yorker, one advocate of “Trumpism” hassaid that he was frustrated by the Republican Party’s “devotion to laissez-faire economics (or, in his description, ‘free market uber alles’) which left Republican politicians ill-prepared to address rising inequality.” Regulatory interventions can be defensible not only “on narrowly economic grounds but as expressions of a country’s determination to preserve its own ways of life,” according to this long-time conservative, “and as evidence of the fundamental principle that the citizenry has the right to ignore economic experts, especially when their track records are dubious.”

In Australia, it is the federal opposition under Bill Shorten, rather than the Coalition, that’s benefiting from this tendency by espousing an economic populist approach that even 1930s NSW Labor demagogue Jack Lang wouldn’t be ashamed to propound.

In his policy speech on 19 February, WA opposition leader Mark McGowan showed that he has picked up on the trend. “We will keep Western Power in public hands,” he promised. “We will do so to keep jobs in WA. To keep an essential revenue stream for our government. To stop it from falling into foreign ownership. To keep service standards up. And to keep power bills down for WA families. WA is in desperate need of a fresh approach. Of new leadership.”

Politics in the twenty-first century is increasingly unpredictable and Barnett may yet win a third term. Nonetheless, the conservative parties in Australia need to realise that free trade, market-liberal economics and small government in an unadulterated form have had their day. The gains have been great but the tanks squashed a lot of innocent bystanders. •

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They felt that they had done a workmanlike job, and, within the constraints this government has imposed on itself – “we don’t do tax rises, even when the budget needs to be fixed” – they had. Cormann pointed out that they had funded all their election commitments while making policy decisions that, in net terms, are expected to reduce the four-year deficit by $2.5 billion without causing serious political storms.

How they did that is an interesting point we’ll come back to. And there are many other things of interest here, not least the Turnbull government’s extraordinary discrimination against Melbourne, epicentre of Australia’s population growth, in allocating transport funding. We’ll come back to that too.

But the big story in this MYEFO is that the deficit remains stubbornly unbeaten. Despite all that workmanship, the government’s estimates of future debt and deficits have blown out yet again, and on a scale big enough to make an objective observer wonder when Australia will ever get back into surplus.

For the fifth time in a row, the government has had to front up and admit that revenues are falling well short of its forecasts. The only time since taking office that it hasn’t done so was in the 2014 budget, when, with hindsight, it was seriously deluded about the size of the problem – and how to tackle it.

That 2014 budget forecast a tax take this year of $412 billion. The new forecast is $379 billion. Missed it by that much!

By contrast, despite the Senate’s blocking some spending cuts, spending this year is now forecast to be $3 billion less than predicted in 2014. The government and its media supporters are only deluding themselves in proclaiming that this is a problem of too much spending. It is primarily a problem of having too little revenue.

If you don’t believe me, compare today’s numbers with the way the Howard government did things. In its eight years in office after introducing the GST, its revenues averaged 25.4 per cent of the nation’s gross domestic product; this year they are expected to be just 23.3 per cent. Spending averaged 24.2 per cent of GDP under Howard; it’s 25.2 per cent now. The revenue gap is twice as large as the spending gap.

The International Monetary Fund and the OECD have urged the government to look at tax rises, for policy reasons as well as deficit reduction. The government refuses to do so, for ideological reasons. The bottom line is that there are many ways to close the deficit. In ruling out half of them, the government and its media allies raise questions about how seriously they are committed to doing the job.

It is not a trivial issue. Yes, Australia’s net debt is the seventh-lowest in the Western world, but it will stay that way only if, at the very least, we keep the deficit close to balance – and with the deficit forecast to be $36.5 billion, roughly the same as two years ago, we are far from that.

For every $1 it earns, the government is spending $1.08 – and that’s eight years after the financial crisis. Even in crisis-battered Europe, only five governments are running bigger deficits than Australia – France, Britain, Spain, Greece and Portugal – and in all but Britain, that’s mostly due to the unavoidable cost of servicing their massive debts.

The rating agencies have waved Australia through this time. Frankly, credit ratings are overrated – markets accept very little yield on US bonds, even though Standard & Poor’s now rates them only AA – and you can’t imagine any Australian government defaulting on debt payments. Still, if the agencies make such fine distinctions, it is hard to see how they can continue to rate Australia in the select few with AAA ratings when it is running one of the loosest fiscal policies in the Western world.

Running such large deficits so long after any crisis has passed isn’t normal. This is policy failure, for which both Labor and Coalition governments are to blame.

Don’t blame the Senate. It is elected from a much wider base of Australian opinion, and its job is to review government legislation and reject that which it judges unacceptable. On the government’s own figures, even if the Senate were to pass all the budget cuts it has rejected, that would shave just $3 billion off the $36.5 billion deficit. The Senate is not the problem, it is the scapegoat.

The latest blowout reflects the weakness in wages and job growth, on which we reported last month. Over the four years to mid 2020, $31 billion has been wiped off forecast tax revenue, mainly because fewer people are expected to have jobs, and those jobs on average are expected to earn less than previously forecast.

Even the surge in iron ore and coal prices – in the case of metallurgical coal, to astronomical record highs – has been more than offset by the decline in expected profits outside the mining sector. I hope Treasury knows more than I do, because its forecast of an almost $10 billion jump in company tax revenue next year looks decidedly optimistic.  

The economy is not doing that badly. It is slowed down by excessive household and government debt, yet it’s within cooee of the average per capita growth we’ve had since the crisis. But it’s not doing well enough to close a budget deficit of this size by itself. And that’s what the government is asking it to do, with a bit of help from every treasurer’s friend, bracket creep.

Morrison at least now admits that revenue (he calls it “earnings”) is a problem. But he insists that the revenue gap will close naturally by growth, so the government doesn’t have to do anything, except to make sure that it includes enough spending cuts to offset its new spending, as it did this time.

But it’s been telling us that since the 2014 budget, and every single budget and MYEFO since then has reduced its forecast tax take. After that’s happened five times in a row, why should we – or the ratings agencies – think they’ve got it right this time?

Where did they make the savings to pay for all the new spending they promised during the campaign, much of it in country seats under threat from Labor or independents? Four areas stand out:

• The budget reports $16.5 billion of unexpected savings from “parameter variations.” Almost half of that comes from a spectacular slowing of the growth in demand for childcare payments of all kinds. The finance department offered no explanation, but Morrison told AM it was because earlier reforms had shut down the rorts in the system.

• Low growth in prices and wages has cut expected outlays as well as revenue. Growth in pensions and benefits is linked to growth in wages and prices, so low inflation has saved the budget billions on the spending side; the budget does not tell us how much.

• This budget update’s weasel word is “efficiencies” – which it uses freely as a euphemism for spending cuts. Seven of them have cut $538 million from various programs. Tony Abbott’s program for the government to subsidise wealthy people to hire nannies is axed completely. But the biggest cut, $330 million over four years, will more than halve wage subsidies for employers to hire disadvantaged older workers. It staggers me that Turnbull, Morrison and Cormann, who seem reasonable people, could think it a good idea to reduce our efforts to help long-term jobless people find work.

• The government has stripped $2.2 billion over the next four years from funding from priority infrastructure projects to pay for the pork barrel projects – a bridge here, a road upgrade or a community development grant there – it pledged during the election campaign to shore up Coalition seats.

This is serious. As I’ve reported earlier, for all the talk about infrastructure, actual investment in transport infrastructure by and for governments, federal and state, has slumped from 1.20 per cent of GDP in 2010–11 to 0.89 per cent in 2015–16. This year the quantity is up, but the quality is down. On the running tally kept by the infrastructure department, of 104 community infrastructure projects the Coalition promised during the campaign, only six were in Labor electorates. Clearly these projects were chosen for political reasons, but they were funded with money that had been earmarked for priority projects: “land transport projects that will deliver the highest benefits to the nation.”

MYEFO cuts $850 billion from this year’s budget for infrastructure programs run jointly with the states. Once again, Victoria is the Turnbull government’s target enemy: it proposes to spend just $621 million on infrastructure works in the state, while spending $3.1 billion in New South Wales, $1.9 billion in Queensland, and so on.

At a time when Melbourne is housing almost a third of Australia’s population growth – last week’s figures imply that more than 100,000 of the nation’s 337,821 population increase in the year to June settled there – the Turnbull government is doing little to help solve the city’s transport crisis. Victoria as a whole is slated to receive only $2 billion of the $26.4 billion allocated for the next four years, compared to $8 billion for NSW and $7.6 billion for Queensland. The state with 36 per cent of the nation’s population growth would get only 7.7 per cent of funding for new transport projects.

Turnbull and Victorian premier Daniel Andrews need to repair their personal relationship over the Christmas/New Year break. It is in no one’s interests for them to be constantly seeking to score off each other rather than working together. Victorian voters might well take it out on both of them.

One more suggestion. The government’s plan to cut company tax by more than $10 billion a year is clearly unaffordable while the budget remains broke. Why don’t Scott Morrison and Chris Bowen also have a drink together over the Christmas holidays, and shake hands on a more targeted way to get the new investment Morrison is aiming for? Using accelerated depreciation allowances or some similar tax break would give businesses an incentive to make new investments without doing the budget as much damage as an across-the-board cut in company tax. •

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His final public outing, at a luncheon in Sydney last week, was no exception. After reviewing the performance of the Australian economy during his time at the helm – a period during which inflation was, on average, well within the Reserve Bank’s 2 to 3 per cent per annum target range – the governor went on to make two important points about the effectiveness of the “levers” available to economic policy-makers in the circumstances they are confronting in Australia and elsewhere.

First, he reiterated the “serious reservations” he has expressed on previous occasions “about the extent of reliance on monetary policy around the world.” This isn’t simply because, in many countries, the short-term interest rates central banks administer in order to give effect to monetary policy decisions have already reached (or breached) what was previously thought to be the “zero lower bound.” Australia actually hasn’t yet reached that point – although we are much closer to it than ever before – though, as Stevens said, “with the whole developed world in such a prolonged period of ultra-low rates, it would have been fanciful to think we were not going to be affected.”

Rather, his specific concern was that monetary policy works, to the extent that it does, by prompting households and businesses to spend more (or less) than they otherwise would by inducing them to borrow (or save) more (or less) than they otherwise would in response to reductions (or increases) in interest rates. In present circumstances, he went on, “there is a limit to how much we can expect to achieve by relying on already indebted entities taking on more debt.” Former Bank of England governor Mervyn King makes much the same point in his recently published book, The End of Alchemy: Money, Banking, and the Future of the Global Economy.

There is no way of determining, in advance, the upper limit of the amount of debt any country’s households can sustain at any given point in time. It will depend on, among other things, the level of interest rates, the level and rate of growth of household income, the level of household assets, and the distribution of income and debt across households. History suggests that you only discover what that limit is when you have gone past it.

We obviously haven’t reached that point in Australia yet. But internationally comparable figures compiled by the Bank for International Settlements (based in Basel, Switzerland) put Australia’s household debt at the equivalent of 124.3 per cent of GDP as at the end of 2015 – a higher figure than for any other of the twenty-six countries for which figures are published.

Australian Bureau of Statistics figures indicate that over 70 per cent of Australian household debt is owed by households in the top 40 per cent of the income distribution; and data from the Australian Prudential Regulation Authority show that the extent of highly risky lending and borrowing has declined in recent years. Hence, Australia can almost certainly sustain a higher level of household debt, in aggregate, than the United States was able to.

Nonetheless, Australian households must be closer to exhausting their appetite for further borrowing than they have ever been before. And this must surely limit the efficacy of ever-lower interest rates in stimulating faster growth in household spending – especially in circumstances where growth in household incomes is running at historically low rates.

Indeed, as Glenn Stevens noted in a speech in Brisbane in June last year, households “probably have the least scope” out of the three broad sectors – households, government and business – “to expand their balance sheets to drive spending… because they already did that a decade or more ago.”

Hence Stevens’s second major point – that “gross public debt, for all levels of government in Australia, adds up to about 40 per cent of GDP,” or about a third of the level of household debt. He was at pains to emphasise that he was “not advocating an increase in deficit financing of day-to-day government spending,” and that sooner or later Australians will need to have a “more hard-nosed conversation” about how to put our public finances on a “sustainable medium-term track.”

Rather, he was reiterating a point he has sought to make on several other occasions in recent years: that (as he put it in the Brisbane speech) “it is perfectly sensible for some public debt to be used to fund infrastructure that will earn a return.” Indeed, in Australia’s current circumstances, “it would be confidence-enhancing if there was an agreed story about a long-term pipeline of infrastructure projects, surrounded by appropriate governance on project selection, risk-sharing between public and private sectors at varying stages of production and ownership, and appropriate pricing for use of the finished product.”

Much the same advice has been offered repeatedly to governments of “advanced” economies by institutions that have traditionally been regarded as bastions of fiscal conservatism, such as the IMF and the OECD.

Unfortunately, governments appear to have little appetite for taking this kind of advice. Public investment expenditure in Australia, other than on defence, represented a smaller proportion of GDP in 2015–16 than in any financial year since 2004–05. Infrastructure spending is rising in those jurisdictions, such as New South Wales, where governments have been willing to sell existing assets in order to finance new investment; but elsewhere, where governments are either unwilling or unable to sell existing assets, or have few assets to sell, infrastructure spending has for the most part been flat or declining.

It would be helpful if the federal government presented its budget in the same way that the states and territories have for the past fifteen or so years. This approach draws a clear distinction between the operating result (the difference between total revenue and recurrent spending on ongoing government functions) and the financing of capital expenditures – rather than focusing primarily on the overall cash balance. Provided that the government was committed to running an operating surplus (including after meeting interest on borrowings and providing for depreciation of its existing assets), financial markets and rating agencies would be likely to take a benign view of an increase in government borrowings to finance well-selected and prudently governed infrastructure projects.

Incoming Reserve Bank governor Philip Lowe will probably need to continue giving similar advice to that which his predecessor has consistently provided over the course of his term. •

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That’s not surprising. This financial year Infrastructure Australia had its average staffing level increased by almost 40 per cent: from eleven to fifteen. The Productivity Commission has a staff of 167. Yes, Infrastructure Australia has another twelve people on its board who are pretty cluey on infrastructure issues, and a larger budget for consultants than for staff. But in its seven-and-a-half years in business, neither Labor nor the Coalition has equipped it to play the role they have led us to expect of it: to be an honest expert broker, evaluating the nation’s infrastructure needs and rigorously evaluating the projects that governments propose to meet them. You can’t do that with a staff of fifteen.

So all the stories you read and heard this week about the Australian Infrastructure Plan giving the green light to a long list of projects dear to governments past and present – WestConnex and the M4 upgrade in Sydney; the East–West Link, the Melbourne Metro and level crossing removals in Melbourne; the Cross River Rail and the Ipswich Motorway in Brisbane; Adelaide’s north–south corridor and Gawler rail line upgrade; the rail link to Perth Airport; even Canberra’s sadly ludicrous light rail plan – were all somewhat premature.

As problems to be tackled, the report rates them all as priorities or high priorities – all ninety-three of them. But that is far from implying an endorsement of the solutions that state and territory governments are trying to sell to us. That would require a proper evaluation, and Infrastructure Australia hasn’t had the resources to do that yet. The only two projects the report endorses are the controversial Perth Freight Link to the port of Fremantle, and the uncontroversial widening of Melbourne’s Tullamarine Freeway.

It does provide a preliminary sorting, dividing the remaining ninety-one projects into thirty “high priorities” and sixty-one “priorities,” and into near-term, medium-term and longer-term timescales. Some of that does involve some interesting calls: a second airport for Sydney is rated only a longer-term issue, as is a decision on how to deal with future port congestion in Melbourne. The Victorian Coalition’s former plan to build a rail link to Melbourne airport is rated only a medium-term issue, as is building the “missing link” from the ring road to the Eastern Freeway. Canberra’s future public transport and northern corridor congestion are also rated as only medium-term issues, despite the ACT Labor–Greens government making the $700 million light rail plan its urgent priority.

We’ll come back to that. To me, the central thrust of this “infrastructure plan” is to restate even more forcefully the central message that Infrastructure Australia has been trying to get through to Australians ever since it began operations under Sir Rod Eddington. In infrastructure, you get what you’re willing to pay for.

I realise that the tax debate has provided formidable competition for media attention this week, but it is tragic that this critical message has yet again passed through the media largely unheard. The most important chapter of the report, summarised here, warns that the growing congestion in our cities is the result of years of underinvestment in roads and rail – not only in building them, but also in maintaining what we already have. And that, in turn, is the result of a political culture in which taxpayers and users demand better infrastructure but are unwilling to pay for it.

As the report points out on pages 76–94, there are ultimately only two sources of funding for better infrastructure: taxpayers and users. For transport infrastructure, we rely heavily on taxpayer funding, yet in a political culture that demands low levels of government debt, even the current inadequate levels “may be unsustainable in the face of increasing budget pressures.” While it urges the federal government to consider borrowing specifically for productivity-enhancing infrastructure investments, as past governments did, the report warns that government funding alone “is unlikely to be sufficient to provide the infrastructure that Australia requires… Australia needs to consider a broader system of transport pricing, both for road and public transport.”

The report argues for a mix of reforms to make better use of the infrastructure we have already, and to increase the sources of funding for new infrastructure projects. Among them:

• Commercially viable assets, such as freeways, should be converted to toll roads – in its model, under private ownership – and the revenue raised used for new transport investments.

• Road user charges (aka congestion pricing) should be introduced in place of fuel excise and vehicle registration fees, so that users pay the true costs for their use of congested roads. Infrastructure Australia urges that either the Productivity Commission or itself be commissioned to hold a public inquiry into the benefits of such a switch.

• Heavy vehicles must be charged the full cost of the (considerable) damage they cause to roads, using new streamlined technology, as an urgent reform.

• Public transport users should be required to pay a higher share of the cost of the services they use. In Melbourne, for example, it is estimated that passengers on average pay just 30 cents of each dollar of cost, leaving taxpayers to pay the other 70 cents. The report argues that while public transport will always be subsidised, this balance is wrong, and users should pay more – offset by concessions for the needy – so that governments can invest more in new infrastructure and better maintenance.

While our political leaders compete to offer attractive new investments, the report points out that these are often paid for partly by underspending on even more essential maintenance of existing infrastructure, road and rail alike. It warns of a “hidden deficit” accumulated by years of “sub-optimal maintenance” which “over time, [has] the potential for significant deterioration in infrastructure performance and much higher costs.”

The report touches on many topics in its 200 pages, too many to be adequately summarised here. A sketch of its thinking should start with its call for a National Population Policy, since population growth is the driving force of the increased demands we are failing to meet. It notes that our population growth is overwhelmingly going into four cities – Melbourne, Sydney, Perth and Brisbane – and it is essential that those cities “rapidly increase the delivery of higher-density housing… [to] provide people with high-quality, affordable housing that is well-connected to infrastructure, community public spaces and world-class amenities”.

One key message here is that we need to invest more in urban public transport, to provide better connections between home, workplace and community amenities. But that investment should not be targeted only at the inner areas where the higher-density housing is going up. Quite the opposite: one of the main messages of the report is that a far higher priority must be given to Australians in the outer suburbs, as motorists and public transport users. They suffer from mobility deficits which mean, for example, that some residents of Melbourne can access only 10 per cent of the city’s jobs within a forty-five-minute drive, and even fewer within a one-hour journey on public transport. This is serious inequality of opportunity.

Few will agree with everything Infrastructure Australia says. It advocates privatisation of infrastructure assets wherever feasible, on the grounds that private owners provide “more cost-effective, customer-responsive services.” Bank customers, electricity consumers and Melbourne rail commuters may regard this as a quaintly old-fashioned, Thatcherite view that ignores mounting evidence to the contrary. But it would be a pity if differences of opinion meant we ignored the crucial proposals for better pricing systems in road and rail alike, and the warning siren the report sounds on the “hidden deficit” in road and rail maintenance.

That is what the report is really about. So far as its “priority list” of projects is concerned, at this stage it is no more than a broad sketch, with the details to be filled in over time if and when it gets the resources to do the job the politicians claim it is set up to do.

Twenty-eight initiatives are listed as near-term high priorities:

New South Wales
Sydney Metro (the privately run rail line being built from Chatswood to Bankstown via the CBD).
Rapid transit links for buses from and to the northern beaches, and on Parramatta Road and Victoria Road.
WestConnex stage 3 to link the M4 and M5.
Upgrade of the M4 through the western suburbs beyond Parramatta.
Duplication of the Port Botany rail freight line.
Upgrade of Chullora rail junction.
WestConnex branches to Port Botany and Sydney Airport.
Preserve corridors for future Outer Sydney orbital road (M9) and rail tracks, a rail line and fuel pipeline to the future Badgery’s Creek airport, a future freight rail bypass of Newcastle, and a Western Sydney rail freight line and intermodal terminal.

Victoria
Upgrade of the Cranbourne/Pakenham rail lines beyond Caulfield, and removal of their level crossings.
Melbourne Metro (the underground rail line planned from South Kensington through the city to South Yarra).
All three parts of the controversial East–West Link: from the western suburbs to the port, to the north of the CBD, and from there to the Eastern Freeway.
Further upgrading of the Western Ring Road.
Preserve corridors for future Outer Metropolitan ring road from Werribee to Mill Park.

Queensland
Cross River rail to speed travel times to the CBD.
Ipswich Motorway.
Dedicated rail freight line to the Port of Brisbane.

Western Australia
Improved road/rail links to the outer northern suburbs.

South Australia
Upgrade and electrification of the Gawler rail line through the outer northern suburbs.

National
Develop a portfolio of projects to optimise the performance of urban transport networks.
Develop a National Freight and Supply Chain strategy.
Preserve a corridor for a high-speed rail line from Brisbane to Sydney and Melbourne.

But unless the funding issues are tackled, whatever the priority, few of these will be built in the five-year timeframe the report proposes. Economists occasionally propose reforms to road pricing, but hardly anyone has been prepared to get up in public and say that public transport users should pay more for the benefits they receive. In Melbourne, you get unlimited use of public transport for $7.80 a day, or $3.90 if you qualify for concessions – yet providing that service costs more like $25 per passenger per day.

The report sets no target for what share users should pay – I would suggest a 50:50 split as a reasonable benchmark – but it warns that excessive subsidies are locking us out of adequate investment and maintenance spending, and into a “low-cost, low-quality paradigm.” It concludes:

While there will likely be a continuing long-term case for partial taxpayer funding of public transport, the financial sustainability of the system demands a frank discussion about the fairness and efficiency of such large transfers from taxpayers to specific users. Together, road networks and public transport are the strongest candidates for reform because current approaches are not working, and the benefits of reform are so substantial.

Let the debate begin. •

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So what are our state governments doing? New South Wales and Victoria, both AAA-rated and faced with mounting road and rail congestion, are giving priority to paying back debt.

Previously unreported data from the Australian Bureau of Statistics reveals that in the nine months to March, New South Wales, Victoria and Tasmania all repaid more money to the financial markets than they borrowed. At a time when it has never made more sense for them to take on debt, they chose to reduce it.

The Bureau reports that over those nine months, Victoria’s budget sector paid back $849 million more than it borrowed. Even the Baird government, not normally a slave to political correctness, paid back a net $447 million. And Tasmania, with better reason, repaid a net $117 million.

Okay, the June quarter may have swung that balance around, at least in New South Wales. The Bureau tells us the states and territories collectively did more than half their total borrowing for the year in the final quarter, taking on a net $2.2 billion of new debt.

But it is unlikely to have changed the balance in Victoria, where the problems of urban growth are accelerating most rapidly. In fifteen years, Melbourne’s population has grown by a third, adding more than a million people and congesting roads and public transport alike. Yet the Bureau’s figures show that over the same period, under Liberal and Labor governments, Victoria has invested less in building new infrastructure than any other state, as a share of national expenditure. Even Tasmania, with far smaller needs, invests far more of its resources in building new transport infrastructure.

A wide range of Bureau figures reveal a vast and growing gulf between what the states are doing, and what they are being urged to do by the International Monetary Fund, the Reserve Bank and, of course, Infrastructure Australia. Each of them is giving our governments the same message. Far from facing a debt crisis, Australia’s debt levels are very low by world standards. We have a lot of room to borrow. We have a lot of infrastructure needs, and they are holding back the economy. Interest rates are extraordinarily low: the states’ ten-year bonds are trading at 3 to 3.25 per cent. And the economy needs a stimulus to ensure that it can come through the mining bust – and the risk of global troubles, and a possible collapse in house prices – without a recession.

Other unreported Bureau figures show that every Australian state government reduced their investment in infrastructure in the year to June. Investment in public infrastructure as a share of output slumped to a ten-year low of 1.5 per cent of total spending in the economy, down from 2.3 per cent five years earlier, and 2.1 per cent when the Abbott government took office.

In current dollars, engineering work carried out for the public sector (whether by contractors or its own agencies) shrank by $7.35 billion, from $31.9 billion in 2012–13 to $24.6 billion in 2014–15. That’s a stunning 23 per cent fall, at a time when governments were being widely advised to increase that investment.

Investment in transport infrastructure by the public sector has slumped by 20 per cent in current dollars, from a peak of $17.8 billion in 2011–12 to $14.2 billion in 2014–15. The plunge has been particularly large in South Australia, where investment has more than halved, but investment in Queensland is down 39 per cent – and in Victoria by 28 per cent from an already low base.

Private investment in transport infrastructure has shrunk even more sharply. From a peak of $33.8 billion in 2012–13 it had shrivelled to just $24.6 billion two years later. It is unclear from the Bureau figures how much private investment is in mining-related roads, rail and ports, and how much in privatised infrastructure in the cities.

As a share of demand, investment in transport infrastructure has now slumped back to the levels of the Howard government: from 2.2 per cent two years ago to 1.5 per cent now. Investment in rail and ports has shrunk more rapidly than on roads and bridges, but it’s falling sharply in every category, and in every state except Tasmania.

The Bureau figures show that, as investors, the states fall into two broad categories. New South Wales, Queensland and (until recently) South Australia have put far more of their resources into building for the future than Victoria, Western Australia or (until recently) Tasmania.

Over the decade to June, 1.37 per cent of total spending in Queensland went into building new publicly owned transport infrastructure, although that was cut drastically by the Newman government. New South Wales averaged 1.25 per cent, and South Australia 1.13 per cent.

Tasmania (0.80 per cent) understandably has invested less, while in Western Australia (0.79 per cent) the government’s low investment during the mining boom could be defended as making room for that once-in-a-lifetime event.

Victoria (0.65 per cent) has consistently trailed the rest of the nation, and without any valid excuse (apart from the double standard of the Abbott government, which gave Victorians just $67 per head this year for new transport infrastructure, compared with $258 per head for people living in Coalition-led states).

The state’s leaders love to declare Melbourne the world’s most liveable city. They seem not to realise that Melbourne works because of the investments made by nineteenth-century governments, the Hamer government’s determination to build the underground rail loop, and governments of both sides investing to create a road network that worked until recently. Each side always has big plans, but the bottom line is what they are actually investing – and that it far too little to keep Melbourne liveable.

Ultimately, the problem is that we have created a fetish of opposing public debt while turning a blind eye to private debt. In 2014–15, the states – which are responsible for building our infrastructure, among many other tasks – borrowed just $4 billion net; aspiring landlords, meanwhile, borrowed nearly $80 billion net to buy rental properties. This is not going to make our cities liveable in future.

The ratings agencies confirm that there is some room for state governments to borrow more without busting their credit ratings, and considerable room for the Commonwealth to do so (which would work if, as the IMF suggested, it guarantee infrastructure-related borrowings by the states).

The simple reality is that if we choose to have rapid population growth, as Australia does, we have to build new infrastructure to accommodate it. And the cheapest way to finance that is for governments to borrow and build.

(Governments can also tax or charge and build, and there are good ways to do so: putting a congestion tax on vehicles using the inner city and crowded roads, converting all freeways to low-fee toll roads, or lifting our very low public transport fares. Past experience suggests voters will accept these if they can see where their money is being invested.)

Everything else, including the tax-increment financing plan floated last week by prime minister Malcolm Turnbull, is ultimately more expensive. Governments can borrow far more cheaply than companies can. In this area, private sector solutions are essentially second-best solutions. They’re better than doing nothing, but why not choose the first-best solution?

Successive interest rate cuts have done little to spur business investment; business will invest only when it sees rising demand for its products. This is the time for the government to create demand, by investing where it will enhance productivity, improve liveability and pay a way in the long term.

The Bureau’s construction data suggests a bleaker future. The new work commenced in 2014–15 shows a shift of spending away from rail and ports into roads and bridges, as the Abbott government dictated. And the pipeline of new projects keeps shrinking, from $34 billion in 2011–12 to just $25 billion in 2014–15. We are heading the wrong way. •

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You can see the problem. What happens if Infrastructure Victoria concludes that one of the government’s priority projects is a dud? Or that far better projects were being left unbuilt while the government spent taxpayers’ money on ones of questionable value? Which policy would take priority?

And how could the government pay for its long shopping list of projects from a severely constrained capital works budget: currently, less than $4 billion a year for all Victoria’s transport needs? If it plans to reduce public debt rather than take advantage of today’s extraordinarily low interest rates to borrow and build, how many of the promised projects will become reality anytime soon?

In Tuesday’s state budget, Victorian Treasurer Tim Pallas revealed that the answer is simple: the government might have changed, but otherwise it’s business as usual. Infrastructure Victoria will be set up only after the key infrastructure decisions have been made. And with the new rail line through the outer western suburbs (Regional Rail Link) completed, and the East–West road tunnel scrapped, funding for transport infrastructure has shrunk even more. Less than 1 per cent of the state’s output will be invested next year to build all this new transport infrastructure.

Yet, only five months into his first term, premier Daniel Andrews has already pledged to:

• build the new nine-kilometre Melbourne Metro line from South Kensington to South Yarra, burrowing under the middle of Swanston Street, at an estimated cost of $9 billion to $11 billion.

• scrap the previous government’s proposed East West Link tunnel, and compensate the contractors for up to $420 million of costs they’ve already incurred.

• consider a new West East tunnel and bridge proposed by toll road operator Transurban, to link the West Gate Freeway to the docks, rail freight terminal and City Link, at an estimated cost of $5.5 billion.

• join with Transurban and the federal government to widen the northern half of CityLink and the Tullamarine Freeway, at an estimated cost of $1.28 billion.

• scrap the previous government’s deal with a private consortium to upgrade the Cranbourne–Pakenham rail corridor, and instead do a bigger version of the same plan itself, at a yet-to-be-determined cost thought to be around $2 billion.

• invest $2 billion to build new trains and trams locally over the next decade.

• go ahead with just two of the four level crossing removals previously slated for 2015–16 – Burke Road, Glen Iris, and Main Road, St Albans (the latter mostly funded by the federal government) – with works at North Road, Ormond, and Blackburn Road, Blackburn, now scheduled for 2016–17.

So if the government is already committed to all that, what is left for Infrastructure Victoria to advise it on? The key decisions for this term appear to have already been made.

In fairness, most of these projects are things Andrews promised to do before the election. Some of them, such as widening CityLink, simply lock in uncontroversial decisions previously made by the Napthine government. But the announcement of the Metro came after Andrews was hammered by those parts of the Melbourne media who refuse to face the reality that the East West road link was a poor project that would have cost taxpayers billions of dollars over time. In reality, spending $420 million to close it down now was the cheap, fiscally sensible option.

Melbourne Metro is another matter, though. A business case prepared years ago under the Baillieu government has now been leaked by the Liberals to the Herald Sun, but as James Campbell points out, it envisaged a much cheaper project than Andrews has announced. And that 2011 study found the Metro would have a benefit–cost ratio of just 1.2–1 – the equal lowest of the eleven projects that made it to the advanced stages of Infrastructure Australia’s latest priority list.

The government could recoup some of that cost by capturing the increased value the line will add to land around the new stations. But much of that land is publicly owned, with little or no scope for redevelopment. So the great bulk of the project will have to be publicly financed – even if, with construction scheduled to start only in 2018 (just before the next state election), that is more a problem for the future.

The bottom line is that Melbourne Metro might not pass a standard cost–benefit analysis in its present form. Even the preliminary work will eat up about 10 per cent of the government’s budget for transport works over the next four years. And had Infrastructure Victoria been set up before the decisions were made, it might have found alternative projects offering much bigger bang for the buck.

Faced with the choice between vision and caution, Pallas has chosen caution. State debt is projected to fall in the out-years, implying that future borrowing will shrink rather than grow. That means, in turn, that transport infrastructure spending will shrink in real terms and as a share of the state’s output.

If Melbourne were not growing so fast, this fiscal conservatism wouldn’t matter so much. But Victoria’s capital is growing very fast indeed. Every week it adds almost 2000 new people. In the fifteen years since the start of the new millennium, the city’s population has grown by a third, adding more than a million people. It’s now 4.5 million, and on current growth rates it will reach five million by 2020, six million by 2030, and eight million by 2050 or so. Like Sydney, it is cramming more people in at a rapid rate while building new infrastructure to cater for them at a slow rate. And the result is rapid increases in road congestion, public transport crowding, and frustration among the city’s residents.

Outside government, there is a growing consensus among economists that, with an underperforming economy facing serious challenges and many feasible, productivity-enhancing transport investments on the drawing board, governments ought to be borrowing to build. Victoria’s ten-year bonds are now selling at less than 2.5 per cent; the money is so cheap, the needs are so big. In time, of course, the money will have to be repaid, which means the investments must be chosen well and future revenues earmarked to meet the bill. With that qualification, borrowing to build in today’s economy offers governments a win–win opportunity.

But Labor fears being seen as spendthrift, and so it is too afraid to grasp its opportunity. It has opted to let congestion keep growing because it fears that the Coalition, the Murdoch press, and ultimately the voters would crucify it if it borrowed money to fix the problems. Like its predecessor, is trying to juggle the problems, to make it appear that it is solving them: promising projects it will be unable to deliver, bringing in private partners that will ultimately inflate the overall costs, doing what it can with just $3 billion a year.

That is why Labor was attracted to Transurban’s cleverly designed proposal to build a tunnel–bridge link between the West Gate Freeway and CityLink via the docks and the rail freight yards. On the numbers being discussed in the media, just $1.5 billion of the $5.5 billion cost would come from government. Most of the money to build it would come ultimately from tolls – partly on the new link ($3 for cars, $13 for trucks), partly on the now toll-free West Gate Bridge ($13 for trucks, with cars remaining free), but primarily from motorists using CityLink, for which the immensely profitable franchise granted by the Kennett government, and extended by the Napthine government, would be extended for an unspecified period.

Most of the cost, that is, would be paid by motorists using CityLink after 2035, when the franchise was due to end. Those costs are not likely to be high in the minds of voters at the 2018 state election. Andrews even cheekily suggested that the federal government might allow Victoria to transfer the $1.5 million the Abbott government paid for the East West Link to this project, only to be quickly slapped down by federal assistant infrastructure minister Jamie Briggs, who said the feds were unlikely to pay without a state contribution.

There are a number of risks with the Transurban proposal. Few cars are likely to transfer from West Gate to the Transurban Link when one is free and the other has a $3 toll. It would make far more sense to put a toll also on cars using West Gate, but that is politically impossible unless tolls are introduced for other urban freeways as well. That would make a lot of economic sense, and provide a revenue source that could be earmarked for future road construction; but it would also be a decision Sir Humphrey would call courageous.

Transurban has calculated the benefit–cost ratio of its link as 1.6–1, and had that signed off by experienced infrastructure bureaucrats Kerry Schott and Tony Canavan. The route chosen would serve a lot of goals, and there is a widespread view among transport professionals that a road linking the West – but preferably from the Western Ring Road – with the docks, the rail yards and CityLink should be Melbourne’s biggest priority in new tarmac.

But there is also a widespread view that the best projects in terms of bang for buck are not the big blockbusters like this, but smaller projects that improve the existing road system by tackling bottlenecks: removing fifty level crossings, for instance, which was Andrews’s biggest priority in the election campaign, or duplicating the single-lane main roads that now cause congestion in the western suburbs from dawn till dark. But smaller, more worthwhile projects tend to come off second best when competing for funds against the blockbusters, and so those commonsense projects seem to be receding. •

More about the Victorian budget

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Three statistics issued in recent days reveal the scale of the problem.

• On 26 March, the Bureau of Statistics issued the latest national population figures. They revealed that Australia has grown by more than three million people in just eight years to last September. We are gaining almost 400,000 people a year. Every two and a half years or so, we add another million people.

• On 31 March, the Bureau released its regional population estimates for the year to last June. They showed that almost half of that rapid population growth is going into just two cities: Melbourne and Sydney. Add Brisbane and Perth, and almost three-quarters of it is going into just four cities.

In a single decade, Melbourne added three-quarters of a million people; it is now growing at almost 100,000 a year. Sydney added more than 600,000 people – equivalent to adding almost half an Adelaide. Perth’s population swelled by a third, Brisbane’s by a quarter.

This is extraordinarily rapid growth. It is roughly double the rate Australia averaged in the 1990s. You will not find it happening in any other Western country. How are our governments providing the extra infrastructure needed to service all these extra people?

• On 1 April, the Bureau released its estimates of engineering construction work in 2014. You might wish it was an April Fools’ Day joke, but sadly, that’s not so. It reported that work done on infrastructure plunged last year for the second year in a row, falling 12.5 per cent below its 2012 peak.

In every mainland state, infrastructure investment is now in freefall. In most of them – New South Wales, Victoria, Queensland and South Australia – the work carried out in the December quarter was down by between a quarter and a third from its recent peak.

But hang on, you say: isn’t that because the mining investment boom peaked in 2012? That’s true, it is winding down. And our governments have told us that they’re increasing infrastructure investment to fill the gap, and to help sustain economic activity as the mining boom subsides.

But what they’re doing is the exact opposite. Since 2012, the Bureau’s figures show, public sector investment in infrastructure has collapsed even faster than private sector investment. In 2014 alone, it shrank 15 per cent. Since 2012, it has shrunk 20 per cent.

At the very time when Keynesians would expect governments to increase their investment, to pick up the slack left by the winding down of the mining boom, the states in particular have given priority to getting their budgets back in surplus.

In the past two years, investment carried out for the public sector, whether by government workers or private sector partners, expanded only in relatively small pockets like the NBN, sports stadiums and ports. Other areas saw massive cuts. Instead of investing more in roads and rail to match the rapid growth in the population, governments cut investment in new roads by 15 per cent, in rail by 26 per cent, and in bridges by 30 per cent.

In some areas, the deep spending cuts might seem like a good thing: $2.7 billion was cut from investment in the electricity network (no more overpriced transmission lines) and $1.9 billion from water, sewerage and drainage (no more overpriced desalination plants).

But when all our big cities are choking on their traffic and our public transport is far below the standard of our new rich Asian counterparts, surely the money saved on electricity and water should have been invested in transport infrastructure? Instead, our governments, presumably acting on advice from their economic officials, have simply slashed investment.

That is bizarre. On the one hand, federal Treasury recently forecast that Australia’s population will have grown to forty million by 2055 – and the vast bulk of the sixteen million-plus extra people will pile into Melbourne, Sydney, Perth and Brisbane. That growth will roughly double their populations.

Yet Treasury’s state counterparts are telling their governments it is not crucial to build the infrastructure that will be required to preserve those cities’ liveability and economic efficiency. Rather, they say, the crucial thing is to maintain or regain an AAA credit rating – a rating designed for countries with low population growth and hence little need to borrow to build infrastructure.

Germany’s population, for example, is projected to fall over coming decades. It has little need to borrow to build new infrastructure. Australia is a very different country.

We already have a vast backlog of infrastructure needs after decades of underinvestment. In the twenty-five years to 1987, public infrastructure investment averaged 8 per cent of GDP. In the past twenty-five years, it has averaged 5 per cent. That is a very big decline in infrastructure investment. Privatisation of electricity and other assets explains part of it, but only part. The more infrastructure we need, the less of it we are building.

Why? Because to invest, governments need money. To get money, they need to either raise taxes, slash other spending, borrow, or fudge it by getting the private sector to borrow the money – at far greater cost, since the banks know that governments will pay them back, whereas private infrastructure builders can go broke, and often do.

The problem is that voters don’t want their governments to do any of those things. And governments lack the courage to tell voters that unless they do them, our cities will grow ever more congested, and our government services ever more inadequate to meet the demands a growing population places on them.

As I write, the ten-year bond yield for new Australian government debt is 2.33 per cent. New South Wales and Victoria can borrow at interest rates of about 2.6 per cent. The other states can borrow at around 3 per cent.

While scandalously few cost–benefit studies of transport projects are ever published in Australia – that is one of our problems – it is widely agreed that many smaller projects, such as removing level crossings, streamlining complex intersections, and updating railway signalling, would deliver benefits several times greater than the cost of building them. And that’s on the standard, outdated assumption that the government funds the project by borrowing at rates of 6 or 7 per cent.

At current interest rates, in an underperforming economy at some risk of recession, it is simply a no-brainer that our governments should be borrowing as much as they can sensibly invest to start repairing the infrastructure backlog, and fit our big cities for the growth they have had in the past decade, let alone the growth to come.

Yes, the states would lose their AAA or AA credit ratings, and have to pay more on their borrowings. But the interest rates they pay would still be extremely low, for the full duration of the loan.

When the loan ends, they would have to repay the debt or refinance it at whatever the rates are then. That should impose a discipline on them to pick only the projects where the benefits will outweigh the costs: no indulgences like Melbourne’s loss-making East-West tunnel, or Canberra’s proposed Northbourne Avenue tram line.

It can be done. As respected economists Max Corden and John Freebairn have argued in an excellent paper on the issue, “it is important to avoid purely political or populist decisions in choosing government investment.” Governments need to set up better institutions to evaluate and publish the economic merits of alternative projects, including the assumptions relied on for the evaluation. We also need a firm federal–state agreement to share their costs (and benefits), rather than using an utterly ad hoc approach, as the Abbott government has.

But the infrastructure backlog we face is too big to be tackled by borrowing alone. We need to bite the bullet and raise more revenues from the users of roads and public transport, and conduct a hard-headed review of public transport services to reduce their costs.

To give one illustration of the latter: the Alamein line in Melbourne is a charming historic relic of the railway age, but on an average weekday in 2011–12 its six stations were used by just 4746 people. Taxpayers in Melbourne pay 70 per cent of the cost of running the public transport system, while the users pay only 30 per cent. Should we adopt a goal that users should meet half the cost of running public transport services?

Congestion pricing has been adopted in cities like London, Stockholm and Singapore to help pay for new transport infrastructure and encourage people not to drive on congested roads. After initial opposition, London’s £10-per-day tax has broad bipartisan and community support, and is estimated to have reduced traffic volumes by at least 10 per cent from what they would have been in its absence.

Tolling existing freeways is seen as a political minefield. Yet the Kennett government showed how, when voters realise that the tolls will pay for improving the freeways (or building new ones), the political cost can be inconsequential. And such tolls could play a big part in financing an attack on the infrastructure backlog.

For example, Melbourne transport planners argue that the city’s biggest single need is for a second motorway over or under the Maribyrnong, to take the pressure off the overladen Westgate Bridge. But a second Maribyrnong crossing will be expensive. If it is to be financed by tolls, then tolls will need to be reintroduced on the Westgate, otherwise no one will use the new crossing.

It would probably be easiest if governments were brave enough to grit their teeth and announce that all existing freeways would become toll roads, with tolls at relatively low levels.

Last month’s tax reform paper confirmed that Australia is one of the most lightly taxed countries in the Western world. Only Korea and Switzerland have lower government spending. But since John Howard almost lost office in 1998 over the introduction of the GST, governments have lacked the courage to argue that we should tax ourselves more to build the infrastructure we need. They have also lacked the courage to argue for more borrowing to build infrastructure.

And so, people, we have a problem. We are fenced in by the community’s opposition to increased debt, tax rises and spending cuts.

If we persist in punishing governments that increase borrowing, increase taxes or cut spending, we rule out all possible ways to tackle our infrastructure problem. Our roads will become more congested, and our public transport more inadequate to the demands placed on it as our cities double in size.

We need a better balance between prudence and vision. •

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