Roads to riches: better transport investment

3 Apr 2016

Governments have spent unprecedented sums on transport infrastructure in the last decade. But mostly, they have not spent it wisely. 

Some of the additional spending can be attributed to unusual events such as the mining boom, the Global Financial Crisis and the Queensland floods. But even leaving these aside, too much money has been spent on the wrong projects in the wrong places.

For one thing, investment has not put cities first, though they are the engines of national economic growth. Our largest cities face increasing congestion and competition between passengers and freight. Yet governments have largely bypassed them to spend in states and electorates where federal elections are won and lost.

Too often, politics comes ahead of the public interest. Too much has been spent on highways that are not especially important to the economy, but are popular with local voters. Decisions on particular projects are dubious or made on the basis of weak or undisclosed business cases. The Commonwealth and Victorian governments spent $438 million on the Geelong to Colac road, not a project of national economic significance. Canberra’s light rail, now being built, is likely to provide no more benefits than bus rapid transit but cost more than twice as much. Although governments have funded many worthwhile projects over the past decade, the overall investment has been poorly directed. An ad hoc approach results in missed opportunities and a lot of waste.

One difficulty is that there is little to stop politicians committing to projects before they are properly evaluated – particularly during election campaigns. Without more public information on potential projects, the public can’t be sure that funds will be spent wisely.

Recognising the problem, Commonwealth and state governments have established new bodies, such as Infrastructure Australia, to improve infrastructure spending. This is a positive move. But in their current form, these bodies have limited impact.

A better approach would involve three steps. Governments currently cherry-pick the evaluation method that suits the result they want. Instead, they should not be able to commit to a transport infrastructure project before tabling in parliament a rigorous like-for-like evaluation of the net benefit, conducted by an independent body.

Governments would then be free to make and defend decisions on the basis of a clear rationale for investment. Politicians would be less eager to invest in projects that don’t stack up.

Once governments are only building projects where the community benefit clearly outweighs the cost, their second step should be to aim to build all such projects. Quality assessment, not arbitrarily imposed budgetary limits, should determine the level of investment. In other words, if a project has net benefits to the community, the government should build it.

Third, Commonwealth funding for projects should be disentangled from states’ GST entitlements. The Commonwealth should fund infrastructure that is important to the national economy, regardless of where it is based. It should not then override its own allocations by compensating states that did not receive funds.

More disciplined selection of infrastructure projects would have a double benefit. It would mean less wasteful spending and better transport networks, built where they will make the most difference.

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