The community spends an awful lot of money on infrastructure. But does it get spent wisely? And what could we do to ensure that we get better value for taxpayers and ratepayers.
Infrastructure is normally defined as facilities, shared by a community, that are necessary preconditions for economic activity.
Commonly there are three forms of infrastructure:
- “hard” or “economic” infrastructure such as roads and ports – mostly entrenching consumption of fossil fuels;
- “soft” infrastructure such as scientific research, information systems and education;
- “green” infrastructure such as stocks of the natural resources on which all economic activity ultimately depends.
Soft and green infrastructure are important too
Public debate commonly uses the term to refer just to the “hard” infrastructure of roads and railways, ports and airports, pipes, poles and wires. However economic activity also requires “soft infrastructure – social institutions such as research, education, libraries, governance, human capital; and “green infrastructure – reliable sources of natural resources such as fuel, minerals, food, oxygen and water.
Why is it then that governments consistently confine the term “infrastructure” to concrete forms – roads and ports and wires – and ignore the contribution of the soft and green forms? Almost all public commentary tends to confine the term to hard infrastructure. Perhaps because by building things politicians can point to tangible results for public expenditures.
But where should scarce public funding be allocated?
Benefit-cost ratio (BCR) is often used to help justify transport infrastructure projects. If BCR is greater than 1.0 it is claimed that the project creates economic value. But if the policy makers only consider hard infrastructure options, does the best value for money follow?
Examples of BCR for hard infrastructure projects are:
- the benefits of upgrading the Pacific Highway from Newcastle to the Queensland border; where the benefits are estimated to outweigh costs (benefit-cost ratio BCR) by a factor of 1.2 or BCR 1.2 Cost – $5.6 billion.
- the benefit-cost of the failed Airport Link Tunnel – estimated in 2006 at just 1.1 even using traffic projections. The final BCR was more like 0.35, making the expected benefit wrong by a factor of more than three.
- Brisbane Gateway Motorway upgrade $1 bn – BCR 4.9
- West Connex Sydney $1.5 bn – BCR 1.5
- East West Link in Melbourne – $3 bn – BCR nudged up to 1.4 but later revealed to be only 0.45
Some examples of soft infrastructure and the BCR estimated to flow from the investment dollar:
- The Productivity Commission reviewed >100 case studies of publicly funded research and development grants (2007) – average BCR 40 (that is $1 spent on research returns $40 in benefit to the public).
- SGS Economics estimate of value of health libraries (2014) noting the time saved by medical practitioners hunting down latest research – BCR 9.
- Queensland Dept NRM (2005) found coordinated land mapping had BCR at least 50, up to 150 (avoids developing unsuitable land and saves developers the costs of project-by-project environmental assessment).
Rationale for a fresh vision of infrastructure
Isn’t it time to expand contemporary public debate about the need for new public infrastructure. Issues of concern include:
- the need for a transparent process, independent of political campaigns, by which project proposals are conceived, aligned with planning objectives and assessed transparently;
- the need to include sustainability and energy security considerations in benefit-cost analyses for infrastructure projects;
- the need to evaluate competing demands on public funds objectively so that the broader foundations of economic activity – infrastructure defined broadly – are adequately resourced.
Opportunity costs are the loss of other alternatives when one alternative is chosen. For example:
- 1% of the cost of the proposed Brisbane Cross River Tunnel would allow the Government to engage 400 scientists, to improve policy in mining, energy, health and environment – and low-carbon transport;
- A life-changing week-long science camp for every Year 12 student (49,000) in Queensland could be funded by delaying the tunnel by one week.
The proposed Eastern Busway would benefit Redlands residents, but we need to see the BCR and understand the opportunity costs involved.
Taxpayers and communities understand that public funding is limited and we all want to see the best value for money!
What it means to Redlands?
Provision of infrastructure for major urban developments like Toondah Harbour PDA, Weinam Creek PDA and the proposed Shoreline township involve significant public expenditure. There is a need for the obvious forms of hard infrastructure like roads, water and sewerage, electricity and tele-communications. But there will also need to be hospitals, schools, ambulance, police and fire stations, libraries etc. to support these projects. The developer meets only a small proportion of the hard infrastructure costs and not much of the soft infrastructure costs.
As taxpayers and ratepayers are required to meet a significant proportion of the cost of urban infrastructure, the community should be allowed to understand the BCR of proposed investments. This would inform Councillors and the community of not only the BCR but allow an examination of the opportunity costs.
To date, these investments are based on a range of social and community policy decisions yet the dollar amounts are largely hidden from both the taxpayer and the ratepayer. Governments have challenged long established mechanisms for investment in health, education and even industry assistance in recent years. So why not examine the investment in residential infrastructure? Economic rationalists should insist the same rules apply by asking our political leaders, at all levels:
- What are the opportunity costs for investment in residential infrastructure?
- What else could the community usefully spend its money on?
- Is public investment in infrastructure for urban development the best use of the public’s money?
In the case of major urban development projects being fostered by the Redland City Council, why doesn’t Council publish its assessment of an economically rational approach including a BCR, before it commits ratepayers funds to these massive and very expensive projects?
Council’s Assessment should clarify:
- Which urban developments Council should invest in? and
- What alternative investments should Council consider? (for example accelerating or improving broadband in the City).
Where to next?
A starting point for how to answer these questions is the Infrastructure Symposium being conducted by Engineers Australia (Qld) and The Royal Society (Qld). The Infrastructure Symposium is being held at QUT (see flier) on 24 June 2015.