Opinion/Comment, Politics

There are smart infrastructure projects out there to help us out of recession – we just have to look.

Infrastructure spending is touted as the path to economic recovery, but our leaders can no longer afford to throw billions at programs with little economic merit or policy logic.

By Michael Keating and John Menadue

Good infrastructure investment is always the best response to a recession – the key is to work out what is good in the circumstances – Photo credit – Unsplash

Good infrastructure investment is always the best response to a recession because, unlike tax cuts and most spending, infrastructure investment can be wound back as the economy recovers.

Government has been desperately short of good infrastructure proposals, but they are out there if Commonwealth Treasurer Frydenberg cares to look.

We draw attention to one such project below.

The Commonwealth Treasurer faces formidable ongoing welfare, health, education and Defence spending obligations paired with plummeting tax revenues, so he must only entertain infrastructure programs with genuine transformative credentials – preferably those with commercial merit, so market funds will help bear the costs.

We are prompted to write this by disturbing recent reports about $220 billion in extra infrastructure spending being mooted under the title of the Federal government ‘building its way out of the worst recession since the 1930s’.

The list of project candidates has concerning inclusions – and glaring omissions.  Much of it has the look of a construction ‘sugar hit’ without any lasting economic impact: the polar opposite of what is required at this moment in our history.

Before anything else, our Treasurer needs to ask what problem each project purports to solve. 

Many Australian major projects can’t answer that elementary question.

In addition, as a result of Covid-19 projections of Australia’s population growth have been heavily revised down, and there may be more permanent shifts to working from home in future. Consequently, many of the previously accepted infrastructure projects may no longer make economic sense, or at least not for now.

Talk of stimulus-funding a Melbourne-Brisbane ‘bullet train’ is especially troubling.

The Grattan Institute wrote a compelling explanation in May this year of why three Australian cities of just 13 million people don’t need a nearly 2,000km long fast rail connection costing hundreds of billions of non-existent taxpayer revenues.

This Australian network would be comparable in length to the Beijing-Guangzhou high-speed line.  Yet the Chinese train draws on almost three times Melbourne, Brisbane and Sydney’s population in Guangzhou and Beijing alone – and takes in ten more major cities en route.   Population density is key. Australia doesn’t have it.

Putting such complete rubbish into the October budget would be deeply economically irresponsible.

Australia should abandon its dream of high-speed rail along the east coast,  report suggests - ABC News
Putting high speed rail from Melbourne to Brisbane into the October budget would be deeply economically irresponsible.

It is odd to be blithely floating over $200 billion of such spending at the same time the Geelong oil refinery signals it may have to close with the loss of 700 jobs.

Australia is an urbanised nation, but many regional centres like Geelong remain disconnected from their capitals and economically underperforming.

Now is the ideal time for Frydenberg to fix this major structural weakness in our national economy with his State counterparts.

The first and best candidate is Victoria, which ironically for its small size, has had the worst performed regional economy over the past two decades, even before Covid-19 did its worst there.

Stronger, Together Regional Fast Commuter Rail

Stronger Together is a rail infrastructure refit program to untangle regional and suburban Melbourne trains from their 150-year old shared tracks and unlock considerably faster more frequent commuter journeys to Geelong, Colac, Ballarat, Bendigo, Seymour, Shepparton and Latrobe Valley.  It builds on the Melbourne Airport Rail Link program and would share its access tunnel – two projects for the price of one.

Geelong fast rail could be delivered to city within five to seven years,  according to new report | Geelong Advertiser
The stronger together Geelong to Melbourne rail link makes more economic sense

It’s not a bullet train and the network employs upgraded existing lines, not expensive new builds.  It’s a way to bind regions and Melbourne into a single housing and labour market thanks to faster, more frequent and pleasant commutes.

This is the same powerful economic effect which Copenhagen unlocked when it built a bridge across the sea to Malmö, Sweden, in 2000: before the bridge, these housing and labour markets were disconnected by a ferry ride of several hours.  Now, the two cities are bound into a stronger, diversified housing and labour market by fast rail.

Stronger Together suggests it would employ over 8,000 people in construction over a decade, many in regions and the outer suburbs of Melbourne.

It has similarities to a program that Toronto and its regional cities are already building.  The Canadian project was found to return $2.60 for every $1 invested – a return far higher than the major projects on Infrastructure Australia’s ‘Priority List’.

Last month the National Institute of Economic and Industry Research (NIEIR) published a detailed independent assessment of the likely impact of Stronger, Together on the Victorian economy.

NIEIR’s work suggests Stronger Together’s impact is stunning.  By mid-century it:

  • Grows the State economy by 5 per cent and regional Victoria by 20 per cent;
  • Places an extra half million people in a liveable and connected regional Victoria;
  • Saves Melbourne $30 billion in congestion costs and free up suburban rail capacity; and
  • Halves the wage gap between Melbourne and regional Victoria.

NIEIR also projects economic gains in fast rail cities like Ballarat and Bendigo over 40 per cent above business as usual, with major gains to working hours, household wages, productivity and skilled labour attraction.

This is the sort of project rigour that the Reserve Bank, the ratings agencies and market investors should be crying out for.  Sadly, up until pandemic, they failed to ask hard questions of infrastructure candidates.  The sizeable devaluations of Australian infrastructure assets by funds in recent months tell a more accurate story of how flawed many of these projects always were.

Stronger Together’s proponents claim its busines case is both commercial and fair to communities.  This claim should be tested by governments.  If correct, it can be replicated in other States, especially New South Wales and Queensland, which also need better solutions for disconnected regional and capital city labour and housing markets.

Victoria not only needs the construction jobs from this program.  More than anywhere else, that State needs a stronger and fairer settlement model.

Melbourne has  grown faster than almost any major Western city for two decades, fuelled by high immigration and housing construction.  The majority of population growth has been thrown into poorly-serviced far outer suburbs.

These places contribute very little ‘agglomeration benefit’ to the city.  Worse, they mask plummeting wage growth and poor access to opportunity for these residents.

This is not a settlement model Victoria should aspire to return to, post-pandemic.  Even if future Victorian population growth is slower, this project would help correct the most severe existing settlement problems.

Canberra can work with Victoria to do much better.

It’s instructive that Stronger Together was commissioned not by Federal or State governments, but by regional local governments and business groups, who have worked patiently with Australian and UK infrastructure experts for over two years.

This group wrote recently to Treasurer Frydenberg, the Prime Minister, Deputy Prime Minister and Victorian Premier seeking assessment of the program’s business case and validation of its economic impact.

Furthermore, proceeding with this Victorian project should act as a catalyst for similar developments better linking Sydney and Brisbane with their major regional cities.

Given his unenviable fiscal position, Treasurer Frydenberg should be walking over hot coals to examine the merits of this sort of program.

You can read about Stronger Together on the site www.railstrongertogether.com print

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First published at Pearls and Irritations, Monday 14 September 2020. See; https://johnmenadue.com/michael-keating-and-john-menadue-infrastructure-stimulus-there-are-smart-projects-out-there-if-we-care-to-look/

One Comment

  1. A cracker of a plan!

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