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Pork barrelling is bad for both taxpayers and infra investors

A Grattan Institute report argues that Australian federal governments must do better when allocating funds for transport infrastructure projects, with too much currently allocated to small schemes in marginal seats.

A report published this week by Australian think tank the Grattan Institute has shown how short-sighted federal government spending on transport infrastructure has become Down Under – with implications for private investors in the asset class.

In a nutshell, the report, Roundabouts, overpasses and car parks, showed that pork barrelling is rampant, with spending focused on marginal seats in Queensland and New South Wales where national elections tend to be won and lost.

To illustrate this, the Grattan Institute points out only one of the Coalition government’s 71 transport promises at the 2019 federal election with a value of more than A$100 million ($75 million; €68 million) had a business case approved by Infrastructure Australia. The opposition, the Australian Labor Party, wasn’t much better, with two of out of 61 by the same metric.

Infrastructure Australia was established in 2008 to provide independent advice to governments and help guide investments in nationally significant infrastructure projects.

As this report finds, it is clear that this advice isn’t being followed, and it doesn’t just end with election promises.

“Of 22 large projects to which the federal government has committed a contribution since 2016, only six had a business case published or assessed by Infrastructure Australia at the time of commitment,” the report says. “A further 14 were listed as ‘initiatives’ on Infrastructure Australia’s Priority List, indicating they ‘have the potential to address a nationally significant problem or opportunity’ but that their assessment had not yet been completed. The remaining two had not appeared on any Infrastructure Australia priority list at the time a state government committed to them.”

Instead, money is going to smaller projects like roundabouts and commuter car parks which are impossible to argue are ‘nationally significant’. They should therefore come squarely under the remit of their respective state governments, which, it should not be forgotten, have responsibility for transport policy within their jurisdictions.

This should concern private infrastructure investors. In one sense, taking this type of approach to funding infrastructure will result in fewer well-developed projects of the scale required to attract private capital interest, whether in the form of public-private partnerships or through eventual asset recycling and privatisation.

But it also has more indirect effects for those assets already in private hands, like airports, rail lines and toll roads, that are inextricably connected to the wider national transport network.

If parts of the network are not receiving sufficient investment to ensure they operate efficiently, this could affect how well other assets operate, or even affect their value in the case of an airport that is waiting for better rail links to be built, for example.

This issue is being raised now because we are in campaign mode in Australia, despite the next federal election not having been officially called yet. The leaders of both major parties have already been seen on construction sites in hi-vis vests and hard hats, pitching their credentials on infrastructure spending.

Pork barrelling within Australia’s federal political system is rampant, no more so than in infrastructure. It’s high time that a more rigorous approach was taken to allocating public funds, to ensure the best value for taxpayers – an approach that will ultimately benefit responsible private sector owners of assets too.