Home' Future Building: The Australian Infrastructure Review : Volume 4 Number 1 Contents 52 futurebuilding Volume 4 Number 1
Peter Harris AO
Productivity Commission gures indicate that
one of the more notable causes of the productivity
declines of the past decade was over-investment,
driven substantially by a lack of pricing signals and
poor links to early planning intervention in new
assets, in areas like electricity and water.
With demand not meeting expectations,
consumers are still required to pay for all of this via
This exempli es the important role of pricing,
and how poorly-constructed pricing models can get
things quite wrong.
A helicopter view of infrastructure pricing systems
shows something like this: telecommunications has
reasonably good links to future needs, freight rail has
some links to future needs, electricity and water have
weak links to future needs, and roads have virtually
no links to future needs through pricing systems.
And in water, as I found working on water projects
in Victoria, it's too late to change the pricing system
and get better planning signals when you're just
about to pump the mud off the bottom of the dam.
In electricity, incentives skewed by regulated
pricing often create over-investment in peak period
infrastructure. The Productivity Commission put
out a report earlier this year, which quite clearly
demonstrated just that.
And road pricing has the worst structure of
all. It skews expectations from consumers, such
that current 'pricing' systems tell users that the
infrastructure is already paid for by fuel excise; so
tolling or congestion charging will be seen as 'double
dipping', and therefore morally wrong.
That's a bad perception to encourage if you want
to expand funding beyond the current horizon.
And worse, that thinking is awed because fuel
excise and all primarily road-related charges together
fall around 30 per cent short of the amount Australian
governments spend on roads annually.
Pricing systems across publicly funded
infrastructure, in my view, need review if they are to
support the aspiration for private partnership funding.
But the larger reason to review them is not just
about private partnership funding; it's that too often
they seem unable to achieve what pricing is meant
to achieve, which is a reliable link between what is
supplied and what consumers are willing to pay for.
Let's not forget consumers.They need to be brought
squarely into the process in advance of investment
commitments. Some of the more spectacular failures
in recent infrastructure investment appear to have
focused a lot less on consumer willingness to pay,
and much more on nancing structures.
Mentioning nancing structures leads to thinking
about superannuation investment -- another high-
pro le issue in the infrastructure discussion. There is
substantial interest in this, not only in Australia but
The Organisation for Economic Co-operation and
Development (OECD) has noted that only about one
per cent of pension assets are invested in infrastructure
globally. Here in Australia, the percentage is higher,
and the interest is stronger because of our relatively
advanced superannuation system.
The very size of the savings pool, long-term in
nature and xed in in ow, seems to suggest to some
that the simple social purpose of funding long-term
retirement needs is an insuf cient target for super.
I nd this unpersuasive. Fixing the retirement
planning needs of a nation is one of the most pressing
policy purposes of governments globally -- it should
be a suf cient target in itself.
And imagine the consequences if a mandate -- a
forced requirement to invest in infrastructure -- was
imposed. Large ows of money would be chasing
a dif cult-to-de ne target -- what is infrastructure?
-- where planning is generally not well-linked to
willingness to pay.
Overall, that doesn't sound too good.
But this is not to say that some of the issues
in attracting -- rather than mandating -- super to
infrastructure shouldn't be solved.
Let's start with pricing again. Superannuation is
about earning returns for members -- so to attract it
will require a reliable revenue stream.
But opaque charging systems of the kind I referred
to earlier -- ones prone to ministerial intervention or
Let's not forget consumers.
They need to be brought squarely
into the process in advance of
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