Big spending fails to boost infrastructure

Big spending fails to boost infrastructure

Matt Wade

April 10, 2012

NSW Premier Barry O'Farrell.

Pledge to reduce the infrastructure “backlog” … Premier Barry O’Farrell. Photo: Lee Besford

INFRASTRUCTURE spending in NSW has more than doubled in the past five years, defying the conventional wisdom that underfunding is responsible for gridlocked roads and overcrowded trains.

But even as two separate studies debunk public perceptions and political claims about inadequate capital spending, their authors say the state’s infrastructure woes, at least in part, reflect the inefficient allocation of that money.

Appointed by the Premier, Barry O’Farrell, to conduct an exhaustive audit of the state’s finances, the former Treasury secretary Michael Lambert could not find any evidence of underinvestment in infrastructure during the past 15 years.

The audit says that in the 10 years to 2010-11, the total capital program grew at an average rate of 12 per cent a year.

Between 2005-06 and 2008-09 the growth rate was a healthy 17.6 per cent a year.

“There is no evidence of underspending on infrastructure in NSW, based on total private and public sector expenditure trends and comparing the state with other jurisdictions,” Mr Lambert found.

In a separate analysis, the University of Sydney economist Russell Ross found that, after adjusting for inflation, capital works expenditure more than doubled between 2005-06 and 2010-11 in real terms.

Mr Lambert’s investigation shows that public- and private-sector infrastructure spending rose markedly as a proportion of final demand – a measure of the state’s economic output – during the past decade.

Infrastructure spending as a share of final demand varied between 1.5 per cent and 2 per cent for most of the 1990s and early 2000s but then rose steadily to more than 3 per cent by 2010.

“The Labor years were … a period of high spending on capital works,” Associate Professor Ross said.

The findings suggest poor planning, not a lack of spending, stoked voter resentment about infrastructure.

Mr Lambert and Associate Professor Ross raise questions about the management of infrastructure spending during the past decade. Mr Lambert found the large transport infrastructure program had “not been assembled through a disciplined capital planning and appraisal process”.

Associate Professor Ross said Labor’s infrastructure spending was often “inefficient”, although it was difficult to tell how much was wasted.

“A lot of exploratory work that doesn’t end up going anywhere is included in the capital works budget,” he said. “It’s not as if a billion dollars spent on capital works actually results in a billion dollars’ worth of new infrastructure.”

One example was the CBD metro line, which cost more than $400 million in compensation and administration costs before being axed.

Michael Egan, the treasurer from 1995 to 2005, said infrastructure investment under the Carr and subsequent Labor governments was higher than under any previous NSW government.

But he believed most voters were unaware of many big government projects such as Labor’s Rail Clearways Program, which he said was “probably the most important capital spending” on Sydney’s rail system for half a century or more.

“I’m sure that if people don’t regularly see something happening, they assume nothing is happening,” he said.

The O’Farrell government has pledged to reduce the infrastructure “backlog”.

But the findings by Associate Professor Ross and Mr Lambert underscore how difficult it will be to fulfil voter hopes for a dramatic improvement.

“To bring infrastructure up to scratch it’s going to involve almost a quantum leap in spending, and no government is going to be able to do that easily in Australia,” Associate Professor Ross said.

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