Coalition Urged to Finance Infrastructure with Debt

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Friday, September 27th, 2013
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Two of Australia’s most prominent economists claim that public borrowing is the best means of obtaining funds for infrastructure spending as it will shift the cost of such projects to future taxpayers who serve as their chief beneficiaries.

Professors Max Corden and John Freebairn claim in a paper released this week that the Coalition should overcome its traditional misgivings about raising government debt levels in order to fulfill their much vaunted ambitions for the country’s infrastructure.

According to the two economists from the University of Melbourne, the outcomes can only be negative if the government refuses to avail itself of public borrowing for the purposes of infrastructure spending.

“An aversion to debt financing of socially productive investments by government means either higher taxes on the current generation or a deferral of investment and lower incomes for future generations,” they said.

Tony Abbott touted his goal of becoming Australia’s “infrastructure prime minister” during the election campaign and the Coalition has already committed to a 25 per cent increase in spending on transportation over the next four years.

The Abbott government will have a large gap to fill, with one of Australia’s key industry indices indicating that the country saw a 35 per cent year-on-year decline in public infrastructure investment for the 2012/13 fiscal year.

While Corden and Freebairn consider public borrowing to be the best means of reversing this decline in spending, they note the Coalition also habitually pilloried the Labor government while in opposition for prolific debt spending which it claimed imperiled the Australian economy.

The paper further says the government should establish independent institutions which are capable of assessing proposed infrastructure projects accurately and impartially – at present still a glaring lacuna for the industry. Major projects such as the Alice Springs-to-Darwin railway under the Howard government and Labor’s controversial National Broadband Network all proceeded without significant cost-benefit assessments.

“A genuinely independent institution along the lines of the Productivity Commission offers a useful model,” Corden and Freebairn say. “Projects mooted for the future, such as very fast trains, investments in more dams and transport infrastructure for a northern food bowl, should confront formal, explicit and public benefit-cost assessments.”

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