One of Australia's most distinguished economists has called for Infrastructure Australia to abolished on the grounds that its preoccupation with "mega projects" has led to inequitable resource allocation and deprived smaller projects of funds.

Henry Ergas, professor of Infrastructure Economics at the University of Wollongong, said Infrastructure Australia’s growing focus on mega-projects has “deeply distorting” effects, and is one of the chief factors behind the cost overruns and missed deadlines which continue to plague the country’s public works.

Henry ErgasAccording to Ergas, the current system creates incentives for local governments to pursue showpiece “ribbon-cutting” projects instead of smaller, more diffuse infrastructure development. This preoccupation with mega-projects has impeded the ability of small-scale projects to access sufficient funds and has led to cost blowouts such as the one suffered by Sydney’s Cross City Tunnel.

In a submission to the Productivity Commission’s inquiry into the funding and selection of national infrastructure, Ergas called for either the cancellation or radical overhaul of Infrastructure Australia.

“Infrastructure Australia should either be abolished or tasked with helping in the selection of these ‘national’ projects, but with greater transparency and accountability than at present,” he said.

Ergas recommends that 80 per cent of federal infrastructure funding be allocated on a “purely formula driven” basis to the states, and that the remaining 20 per cent be directed toward projects of national import that individual states would be unable to afford on their own.

He also proposed that state roads be corporatised and more fees be levied from users in order to improve their maintenance and quality.

“As a condition of the formula-driven funding, the commonwealth could require the states to improve the functioning of their road systems by corporatising them,” he said.

The Productivity Commission inquiry into infrastructure was launched by Tony Abbott hot on the heels of his election win, with a draft report expected in March.

Industry professionals hope the commission will help deal with the endemic cost overruns and delays afflicting public infrastructure projects. According to Professionals Australia, a body representing engineers, architects and consultants, mismanagement of public infrastructure projects costs the country around $6 billion to 7 billion a year.