H’infrastructure

by David Collyer on June 20, 2013

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The call for infrastructure spending to lift Australia’s productivity and efficiency widens and deepens every day. Around us, economic activity continues to weaken, particularly in construction. The call to spend big will soon be irresistible.

The needs list is very long. Better transport links to shrink distance – anywhere and everywhere. Schools to serve eager young minds in new estates. Hospitals. Water pipes. Gas pipes. Sewers. The National Energy Network. Broadband. Libraries. Swim pools. The billions pile upon billions.

Our continued high migration makes delay impossible – we have already played that card and the big cities have clearly outrun their services.

Most projects belong to state governments. The NSW government is so far behind with Sydney’s transport network it looks an impossible task. Infrastructure Partnerships Australia chief executive Brendan Lyon bluntly points out Sydney’s options are to raise taxes or pay tolls.

Elsewhere, Lyon welcomed Victoria’s commitment to the East West arterial and to the North-South rail tunnel but noted that, together, the projects would account for about fifteen years’ worth of total Victorian capital expenditure.

Lyon says, “Canberra is the only jurisdiction with substantial headroom for new borrowing, which we estimate at well over $100 billion.”

State government revenues – heavily reliant on Stamp Duty on real estate transactions – are too weak for such heavy lifting. And private investment will only fund opportunities for profit. Something has to change.

We are genuinely confronted by ‘wicked’ infrastructure problems.

For many years the phrase ‘User Pays’ has been drummed into the national consciousness. We need to replace this narrow thought with the more accurate: ‘Beneficiary Pays’.

New roads, better port access or a more secure water supply lift land prices. So, wages and business are taxed to build big things while the financial benefits are enjoyed by landowners.

Even a modest shift in the tax base from wages and business onto land would make a big difference. Public investment that lifts land prices would increase revenues. Suddenly, borrowing for sound projects would make economic sense.

We enjoy living in a low-tax country. That need not change, if we can agree to move government revenue sources from human endeavour to land values.

Read more about Beneficiary Pays via our Land Value Capture primer

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http://prosper.org.au/2013/06/20/hinfrastructure/