Superannuation the next sacrificial lamb in failed infrastructure model
The continual reinforcement that new infrastructure can only financed by privatising the last remaining public assets is worth challenging. According to Infrastructure Australia and Joe Hockey, a fire sale here or there is all that is required for a mere $220 billion. Then we can have all the infrastructure we need.
But what if the missing finance tool was right under our feet? In just three months, the Australian land bubble accelerated by a staggering $187 billion (December 2013). Infrastructure developments will only push land and housing prices higher.
Steve Bracks writes in “How to fund a bigger and better Australia” (The Age, April 7th) of a $300-$700 billion infrastructure deficit over the next decade. His aim is for superannuation companies like the one he chairs, Cbus, to underwrite such massive projects.
This set off alarm bells as recent tollway experience is fraught with failure.
Brisbane’s Clem Jones tunnel fell into receivership and was sold for just one fifth of the build cost. The Brisbane airport link went bankrupt in a matter of months. Sydney’s Lane Cove tunnel was sold for $1 billion under cost and the Cross City tunnel has also failed to be profitable. This is rarely mentioned. The infrastructure financing model is broken.
Now that investors smell a rat, workers are being lined up to foot the bill via their superannuation. But what of the economics?
Bracks claims the super model is superior because as long term investors all they need is an increase in value for their investment. Infrastructure depreciates as soon as it is built. It requires regular maintenance. The only way to increase that value is to increase tolls. As we have clearly seen in Brisbane and Sydney, commuters prefer freeways.
Privatised operators face two additional pressures. Government bonds can be sold to the market at 2% less than business can borrow at. Secondly, they must deliver returns for shareholders. Both these elements push prices higher than need be, undermining the competitive nature of the economy. The entire infrastructure model is based upon the willingness of users to pay high fees to cover multi-billion fixed costs.
Once upon a time, infrastructure was built by using a mixture of public debt and common sense. 30% of the Sydney Harbour Bridge was paid for by those landowners who lived nearby and benefited from the new amenity of a faster trip to work. Those who lived closest paid more than those far away, based on land values. Melbourne’s City Loop was 25% financed by landholders surrounding the Flagstaff Gardens. Government bonds were sold to the market and over 20 years landholders repaid the government for the locational advantage via council rates.
The Doncaster Rail line could be paid using this model if landowners were convinced that 30% of the windfall gains should be repaid as a thankyou to government. Landholders could win both ways – a 70% capital gain and less congestion.
UK analysts thought it would take decades to finance the London Crossrail. A simple 2% Community Infrastructure Levy based on land values has done the heavy lifting at least cost. This process also provides a counter-weight to rising property prices by taxing away some of the gains.
Instead we are surrounded by breathless articles expounding the affect of infrastructure on land values, none more so recently than the inner west Sydney Lilyfield to Dulwich light rail extension. “In January last year, median house prices were sitting on $765,000. Nine months later, that figure had jumped to $1.3 million.” (Light rail the path to the property boom in the inner west)
Why not close the loop on such windfall gains to both keep a lid on house prices and finance the infrastructure deficits we face each day on the work?
The key question is – which politician will delve into the too hard basket to reveal the countless other historical examples where those who benefited most from publicly funded infrastructure paid something back? That would take genuine leadership worthy of the title ‘the infrastructure government’.