Infrastructure decision making

Rob Dossor, Economics

Key Issue
The Commonwealth faces competing demands for the funding of national infrastructure, most involving large amounts of money, and requiring difficult decisions around which to prioritise.
Many of these decisions are highly controversial and there have been calls for renewed changes to the process.

The Commonwealth funds a significant amount of national infrastructure covering roads, rail, ports and airports. Development of this infrastructure is recognised as being critical to Australia’s economic growth and competitiveness across many sectors, ranging from increasing the number of shipping containers moved through ports, to reducing the travel time for motorists on urban roads.

Infrastructure projects generally involve large sums of money. In the 2016–17 Budget, for example, the Government will spend over $5 billion on infrastructure projects through the Investment Road and Rail Programme.

Current institutional arrangements

There are few formal requirements around how funding decisions are made by the Commonwealth.

To return to the earlier example, the Infrastructure Road and Rail Investment Programme is legislated under the National Land Transport Act 2014 (the Act). The Act gives the Minister wide discretion about the investment projects that may be funded. These include:

construction of a road or railway in a state or some external territories
maintenance of a road or railway that is part of the National Land Transport Network
construction of an inter-modal transfer facility in a state or some external territories and
acquisition or application of technology that will or may contribute to the efficiency, security or safety of transport operations in any state or some external territories.

The Minister may ‘have regard’ to some broadly described considerations in deciding whether it is appropriate to approve a project. These include any assessments of the economic, environmental or social costs, or benefits of the project. There is no requirement, however, that a project will produce benefits that exceed the cost.

Infrastructure Australia (IA) was established in July 2008. One of IA’s functions is to evaluate nationally significant infrastructure proposals (as well as other infrastructure as determined by the minister). It is not a requirement, however, that IA evaluates all nationally significant infrastructure proposals before the Government provides funding for those proposals.

Calls for reform

A number of projects have attracted criticism on the basis that a comprehensive assessment was not conducted or made available to the public. For example, in its audit of the approval and administration of the federal funding for the Victorian East West Link project, the Australian National Audit Office found:

...neither stage of the East West Link project had proceeded fully through the processes that have been established to assess the merits of nationally significant infrastructure investments prior to the decisions by the Government to approve $3 billion in Commonwealth funding and to pay $1.5 billion of that funding in 2013–14.

The Grattan Institute and the Productivity Commission (PC) have called for better governance arrangements and institutional oversight in infrastructure decision making. The Reserve Bank of Australia outlines the importance of rigorous and transparent project selection and planning processes. IA states that ‘instances of publicly committing to a project before a detailed analysis has been completed and published can undercut confidence in government decision making...’, and recommends:

Government [needs] to establish a more rigorous evidence base for infrastructure investment decisions. Key steps include: increasing the quality and consistency of long-term infrastructure planning; deepening stakeholder engagement; allocating increased funding for project development work, such as business cases; improving the transparency of decision-making and ensuring the consistent delivery of post-completion reviews.

According to the PC, best practice includes:

that decisions are taken in the public interest
the incorporation of effective processes, procedures and policy guidelines for planning and selecting public infrastructure projects, including rigorous and transparent use of cost-benefit analysis and evaluations, public consultations and public reporting of the decision and
the establishment of mechanisms for the transparent review or audit of the decision-making process by an independent body.

Major party proposals for reform

Before the 2013 election, the Coalition proposed that IA assess infrastructure expenditure exceeding $100 million before funding decisions were made. However, it did not implement this proposal and did not expressly take it to the 2016 election.

Before the 2016 election, Labor committed to ensuring that IA would ‘independently [assess] all major infrastructure projects on the basis of the benefits they provide to the economy, the way they fit in with existing infrastructure, their commercial viability and their capacity to enhance national productivity.’ Labor also committed to ensuring that road projects incorporated smart infrastructure and considered the alternative option of using technology to improve the existing roads, and that IA would administer a $10 billion infrastructure financing facility.

Infrastructure decision making

Current institutional arrangements

Calls for reform

Major party proposals for reform

Further reading