Intergenerational equity describes the economic, sociological and philosophical relationship between current and future generations and living standards. In the context of major project procurement, it essentially refers to state debt or taxation that will need to be paid for by future generations to meet the cost of current investment.18 This is also referred to as fiscal sustainability and favours a "user pays" approach to public benefit - those who derive benefit from the asset should pay and those that don't should not (Thompson 2002, pp. 4-5). Fiscal sustainability has greater relevance with state spending on current consumption than it does with current investment in economic and social infrastructure assets that continue to deliver benefits over several generations.
For traditional procurement, intergenerational equity favours the use of debt for capital investment amortising over the economic life of the asset (Coombs and Dollery 2004). Public private partnerships essentially come in two forms - the private sector assumes market risk and charges consumers for the service or the state pays an availability charge for the use of an asset. Both forms fit within use pays principles and neither pass inequitable taxation or debt burdens to future generations. However, inequity in user charges does give rise to potential inequities. The level of tolls and negotiated changes to the toll escalation factor were criticised by the NSW Audit Office in its review of the Cross City Tunnel project. The Audit Office took the view that:
"The (change in toll escalation factor) distorts inter-generational equity between tunnel users. If it was appropriate for tunnel users to fund these costs, this should have been done by changing the base tolls. Escalation factors should do no more than reflect underlying cost movements or inflation (Auditor General NSW 2006, p. 3)."
Under nearly all PPP arrangements in Australia, property in the asset passes to the state without cost at maturity. PPPs do not give rise to concerns in either intergenerational equity or fiscal sustainability terms.
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18 The Charter of Budget Honesty Act 1998 (Cwlth) established a formal reporting mechanism to assess the long-term sustainability of current government policies over a 40 year horizon.