2.3.3.3  What to do? Efficient management of capacity and investment in new projects

As this Audit has discussed, Australia needs to:

■  obtain greater value from the infrastructure we already have, i.e. we need to utilise our existing infrastructure to the best effect; and

■  secure more from our spending on infrastructure, i.e. decisions on new projects and maintenance of existing assets need to be carefully considered. Spending scarce funds on projects that cost more than expected, are 'gold-plated', or otherwise fail to meet our needs, imposes a high economic cost.

The objective is to raise productivity in the infrastructure sectors (and related sectors such as construction), to achieve the allocative and productive efficiencies referred to earlier. This will then increase infrastructure's total contribution to improving the nation's productivity.

Australia's economic opportunities and productivity challenges were well assessed by the OECD in February 2015, which found that:

Over the past decade, [Australia's] per capita income surpassed the average of the most advanced OECD countries, helped by high terms of trade and employment rates. However, productivity gains have been weak and the economy faces a period of adjustment in the wake of the mining boom…Shortfalls in transport infrastructure are being addressed by ambitious investment plans; however, ensuring cost-efficiency will require efficient design and monitoring. … Better productivity performance could be achieved by further improving the operating environment for the private sector, most importantly in infrastructure, taxation, labour skills and innovation.46

The boxed text below sets out the OECD's infrastructure-related recommendations in its most recent Going for Growth report on Australia.

International evidence highlights the value of making the right project and policy choices.

In 2014, the International Monetary Fund reported analysis which found investment in well-conceived projects increases economic activity, both in the short-term and long-term. However, the critical point is that the investment must be in productive projects, and that the projects themselves must then be executed efficiently.47

A research paper published by the OECD in 2009 reached similar conclusions.48 The paper concludes that the key elements of a framework to encourage growth supporting infrastructure are:

■  a robust decision-making process and improved selection process for investment projects;

■  the introduction of competitive pressures through the reduction of barriers to entry and vertical separation when this is appropriate; and

■  promoting a combination of regulator independence and the application of incentive regulation.

These views were expanded on in the Productivity Commission's 2014 report on public infrastructure, which observed:

Selecting the right projects is the most important aspect of achieving good outcomes for the community from public infrastructure…

Direct user charges (prices) should be the default option [to pay for infrastructure] because they can provide an incentive for efficient provision and use of infrastructure.49

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46.  Organisation for Economic Cooperation and Development (2015a)

47.  International Monetary Fund (2014), pp. 76-77

48.  Sutherland, D., Araújo, S., Égert, B. and Kozluk, T. (2009), p. 2

49.  Productivity Commission (2014a), p. 75 and p. 141