The Australian Infrastructure Audit uses, as one of its inputs, a methodology known as Direct Economic Contribution (DEC) to measure the 'value-add' of the services delivered to the economy by Australia's infrastructure networks.
Put simply, DEC is a measure, in dollar terms, of the direct value that households, individuals and businesses derive from our infrastructure. DEC measures this value by measuring what we actually pay to use infrastructure, whether through direct user charges, or through other indirect forms of payment. In this sense, DEC also measures the direct cost associated with the use of infrastructure.
DEC does not measure the additional value we might place on use of infrastructure above what we actually pay (i.e. the economic concept of 'consumer surplus'). An explanation of how DEC is calculated is presented at section 1.2.
At a household or individual level, each one of us spends money on infrastructure-related services every day. For example:
■ we buy electricity to power the appliances in our homes;
■ we purchase mobile phone and data services to communicate with family, friends and the businesses that we deal with;
■ we purchase water for use at home;
■ we purchase tickets for air travel (which include an amount for airport-related charges) and pay tolls for use of some roads and bridges; and
■ we pay through taxes for the infrastructure supporting many of our transport services, e.g. the cost of providing and maintaining the roads we drive on and the rail tracks on which our trains run.
Businesses do much the same. They buy or pay for services provided by our infrastructure networks - gas to power their equipment, electricity for use in offices, water for agriculture, and several forms of transport such as rail and road freight, the use of major ports, and the use of airports for business travel and the movement of high value goods.
Each time we buy a product such as a piece of furniture, or a service such as a meal in a café, some of the cost (and value) of that product or service is attributable to the infrastructure required to make the product or service available in the location in which it is provided.
Although it costs us money each time we use our infrastructure, we also derive benefit from the infrastructure. For example, we benefit from the comfort from heating and cooling our homes, and the ability to use communications services to converse with friends and access information from across the world.
When added up, the cost of the infrastructure services consumed by each household and business equals the overall DEC of infrastructure services within the Australian economy. Analysis for the Australian Infrastructure Audit shows that the DEC of our infrastructure was around $187 billion in 2011, which is about 13 per cent of the Australian economy, or Gross Domestic Product.
Without these services, we couldn't pursue the lives that we lead, or that we aspire to. These services are integral to our way of life, and our economy.
As the Australian population grows and as the economy grows, so the value of the infrastructure-related services we collectively use will also grow. There will be more of us seeking the same services we enjoy now, or better services. There will be more businesses needing infrastructure services to support their contribution to Australian life. Put simply, the demand for infrastructure services will rise.
As a result, we will need to make greater and better use of our current infrastructure and associated services, and, when current infrastructure can no longer meet increasing demand, we will need to expand supply by building new infrastructure.
At a national level, if we cannot ensure the capacity of our infrastructure at least broadly matches growing demand, we may constrain our economy's capacity to grow. On average, each one of us would be less well off as a result.
In addition, without adequate infrastructure capacity, the increased demand for infrastructure
would probably drive up costs above what they might otherwise be. These higher costs would flow through to businesses and, in turn, to households. But, where we need additional infrastructure capacity, we have to pay for it. The additional services provided by additional capacity cannot be secured without some cost.
So the increase in the demand for, and supply of, infrastructure services in the future will mean that DEC will in future be larger than it is at present. Analysis for the Australian Infrastructure Audit projects the DEC of our infrastructure will grow (on 'base case assumptions') to around $370 billion by 2031, by which time Australia's economy would be some 84 per cent larger than it is at present.
But DEC need not grow precisely in proportion with the expected growth in the population or the economy. In fact, if we can make better or more efficient use of our infrastructure, we can meet our need for infrastructure services at a lower cost, and the future increase in DEC need not be as high as it would be if we continue to use infrastructure the way we do now.
At an individual level, we are often looking for ways of reducing costs. For example, we:
■ choose between suppliers of a particular service, e.g. obtaining quotes for maintenance work on our homes, or when assessing the cost and value of eating out at different cafés or restaurants; and
■ economise on our use of a particular service, e.g. buying less of an expensive item.
The money we have saved from these choices is then available to us to spend on other items or to save for other purposes. The infrastructure services we consume are also part of this process. We see this process of searching for better value and reducing cost when making decisions to:
■ put on an additional layer of clothing and turn down heaters (i.e. we are still warm but at a lower cost);
■ install a 'low flow' showerhead and consume less water (i.e. we are still clean but have used less water);
■ switch mobile phone carriers (i.e. we are still consuming the same or greater quantity of communications services, but at a lower cost); and
■ travel to work outside of peak hours where possible and avoid congestion (i.e. we are still getting to work but spending less time travelling).
Businesses do the same - they search for ways of reducing costs. This is part of how they add value to their customers and stay in business.
So it is with infrastructure overall at a national level. If we can meet our need for infrastructure services more efficiently, i.e. at a lower cost, then the money we would have paid for those services is freed up to spend on other items or to invest in future income producing enterprises which may make a greater contribution to GDP and as a result increase personal wealth.
In short, the value we get from infrastructure will need to increase to support growth in the Australian economy. We can increase this value by getting more and better services from our existing infrastructure (increasing productivity), or by building new infrastructure (increasing supply). If our infrastructure DEC does not increase in one of these ways, our economy is likely to be smaller than it would otherwise be, and we will probably be poorer as a result.