As most farmers know, when financial times are good, it pays to use your extra income to build for the future.
Whether it’s building a new dam, fixing fences or simply putting money aside, the really successful producers use the profits of a boom to improve their resilience in preparation for the inevitable juncture when times turn bad.
Governments should take the same approach when it comes to our national infrastructure. The nation faces a serious infrastructure deficit. Our roads, railways and ports are inadequate to meet the demands placed on them by a rapidly expanding population.
The results are traffic congestion, loss of productivity, and reduced business activity and job creation. Indeed, industry body Infrastructure Partnerships Australia estimates we need to invest at least $700 billion in major projects to address this deficit.
But it didn’t need to be like this.
One issue seldom discussed about the rise and fall of the mining boom of the 1990s and 2000s is the failure of the Howard government to invest its share of the economic windfall in infrastructure. The figures are stark.
According to Treasury research released in 2008, the mining boom delivered the Howard government a revenue windfall of $334bn between the 2004-05 budget and the 2007 election.
The Treasury analysis found that, of this $334bn, the Howard government spent $314bn on tax cuts or pre-election handouts. That money could have been invested in productivity-enhancing infrastructure: in better roads, public transport and ports.
Such investment in the good times would have improved our resilience and boosted economic growth across the medium and long terms.
But instead of using the revenue from the boom to invest in Australia’s future, the Howard government spent it on its political future. By the time the Rudd Labor government took office in 2007, the costs of urban congestion to our economy were already being identified as a major economic challenge. Bulk carriers were forced to line up for days off our coasts waiting for access to ports that might have been expanded had that windfall been invested more wisely.
The Labor government took office determined to address the shortfall. We began by creating Independent Infrastructure Australia as one of our first pieces of legislation.
By the end of our first year in office it had already completed a national audit of infrastructure, compiled an infrastructure priority list and begun work on a national ports strategy and national land freight strategy.
In our 2008 budget we created the Building Australia Fund with an initial injection of $12.5bn, to be available for priority projects identified by Infrastructure Australia.
The impact of the global financial crisis meant we brought forward that expenditure at the same time as there was a collapse in government revenues. In 2005- 06, towards the end of the Howard era, commonwealth taxation revenues were worth 24.2 per cent of gross domestic product, having sat at about 24 per cent for several years. But in 2008-09, the GFC slashed tax revenues to 21 per cent of GDP. The figure fell to 20 per cent in 2010-11.
Despite this, Labor delivered record infrastructure investment at the same time as we kept the nation out of the recession that gripped most of the rest of the developed world.
When Labor took office, Australia was 20th on an OECD list of nations in terms of infrastructure investment as a proportion of GDP. When we left office, Australia was first.
Since taking office, the Coalition government has overseen a 20 per cent reduction in public infrastructure investment.
This reduction has come at the very time we needed to boost investment to generate economic activity to make up for the downturn in mining.
In Labor’s view, the key to lifting infrastructure investment in the post-mining boom era is to supplement public investment with harnessing greater investment from the private sector.
That’s why Labor has released a comprehensive plan to create a $10bn infrastructure financing facility that will partner with state and local governments as well as the private sector to unlock this capital.
The facility, to be administered by Infrastructure Australia, will use loans, loan guarantees and seed funding to mitigate risk and help satisfy investors as to the value in projects that will take many years to deliver.
The challenge of unlocking private sector investment in infrastructure, including the $2 trillion that is now sitting in superannuation funds in this country, is one of the greatest economic tasks facing our nation.
While today’s political generation grapples with the challenge of our infrastructure deficit, it’s worth remembering how we got here.
We must learn from that experience.
We need to ensure that the benefits of economic growth are invested in nation-building that will secure higher economic growth in the future, instead of succumbing to the temptation of short-term political sugar hits that characterised the approach of the Howard era.
Anthony Albanese is opposition spokesman for infrastructure, transport, cities and tourism.
This piece was originally published in The Australian on 30 October 2015.