Opinion Piece – The one thing to look out for in this Budget – The Daily Telegraph – Tuesday, 8 May 2018
American shyster Charles Ponzi famously used fraudulent accounting and slick narrative to sustain a mirage of activity and report positive financial returns to investors, who later lost all their money.
The 2018 Federal Budget is talking a big infrastructure game, but indications are it will have more to do with Charles Ponzi than delivering real infrastructure projects or economic productivity.
Since taking office, the Federal Coalition Government has gone to great lengths to create a mirage of infrastructure investment without actually providing direct funding.
Instead it has used mechanisms like equity funding and talk of “innovative’’ financing to create the false narrative that we can meet our infrastructure needs without having a short-term fiscal impact.
But let me explain a few realities about infrastructure.
Infrastructure cannot pay for itself.
Either governments pay by allocating taxpayer’s money in their budgets; or else users pay via electricity bills or motorway tolls, for example.
Capital city rail systems need taxpayer funds from the Budget.
This is because the payment of fares by commuters usually covers less than half of the operating costs and recovers none of the construction cost.
In the same way, most city, regional and local roads are not tolled, so they can only be funded from government budgets.
Thankfully, in Australia we do not charge patients or school kids for admission to public hospitals and schools. That means the money to pay for new and expanded public hospitals and schools can only come as a grant, from government budgets.
While some of these projects might be delivered through a public-private partnership with private investors, they are repaid for their investment by payments from a government budget.
Infrastructure is built only when state or Federal governments either write a cheque themselves, or allow someone else to directly recover the cost and profit from users.
In short, infrastructure is not free. Because the right projects boost productivity and economic growth, they produce a long-term return to the government, but one that is not hypothecated or direct.
Good projects are also good for sustainability and liveability.
So what do Charles Ponzi and the Turnbull Government’s infrastructure agenda have to do with each other? Each relies on accounting tricks and narrative to mask reality.
Last year, the Turnbull Government took the razor to infrastructure investment.
According to the peak industry body Infrastructure Partnerships Australia, the 2017 Budget slashed “real budgeted capital funding to its lowest level in more than a decade.”
But rather than be honest about it, the Turnbull Government expanded its clever accounting and slick narrative, glossing over its infrastructure cuts with an illusion of activity.
This approach was exemplified by the off-budget accounting for Inland Rail as an equity injection, in spite of clear and unequivocal advice the project is certain to not pay for itself.
This was capped off by the creation of a new ‘Infrastructure Financing Unit’, reporting directly to the Prime Minister, that would “work with Commonwealth Agencies, the private sector, states and territories on funding and financing opportunities such as public private partnerships, concessional loans, equity injections and value capture.”
A year on the IFU has started no new projects and there are none on the radar.
It no longer reports directly to the Prime Minister or even to a cabinet minister.
Instead it functions as a kind of internal management consultant.
The earlier Northern Australian Infrastructure Facility also shows the illusory value of ‘innovative’ government finance.
At the time of its creation, the Government claimed the NAIF would provide $5 billion of taxpayer’s loans to infrastructure projects critical “to fast tracking growth and unlocking the north’s economic potential.”
Sensibly, NAIF included protections to stop taxpayers being a ‘lender of last resort’ to marginal projects that would fail.
NAIF was a triumph of illusion over reality. It has funded bureaucrats and board meetings in southern capital cities but not new projects.
It is seen as the No Actual Infrastructure Fund.
You can only play tricks once or twice before people catch on; as the saying goes ‘Fool me once, shame on you; fool me twice, shame on me’.
A few weeks ago, the Prime Minister announced a supposed $5 billion for a Melbourne Airport Rail Link.
Close scrutiny should be applied to whether this announcement has a corresponding $5 billion in the accounts on Tuesday night.
Instead, it will likely be referred to as an offer of ‘equity’, ‘investment’, ‘partnership’, or some other fancy term.
The same goes for the much-needed Western Sydney Rail, connecting the new airport along the north-south corridor at the centre of the Western Sydney City Deal.
It is unclear whether this project will attract a real funding commitment.
If infrastructure needed nothing more than a cheap taxpayer loan, it would be easy and Australia wouldn’t have struggled with infrastructure for a more than a century.
To pretend otherwise is either dishonest, or delusional.
Metro rail in our cities, safer roads and modern hospitals and schools only happen when the Federal Government is willing to put real money, not infrastructure Ponzi schemes, on the table.
This piece was first published online in The Daily Telegraph on Tuesday, 8 May, 2018: [https://bit.ly/2rrIFUA]