Infrastructure

A lot of noise has been made lately about the (perceived) lack of infrastructure assets in the Australian economy and the impact this has on the efficient running of the economy.  We have all seen the ships off the ports of Queensland leading to lower than optimal export of commodities such as coal to the booming markets of north Asia and likewise the inadequate investments that has gone into the road system in many areas of the country. 

So what are the solutions?  Should we see more private providers of these infrastructure assets via publicly traded infrastructure companies that attract large tax relief to entice investors?  – Perhaps.

Should we see more public / private partnerships that allow governments to pass some of the substantial costs over the private sector who can enjoy some of the rewards via higher charges for users? – Again perhaps, and this is only in an area that is well advanced.

However what ever happened to the idea of state governments using debt to fund their public infrastructure requirements such as hospitals, schools and major roads etc.? These are assets that the private sector cannot fund adequately as they cannot easily make a profit out of them. The assets are used not just this year but 30 to 40 years into the future so why should today’s taxpayers bear the burden alone when tax payers in ten or twenty years time will still be using the asset?

Also state governments can borrow money more cheaply in the money markets than corporations making the funding costs cheaper.  I am not advocating borrowing long in the markets to fund short term expenses such as wages to public servants, but conversely borrowing long to provide much needed long term infrastructure that will provide an economic boost for the state economies now and into the future.

It appears the various state governments are afraid of debt and of losing their good credit ratings given the previous debacles we saw 15 years ago, but debt when well managed is an excellent tool to provide these much needed long term assets.