Anthony Albanese should take his own advice on infrastructure  Marion Terrill -  Australian Financial Review, 27 July 2022

Is it worth it? That’s the question the new federal government should be asking about every marvellous new idea on the nation’s infrastructure wishlist – and backing up the answer with cost-benefit analysis.

Of course, cost-benefit analysis doesn’t capture everything that matters – that’s why experts are constantly refining the method. But while there is certainly room for refinement of how cost-benefit analysis is done, the unfortunate reality is not so much that it’s done imperfectly as that it’s often not done until after the decision to invest has been made – if it’s done at all.

Refinements would be good, but the biggest – and surest – gains would be had from improving the architecture surrounding how cost-benefit analysis is used in practice.

Public road, rail and other infrastructure projects are typically built and operated by state governments, often with a funding contribution from the federal government. If states want federal dollars, and the project is worth $250 million or more, they’re supposed to submit their business case with cost-benefit analysis to Infrastructure Australia.

Infrastructure Australia was set up in 2008 by the Rudd Labor government to develop and modernise the nation’s infrastructure. In the words of the then-minister, Anthony Albanese, the government was “replacing neglect, buck-passing, and pork-barrelling with long-term planning where governments predict and anticipate infrastructure needs and demands, not merely react to them”.

Infrastructure Australia was thoroughly overhauled in 2014, with the then-minister Warren Truss saying, “the [Coalition] government’s election commitment was for a strong, independent, transparent, and expert advisory body … to deliver quality independent advice on infrastructure proposals”.

So how did that work out? Well, of the 32 projects larger than $500 million committed to since 2016, only eight had a business case either published or assessed by a relevant infrastructure body at the time of the commitment.

Among the 22 of these projects that received federal dollars, only six had a business case published or assessed by Infrastructure Australia at the time of commitment.

A further 14 were listed as “initiatives” on the Infrastructure Priority List, indicating that they had “the potential to address a nationally significant problem or opportunity” but that their assessment had not yet been completed. The remaining two had not appeared on any Infrastructure Australia priority list at the time of commitment.

In the federal election campaign, six billion-dollar-plus projects were promised: five by the Coalition and one by Labor. None had been properly assessed by Infrastructure Australia. Neither the $1.6 billion for the Beveridge Intermodal Terminal in Melbourne, promised by the Coalition, nor the $2.2 billion for Melbourne’s Suburban Rail Loop, promised by Labor, had reached even the most preliminary stage of Infrastructure Australia’s priority list.

For all their protestations, it seems that politicians are often not that interested in what a cost-benefit analysis could tell them.

One potential remedy to the problem has been suggested by Reserve Bank governor Philip Lowe. He thinks project selection should be more independent, at arm’s length from government, akin to the way the Reserve Bank makes monetary policy decisions. He’d probably agree that if cost-benefit analysis isn’t perfect, it’s better to improve it than to chuck it out.

An alternative, private perspective comes from a federal backbencher who successfully argued for infrastructure funding that made a real difference in their electorate. This MP thinks politicians are meant to fight for their communities, and infrastructure decisions are inherently political, whether we like it or not. And it’s healthy for politicians to feel accountable at the ballot box.

This perspective acknowledges the fact that cost-benefit analysis isn’t much help on questions of equity and competing claims.

Perhaps the last word should go to the then-shadow minister Anthony Albanese, who in 2014 tried – unsuccessfully – to amend a bill in such a way as to prohibit funding of an investment project valued at $100 million or more, unless and until Infrastructure Australia had given the minister a cost-benefit analysis and priority ranking of the project, “so that the minister can decide whether to approve the project”.

This middle-ground approach would have kept the decision to invest in a particular project absolutely in the hands of the elected government. What would have been different would have been an enforced discipline: no more funding promises on the hoof.

It was a great idea then, and it’s a great idea now. It’s long past time for infrastructure project investment decisions to be made with a much better understanding of whether it’s worth it. If only that former shadow minister was now in a position of power, so he could do something about it.