Down Under Looking Up: Financing Transport
Infrastructure in the Land of Oz Cameron Gordon, Ph.D. Associate Professor of Economics
University of Canberra Faculty of Business, Government and Law
hIp://www.canberra.edu.au/faculKes/busgovlaw
Director, Transport Ideas Network hIp://www.TransporKdeas.org
Principal InvesKgator City University of New York
Social Policy SimulaKon Center hIp://www.cunyspsc.org
PresentaKon Overview
• Australia v Canada: basic comparisons • Australia v Canada: transport challenges • Australia’s infrastructure ‘gap’ • Financing transport in Australia – current methods
• Transport finance policy challenges in Australia • A way forward? • Prognosis
Australia v Canada: government • Both the Canadian and Australian legal systems are based on English common law.
• Queen Elizabeth II is the official head of state in both countries and is represented by a governor general.
• Both Australia and Canada are parliamentary democracies headed by prime ministers.
• Both countries are members of the Commonwealth. • Both countries are federal systems with shared powers allocated across central and State (Australia) or Provincial (Canada) governments.
Australia v Canada: Economy source: 2011 IMF
AUSTRALIA CANADA
• GDP (nominal) $1.54 trillion $1.77 trillion
• GDP per Capita $66,371 $50,496
• GDP Growth Rate 2.1% 2.4% • InflaKon Rate 3.4% 2.9%
• Public Debt (% of GDP) 26.7% 87.4%
• Labor Force 12,050,000 18,700,000
• Unemployment Rate 5.1% 7.5%
• Investment (gross fixed % of GDP) 26.8% 22.5% • Industrial ProducKon Growth Rate -‐0.1% 3.7%
Australia v Canada: size and populaKon source: 2012 CIA Factbook
AUSTRALIA CANADA
• Total Area (sq km) 7,741,220 9,984,670 • PopulaKon 22,015,576 34,300,083 • PopulaKon/sq km 0.36 0.29
• Median age 37.9 41.2 • Life Expectancy 81.9 81.48 • PopulaKon Growth Rate 1.13% 0.78%
Australia v Canada transport system characterisKcs
AUSTRALIA CANADA NOTES
• Aircraj departures 388,700 291,800 2005 CIA
• Air transport, freight (million tons per km) 2,444 1,526 2005 WDI
• Cars per 1,000 people 485 459 1999 WDI • Vehicles per populated land area (km2) 47.91 34.91 2001 WDI • Port traffic (TEU) 4,830,254 4,163,424 2005 WDI
• Goods (mn tonne-‐km) 415,500 423,296 2010 OECD • Passenger-‐kms (mn) 296,058 507,587 2010 OECD
• Road fataliKes (per mn) 61 65 2010 OECD
• CO2 emissions from fuel combusKon 383 537 2010 OECD
Canada’s NaKonal Road Network
• hIp://www.tc.gc.ca/eng/policy/acg-‐acgd-‐menu-‐highways-‐map-‐2151.htm
Australia’s NaKonal Road Network
http://www.infrastructure.gov.au/department/annual_report/2003_2004/casestudies.aspx
The tyranny of distance • The OECD (2008)
esKmates that distance to markets and natural resource endowments have a significant impact on GDP per capita in OECD countries (Table 2). Taking Australia as an example, the OECD finds that the distance from Australia to world markets contributed to lowering Australia's GDP per capita by 10.6 per cent on average between 2000 and 2004 relaKve to the average OECD country. Australia is the OECD country most disadvantaged by its distance from world markets, while the centrally located countries of Belgium and the Netherlands benefit the most.4
• hIp://archive.treasury.gov.au/documents/1421/HTML/docshell.asp?URL=01%20Economic%20geography%20and%20economic%20performance%20in%20Australia.htm
PT use Canadian v Australian ciKes
PT use (conKnued)
Australia’s infrastructure ‘gap’ • One recent study by property and construcKon consultancy Davis
Langdon into projected growth in the infrastructure sector examines the future needs aggregate investment in road, rail, electricity generaKon and distribuKon, water storage and supply, sewerage, telecommunicaKons, ports and heavy industry and reveals annualised investment needs by 2050 could be as high as 350 percent of today’s annual investment (assuming a high-‐end populaKon target of 40 million). (with current GDP around $1.5
trillion).
Even medium-‐term esKmates of required Commonwealth transport spending show doubled levels required in the next 5 to 10 years and these are minimum esKmates.
How to pay?
• How will Australia pay for its investment transport needs over the next generaKon?
• This is a big quesKon since many current requirements are not being met.
• How does Australia finance its current system?
Australian Transport Federalism • Australia’s current transport finance system is inherently local. The Commonwealth government invests relaKvely liIle in transport (for roads about 23% of total govt. spending in 2004-‐05)
The GST • Australia adopted a Goods and Services Tax (GST) in 2000. This is a Commonwealth tax but under the Intergovernmental Agreement on Commonwealth-‐State Financial RelaKons, all the GST revenue, minus administraKon costs, goes to the States.
• Thus, the States do have access to this revenue but the tax and the tax base itself remain under Commonwealth control. Moreover, as in the US, The Commonwealth Parliament can give states Ked or unKed grants.
• TradiKonally, States have reigned supreme in transport policy.
• The Commonwealth government has expanded its role over the past twenty years through providing grants and GST revenue to aid transport programs, both of which are sKll allocated on an ongoing basis.
• The Commonwealth also provides strategic investment on an ad hoc (and ojen poliKcal) basis for specific transport projects.
• And more and more guidance is being issued, e.g. on urban planning (to make sure local plans account for climate change).
Australia: a leader in PPPs • Much of Australia’s UPT has private parKcipaKon, parKcularly in Melbourne and Perth; many roads are privaKsed and all major airports are operated by private firms.
• Australia has probably one of the most extensively privaKsed transport systems in the world. At the naKonal level the rail network was spun off into the Australian Rail Track CorporaKon which now maintains and operates that network on behalf of private operators. Similarly, airports were corporaKsed and then privaKsed by the Commonwealth Government, mainly in the form of sales of very long-‐term leases to private companies.
Tri-‐parKte investment
Source: OECD Economic Surveys: Australia 2010
Source: OECD Economic Surveys: Australia 2010
A long history of land taxes • Property taxes have been used in Australia since the 19th century and consist primarily of state land tax and municipal rates. The state land tax makes revenue available for the state with no direct reimbursement to local government, while municipal rates are the prime source of revenue to local government, and levied on a range of tax bases, namely unimproved land; land value or site value; improved value of land and buildings; and rental value of land and buildings (McCluskey, Lim and Davis, 2007).
However, relaKvely limited tying of land value to transport investment
• Perhaps because of the heavy use of PPPs, Australian State and local governments have done relaKvely liIle with mechanisms such as value capture, value uplij, TIF’s etc.
• Most States have Development CorporaKons which use land tax revenues to help pre-‐fund residenKal and commercial building but have not used this mechanism to fund transport investment.
• The NSW government considered value capture to finance the New Southern Rail Line (airport rail link) and the ParramaIa Rail Link (now the Epping to Chatswood rail line) but this approach was not proceeded with.
Transport policy challenges • #1: the sheer magnitude of needed investment, an amount that is well over poliKcally or even economically feasible general revenue finance.
• #2: PPProblems. Since States run ciKes, it is States that have been responsible for privaKsing most urban transport hubs, not the Commonwealth Government. This has created a patchwork transport system driven by States and concentrated in municipaliKes.
• Moreover not all investments will be desirable to private investors.
• #3: Complexity and perverse incenKves. The current transport finance and governance system in Australia has the advantage of allowing for local flexibility but, like many federal systems, also creates complicated funding flows.
• Matching costs with beneficiaries (and/or cost-‐imposers) is tenuous and thus exisKng transport capacity is not efficiently used and new capacity is ojen not invested in except as a crisis stop-‐gap.
Australian transport funding (for roads)
• Source: COAG Road Reform Council 2011
• #4: Can’t pay, won’t pay. Of course Australia is like every other democracy in that consKtuents generally do not like to pay for things if they can avoid it.
• This tendency is perhaps exacerbated in Australia by the fact that there are many high tolls on urban roads, i.e. those built by PPPs. So travelers ojen think that they are paying enough already.
• Moreover private toll road operators are not very popular with the public.
A way forward?
• Infrastructure Australia (IA) was launched by the Commonwealth Government in 2008. IA’s mission is to “develop a strategic blueprint for our naKon's future infrastructure needs and -‐ in partnership with the states, territories, local government and the private sector -‐ facilitate its implementaKon” and to “provide advice to Australian governments about infrastructure gaps and boIlenecks that hinder economic growth”
Infrastructure Australia • As a statutory authority of the Commonwealth Government of Australia IA has three major funcKons: (1) to provide a list of “naKonally significant infrastructure prioriKes;” (2) to issue guidance on “policy and regulatory reforms desirable to improve the efficient uKlisaKon of naKonal infrastructure networks;” (3) and to assess “opKons to address impediments to the development and provision of efficient naKonal infrastructure, the needs of users; and possible financing mechanisms.”
Focus on pricing • Much early aIenKon focused on IA's infrastructure investment prioriKes list. This list, arrived at ajer an infrastructure audit, idenKfied a total of $A60 billion in priority projects across various infrastructure sectors. However now IA has turned towards trying to begin a naKonal dialogue on the use of congesKon pricing to finance new projects and manage exisKng capacity.
COAG • Also very acKve has been the Council of Australian Governments (COAG) which is the main authority through which Commonwealth and State and local governments plan and coordinate various iniKaKves.
• This body is designed to do forward thinking and is also the forum where leaders meet to design and do ‘deals’ on major federal policies.
• COAG has an acKve agenda on road finance reform – though no major breakthroughs yet.
Prognosis • Whither Australian transport?
• Australia has a great deal of experKse in PPPs and these will need to be a major part of the funding soluKon there.
• However its public sector has not been especially proacKve or innovaKve on public revenue enhancements outside of private parKcipaKon. There is much room for growth there.
• There are also sound and respected governmental bodies doing good thinking – but liIle take-‐up by poliKcal leaders.
• The pieces of a soluKon are there but nobody wants to take the hard knocks to put them together.