25 November 2010

Nicholas Gruen on the infrastructure deficit

Public–private partnerships have turned out to be an expensive way of plugging infrastructure gaps, writes Nicholas Gruen in an article published in Inside Story, 23 November 2010 (see here).  He says, inter alia:

... the glories of unburdened balance sheets have been purchased at the cost of growing deficits in precisely the thing that higher government debt might have funded – infrastructure. Partly filling the gap has been private investment in some kinds of infrastructure, funded by tolls on roads and/or rent payments by government to investors. While superficially attractive, and almost certainly better than no investment at all, most of these public-private partnerships, or PPPs – in all manner of infrastructure assets, from roads and railway stations to hospitals and desalination plants – have been built at a higher cost to the public than would have been the case if they had been built the way they used to be, as government-owned assets built with debt finance.

and concludes:

As Kristina Keneally prepares for political oblivion, and John Brumby sweats it out wondering if he’ll get back in, it’s possible that the penny might drop. They should ponder this fact. Had New South Wales or Victoria funded the tollways that now thread their way through Melbourne and Sydney, those governments’ net worth would be billions higher with millions rolling into their budgets each year and debt attributable to the roads steadily falling.

To me Gruen’s article clearly demonstrates that governments need to get back into the investment business. The full article well repays a careful read. Access it here).

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