Paul Fletcher MP

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Why Donald Trump's big infrastructure plan could be good for Australia

Articles by Paul Thursday, 24 November 2016

Donald Trump's election as US President has triggered considerable interest in his plan to renew America's infrastructure.

He promises "a bold, visionary plan for a cost-effective system of roads, bridges, tunnels, airports, railroads, ports and waterways", saying this would be in the tradition of President Eisenhower's construction of the US interstate highway system.

To deliver this Trump plans to "leverage new revenues and work with financing authorities, public-private partnerships, and other prudent financing opportunities".

Certainly to Australian eyes US public infrastructure can often look pretty dismal. Airports are overcrowded and ageing; many of the freeways are in poor condition; and while some cities have impressive bus and rail systems, others are distinctly underwhelming.

It certainly does not leave the same impression as the gleaming airports of modern Asian cities and the efficient rail networks of Europe.

It was very different 60 years ago when Eisenhower was rolling out the world-leading interstate highway system. The economic benefits of that massive project were profound: according to one study it was responsible for one third of the annual improvement in the economic productivity of the US during the 1950s.

Today America's rate of new infrastructure investment seems lower than we are seeing in Australia, where the Turnbull government is investing $50 billion between now and 2019-20 and state governments – particularly the Baird government in NSW – also have a major focus on infrastructure.

There is transformational investment on the Pacific and Bruce highways; major new urban rail projects such as Sydney Metro, Melbourne Metro and Perth's Forrestfield Airport Link; regional commitments such as Inland Rail; and airport projects such as Brisbane Airport's new runway and the new Western Sydney Airport.

Increasingly Americans recognise that their public infrastructure has fallen behind other countries. So it is not hard to see why the incoming US administration has identified greater infrastructure investment as a priority.

There are several implications for Australia. The first is macroeconomic: greater infrastructure investment should stimulate the US economy and in turn the global economy. Certainly in Australia, the infrastructure spend is generating jobs and economic activity. With the resources sector investment boom behind us, public infrastructure spending has been an important source of business for the construction and civil engineering sectors.

Secondly, infrastructure spending in the US is likely to create opportunities for Australian businesses and investors. The Trump campaign's reference to public-private partnerships is one example. Australia is a world leader in using this financing technique for infrastructure. Our expertise is recognised in the US, as President Obama's Secretary of Transportation, Anthony Foxx, mentioned when he visited Australia recently.

Australian businesses such as Macquarie, Transurban and Plenary Group have owned significant infrastructure assets in the US for many years. Transurban for example own a network of tollways around Washington DC.

Australian superannuation funds, too, are significant investors in infrastructure globally.

The third implication is likely to be a renewed focus on funding and financing techniques to help pay for infrastructure at a time when governments at all levels in the US, and throughout the western world, are facing severe fiscal constraints.

Already, the US makes extensive use of techniques such as transit oriented development and tax increment financing. Transit oriented development sees apartment and shopping complexes built around stations, with the project profits contributing towards the cost of building the rail line or station.

Tax increment financing involves a local or state government building an infrastructure project which improves an urban area and hence generates increased tax revenues. The incremental tax revenues are set aside to repay the loan obtained to pay for the infrastructure.

Some of these ideas are also being explored in Australia. They can both be seen as examples of "value capture", a method of funding new infrastructure by tapping into some of the value created by it.

State governments are considering the use of this approach – the Australian government has just released a discussion paper concerning ways we could encourage the use of such financing techniques by state and local government.

The last lesson we can take from the significant infrastructure commitments made by the Trump campaign – and by the Clinton campaign which also emphasised this area – is the importance of long-term and consistent planning for infrastructure.

As our independent infrastructure advisory body Infrastructure Australia has emphasised, infrastructure is very expensive to build and to maintain. The US interstate highway system was an extraordinary achievement when first built – but over time it has suffered from insufficient maintenance and renewal spending.

In Australia we are investing substantial amounts of public capital at both state and federal levels. We need to supplement it with private capital as well if we are to supply and maintain the infrastructure Australia needs.

Inevitably when the world's largest economy focuses on a particular issue it attracts more attention. Given the importance of infrastructure to the Australian economy – and the world economy – we should welcome the new found focus on infrastructure from the US national government.

This article origianlly appeared in the Sydney Morning Herald as Why Donald Trump's big infrastructure plan could be good for Australia.

Authorised by Paul Fletcher MP, Level 2, 280 Pacific Highway Lindfield NSW 2070.

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