It is true the the PPP model for transport is proving unsuccessful.

The obvious solution is to increase fuel taxes so that users pay pro-rata the real cost of cars on society. The more kms they travel and the bigger the vehicle the more the pollution, congestion and accident aggressivity impacts. For the same reasons accident insurance should also be levied on fuel, not one-off with the vehicle license.

That way, not only better roads but more importantly better public and bike/ pedestrian transport, can be covered by the users (polluters), along with the health and nuisance costs of cars.Additional congestion levies could be levied on fuel at metropolitan fuel outlets only, as is being considered for the city of Auckland in NZ.

Australia, US and Mexico are laggards in this; all other OECD countries have much higher fuel taxes than our 42c/ Litre. e.g. NZ 58c/L and most European countries including the UK 80c- $1.00 per L.

(Many developing nations actually have no fuel tax or subsidize fuels - their worsening congestion, pollution and accident rates are the results).

There is a paradox.

Scaremongers use the threat of increasing taxes to help pay for such projects.

Yet neglect to mention the use of tolls or other private industry levies that are used to milk money out of peoples wallets.

Look at the deal Kennet made with City Link that means the tolls increase faster than the rate of inflation.

The Private electrical companies are prices gouging by gold plating the network.

Wake up! The only reason for new infrastructure is to grow populations with immigrants. The only people who benefit are governments with GST takes and votes, AND the rich who need more immigrants to get bigger market share.

In a REAL world the politicians and bennefitting businesses MUST be levied 10% of their profits to pay for the infrastructure that allows them to get richer.

OR

Make all new immigrants pay a $300k levy, paid like HECS. The Feds could apportion those funds to CITIES like Sydney based on the flux of migrants to each city.

To make established citizens pay for the rich & powerful getting richer and more powerful on the back of immigration, while the public carry all the infrastructure, violence and gridlocking costs is a betrayal of Democracy. In time I expect this public betrayal will attract UN crimes against humanity charges for individuals and corporations.

Making immigrants pay for their own infrastructure demands is the right thing to do. Otherwise why are we making our kids pay HECS when migrants walk in and get everything free because some politician is getting his rocks off on it.

Make immigrants pay THEIR HECS for being "educated" in Democracy in a decent democratic system that wishes at its core to remain democratic and NOT a Gothic Greineresque nightmare.

A nightmare with no end as the absolute power our politicians are now bestowing on themselves using privatisation models will corrupt them ABSOLUTELY to the detriment of Australia as a nation with 200 years of proud history.

As things stand this is the theme song for Privatisation in NSW

I wanna make a POnzi scheme
Just like Barry OFarrell
I wanna BUild a Ponzi city like Sydney
Paid for by NSW
I wanna make migrants castles
And treat all the citizens
To big fat TAX, fish&Chip shop air and diseas-ed desal water
Just like dirty rascals.
Da Dah Da dah dah dah!

Keap:

A very emphatic post! Ya see, every morning we awake to another Julia Gillard nightmare. Today she appears to suddenly realise her citizens are struggling with the difficulty of paying power bills: Her solution is predictable though...blame the States! The blame-game may now roll on endlessly, while her citizens "roast" under scorching power bills.

The real question is not altitudinous power bills and how the citizen pay them...that is simply a political diversion: No, the real question is, how the citizen gains control over an evasive, unaccountable self-centered irrelevant mess Canberra has descended into.

Tristan we are collecting plenty of tax, just spending it in the wrong areas.

Your lot throw massive amounts into bureaucracies, which become so bloated they actually inhibit infrastructure development. A glance at what Howard had to do in Canberra, Kennett in Victoria, & now Newman in Queensland should show anyone where the problem is.

You can't throw money at every squeaky wheel, trying to buy a vote, without running out before you actually do anything productive.

Rosy, now there's a useless idea, if ever I saw one. We are paying so much tax on our fuel now, the price is practically all tax, but none of it ever gets past the bureaucracy to actually spread any bitumen.

Doubling, or even quadrupling the fuel tax, won't get a penny spent anywhere near those it's ripped off. As long as it takes a dozen degree educated public servants to manage one worker, the private developer is our only chance. Until we get rid of most of those road blocks called public servants, we have no chance of getting any worthwhile work done.

Finally, someone who gets it! When more of our often fixed incomes, pensions/wages/salaries, are shelled out to pay formerly un-imposed profit margins, taxes, shareholders dividends etc, there is less discretionary income to spend in local business houses!
Ditto energy provision and or rental charges, housing costs etc!
All of which also impact negatively on local small business!
Name just one instance of privatisation being followed by lower charges?
Foreign investors just love investing in infrastructure and utilities, given the captive consumers/market and the virtual rivers of gold that then flow from them, all of which impact negatively on small local business.
We've invested our tax dollars in quite massive and largely unneeded bureaucratizes, endless duplication or empire building bureaucrats. When in fact, what we need is a finally at long last, rationalisation, downsizing and the end of buck passing by bureaucrats.
We need to jettison incompetent dept heads!
Incompetent nincompoops, invariably self identify, with their apparent dependence on 2 or more super efficient much lower paid assistants, any one of who could more effectively run their dept?
We need quite massive tax reform and vast simplification; and, a return to the pragmatism of yesteryear, that saw us as the third most prosperous nation on the planet and a creditor one at that.
It should come as no surprise that that period of unprecedented prosperity, was one where all the utilities were publicly owned and managed.
Why, Telecom was handing over around 7 billion per, even as Howard was hell bent on privatising it? Ditto CBA?
No sane business operator would sell off his/her most lucrative investments, just those operating at a loss!
[Now we have a structural deficit!]
[Well, pre-election pork barrelling as practised by The Coalition, costs lots of money?]
The only problem with public ownership was the monopolies and consequent union control they created?
Most of which could be easily addressed, by rolling out service provision, by competing for market share and survival, incorporated duopolies!
Rhrosty

The obvious solution is to entirely jettison the current tax act, along with the thousands of tax loopholes it allows!
Like that now practised by most major corporations, who have created a number of subsidiaries in tax havens, who then charge excessively, for so called service provision etc?
All apparently legal tax avoidance, which is currently available, courtesy of one of the most complex tax acts in existence.
We would actually collect more tax, if the only tax was that collected, by an unavoidable, stand alone, expenditure tax, set at just 5%.
The sort of billion dollar spending, as just described, would then be accompanied by increased, [5% tax charge, and paid now please,] rather than reduced tax charges!
Nor could a multinational, write off billions by investing/tying up billions in projects, that might never ever eventuate or be mothballed, with any downturn in demand.
Even so, a vastly less complex tax collecting system, would still benefit current tax avoiders, pseudo religions etc, with the accompanying repeal of all other taxes.
This vast simplification would add around 30% to the averaged bottom line, around 25% to household disposals; and, around 25% to inland revenue, which by the way would be immediately available, rather than be held, pending reconciliation outcomes.
Arguably, paper shuffling foreign subsidiaries, and their tax avoiding multi-national masters etc, would pay for all the local improved outcomes!
Rhrosty.

Government ownership is no cure for price increases, nor a panacea for infrastructure provision. Here in Western Australia the government owns our main electricity generators, and the transmission and distribution system, yet electricity prices have soared in recent years. The problem is rising costs, which ultimately have to be passed on, whether electricity is delivered by the private or public sector. We are still short of full cost recovery, and prices will probably rise further in future.

Likewise, we have no private or government toll roads, tunnels or bridges, yet our transport infrastructure is clogged, and travel-to-work times are rising.

While governments can indeed borrow money cheaper than the private sector, this does not always mean that the public sector is the best provider. In part, lower borrowing costs reflect an implied cross-subsidy from the taxpayer – if a public sector utility makes a bad investment its creditors will still get paid; this many not be the case with the private sector. This risk factor should be added to nominal interest rates as part of the social cost of public borrowing. And, the private sector can sometimes be more efficient at delivering services, achieving lower operating costs despite higher borrowing costs.

There is also the question of opportunity costs. What the government spends on economic infrastructure like roads and ports, it cannot spend on social infrastructure.

We should asses each infrastructure need on its merits. In some cases, public provision or subsidies will be best (public transport); in others, user pays is the fairest and most efficient way to cover the (ports). Pricing can help to manage demand and improve the efficiency of infrastructure use (such as varying electricity prices by time of day to meet peak demand.

Starting with an ideological predisposition - whether towards public infrastructure provision or against it - is likely to lead to poor results.

Rhian writes:"lower borrowing costs reflect an implied cross-subsidy from the taxpayer"; But if 'bad investment decisions' are made up for by the taxpayer with the public option, they are made up for by *consumers* with the private option. (ie: by the same people but in a different capacity) With the private option the same people end up paying *more* in their capacity as consumers than they would in their capacity as taxpayers.

The example of the desalination plant in Victoria meanwhile shows that PPP profits are usually 'locked in' even if there has been a misjudgment re: big investments. There is talk of 'risk' - but it is usually borne by taxpayers not private investors.

You say the private sector can be more efficient; But in the past this was due to very significant downsizing of the workforce. (Victoria) But why not have a culture of co-operation with unions - with efficiencies/productivity passed on to *both* workers and consumers?

You say public money spent on infrastructure cannot be spent on social causes... But that argument doesn't make sense - as low income groups who are most effected by the higher structural costs have them passed on to them as consumers. And even with govt subsidies for pensioners the same would apply to low income groups in the workforce...

Perhaps the WA govt is using electricity as a cash cow because of falling GST revenue - which has hit the other states? If that is true the answer is Federal tax reform passing increased grants to the States. In which case both the Fed Opposition and State Govts need to stand up for increased progressive taxation to make that possible...

I concede increased costs are being passed on even with public ownership; But I maintain that public ownership lowers cost structures - which have the *potential* to be passed on for our benefit in our capacity as consumers.

Crucially privatisation of generation means you can't cross-subsidise distribution infrastructure with public sector profits... I should have made that point in the article to make it clearer...

Trisan
The WA Government is not using electricity as a cash cow – electricity is subsidised by taxpayers. The subsidy is diminishing, however, but electricity prices would have to be 20% higher to cover costs:
http://www.erawa.com.au/cproot/10639/2/20120704%20Synergys%20Costs%20and%20Electricity%20Tariffs%20-%20Final%20Report.PDF

. The reason is mainly higher fuel costs and the need to replace aging and inefficient infrastructure (one of the key failings of government-owned utilities in the past was that they under-invested in maintaining and upgrading infrastructure).

I agree with some of your points about the failings of PPPs in the past – if risk and costs are pushed back onto taxpayers when businesses fail, this is an additional cost to the community. Allocating risk appropriately is one of the most important and difficult things to get right when doing PPPs. But those are mistakes that can be learned from, not reasons to abandon PPPs entirely.

The efficiencies that the private sector can achieve are not only a results of slashing the workforce (though sometimes that was necessary with the bloated and inefficient public services of the past). It is also about incentives to innovate, a clearer focus on meeting customers’ needs, and reducing the politicisation of investment and operational decisions.

Even if you are right that private sector economic utilities charge higher prices – and I don’t think you are – my opportunity cost argument would still hold. Government does not have a limitless pot of money to invest, and it makes more sense for government focus on things the private sector will not do well or sufficiently (like universal education). We are better off if the government provides excellent schools and we pay tolls for our roads, than if we have mediocre schools and mediocre roads provided “free”.

I agree that privatisation can make cross-subsidies more difficult – in fact, I think that’s one of it benefits. Cross-subsidies mean people make consumption decisions on prices that don’t reflect costs, which will lead to inefficiency (that’s why I support a carbon price, too). There are other, fairer and more efficient ways of ensuring redistribution and access to essential services.

But Rhian; What room is there to 'innovate' when investors are 'locked in' to massive infrastructure investments that need to last for decades?

Can you give many concrete examples of such "innovation" or is it simply an article of faith because you believe in privatization 'in principle"?

Ken Davidson makes the point well in at the following URL: That such 'innovation' is sometimes just the incentive to fleece consumers for private profit. See: http://m.smh.com.au/opinion/politics/victoria-can-escape-the-publicprivate-partnership-black-hole-20120527-1zcw2.html

And remember we need not only to make up for the higher cost of borrowing in the private sector - but also to pay for the bottom line of private profits as well. These are massive cost-structures that consumers must pay for.

And at the same time such profits are forsaken which could otherwise cross-subsidise the worthwhile social initiatives you say you are concerned about.

The cross-subsidies I was talking about was using energy sector profits to reinvest in infrastructure in the sector. The alternative is that infrastructure is paid for separately. Which can help explain the massive cost to the public with prices going up more than 40%.

And again you maintain the argument that privatisation means more money for socially-worthwhile initiatives. But if the motive is *social justice* how does that fit with flat user charges that hit low income earners like a flat tax?

How will low income earners benefit from private roads, for instance? Take a worker who lives in an outer suburb who has to transit for a hospitality job in the CBD every week day. How would they benefit from a private toll-road?

It is all mismanagement by government is it? How much has Labor in Qld wasted then? $10 billion? $20 billion? Compare this with the $100 billion debt: Wastage does not even come close to explaining the massive debt during a time of great revenue growth.

So what about population growth as a cause? Queensland's population has increased by ~50% since 1990, from just under 3 million, to over 4.5 million currently. A public infrastructure value of $200k per person would incur a public cost of $300 billion.

Is it any wonder that Australia is drowning in public debt when government is inflating the population at a rate well above that of other developed nations, and reminiscent of the chaos and decay of third world cesspits?

Tristan,

I agree that flat fees hit-low income households. The solution is to increase incomes so they can afford to pay for necessities, but charge them cost-reflective prices. This is why carbon tax revenues are being used to raise benefits and cut taxes.

Again, there’s a question of opportunity cost. Is the low-income earner better off with a high-quality public education and toll road, or mediocre “free” service in both. Given the disproportionate use of social infrastructure services (education, health etc.) by low income earners, it’s arguable that they are better off with government concentrating its spending efforts there.

Some WA examples of poor public utilities:

• The last organisations I know to accept payment of bills by phone were the water corporation and power companies – both government owned.

• Australia Post is the only business that is not open at my local shopping centre on Saturday.

• Massive improvements in services and productivity were achieved in the State’s rail freight sector when it was corporatized in the early 1990s. Employment was “slashed”, to use your term, but the industry needed it.

• The government subsidises and regulates public bus services, but private operators bid for the tender to supply the services. In my opinion, the service has improved since this was outsourced.

In some ways, WA is a counterfactual to your arguments because it has not privatised many utilities. Yet we have similar challenges to other states – rising energy and water costs, congestion on roads and overcrowding on public transport, unmet demand for public housing, a growing proportion of the budget eaten up by the health service …. This suggests to me that ownership is not the core issue.

Actually, I think competition and contestability are more significant than ownership in shaping a utility’s performance. For that reason, I share some of your concern about privatising monopolies, unless they can be regulated effectively. Telstra’s real prices to customers started to fall when it was exposed to competition (and noticeably at the time, only in those services where it faced competition).

the consequences of privatised infrastructure
Well, we've just experienced the consequences of Government infrastructure & it looks as though neither of them are a very good model.
What's missing for both to work is a set of guidelines which can not be constantly altered or challenged by those whose greed makes them believe they deserve more. That's where flat tax would help. No if's no but's. The other thing that would help substantially is a term of National Service. People need to enter the workforce with a mindset that includes responsibility not just entitlements. Far too much money is being made by many with absolutely no value for the money which is then locked up & does not contribute anything to the economy. Ah yes, the "experts" who got us nowhere thus far will differ. They differ only for one reason & that is themselves. Yes, economy is a delicately balanced act but it is made artificially complex merely to confuse & deceive those who have the interest of the nation in mind.

When the Sydney cross-city tunnel opened in 2007 many objected to the relatively high toll (now over $4) for a short trip, and the company that built it went bust having gone down the usual NSW route of underestimating costs, overestimating traffic flow and paying the required sweetner of tens of millions of dollars to the state government (what we'd call a bribe, but of course it wasn't - I wish I could remember the term they used for it). When the debate was raging about PPPs and the cross city tunnel, an infrastructure guru popped his head over the parapet and suggested that if the tunnel had been built and run by private enterprise with government/our money on a design-construct-mantain-and-operate basis it could have been paid off in 30 years with a fixed one dollar toll. At current toll levels, it obviously could have been paid off much more quickly and the toll income could have been allocated to fund further infrastructure projects. This seemed such a sensible idea that of course it sank without a trace.

Meanwhile in Canberra the good burghers were exhorted to curtail their water use dramatically during the drought and not only did so but the habit persisted when the drought broke. The privatised water company was displeased at this threat to their bottom line and promptly upped the price of water. Which is why private enterprise should not be allowed to own resources which we should be using less of.

I agree Tristan that public ownership and operation wins hands down when it comes to the operation of public infrastructure, as a general rule.

But the most critical point of all doesn’t even rate a mention in your article: the constantly and rapidly increasing pressure on much of our current infrastructure and demand for new stuff!

This is of much bigger concern than the differences between private and public operations.

Wouldn’t it be nice if our tax-payer dollars could be directed much more into real improvements in infrastructure for the established population rather than into duplication of the same infrastructure for ever-more people and into struggling to fix infrastructure that is overstressed and hence poorly functional, and becoming worse all the time!

It’s a no-brainer!

If we really want good quality infrastructure and efficient management thereof, we need to eliminate or at least greatly reduce the constantly increasing pressure on and demand for ever-more of it!

The differences between public and private operation pale into insignificance compared to this factor!

Another point not mentioned is that public infrastructure provided by the private sector ultimately costs six to seven times that of government infrastructure. Of course, government has no chance of providing public infrastructure given the ridiculously high immigration rate.

Governments need to stop ignoring the reality that public infrastructure has a substantial value. While it is ignored, high immigration will result in increasing public debt and decaying public infrastructure.