It also needs to be pointed out that infrastructure renewal and maintenance are also a big part of the problem. It has been calculated that on average, infrastructure has a lifetime of something of the order of fifty years, so we need to factor that into the equation.
Aiden, I would take issue with your proposal that this activity should be financed by debt. We are hocked up to our eyeballs already. In general, the country can collectively afford higher taxes. We just need to accept that we are already living too high off the hog and all need to make some sacrifices in order to preserve a viable environment for future generations. Unfortunately this is the elephant in the room that neither political party has the balls to confront.

David

VK3AUU, Australia has very little government debt by world standards, despite unlimited credit being available.

Aidan,

So we keep building up he debt because "we have so little". Catch up to Greece etc? Why is this little bit of debt causing us so much trouble?

It is clear that you are an economic genius, as were the ones who got us into debt. You should have no trouble answering.

Aiden

I think there is a clear case for debt-funded infrastructure when that infrastructure is charge supported – for instance, gas or electricity infrastructure or toll roads. This simply extends the “user pays” principle over time, and is both equitable and efficient.

The case for debt financing of tax-funded social and uncharged infrastructure such as schools and suburban roads is in my view more complicated. There is nothing inherently more equitable and efficient in financing a road in Adelaide from taxes paid by Perth residents in 2020 rather than Sydney ones in 2015. The whole point of tax-funded infrastructure is that users DON’T pay, and so the equity link between beneficiaries and funders is weaker (though not non-existent – as you point out, the benefits of productivity growth are widely spread). Furthermore, if we are borrowing to finance infrastructure investment and running deficits on current spending, we are effectively hitting future generations twice – they will paying for both the infrastructure they will use and the services we used.

Obviously these things should not be too rigid, but as a principle I’d say that its ok for public trading enterprises to borrow to enhance infrastructure (assuming it has a sound business case), but the general government sector should aim over the medium term to grow the real per capita net balance sheet (debt and assets) by no less than real GDP growth. That would mean we can run cyclical deficits on current spending but should aim for a structural surplus over the business cycle. And we can borrow to finance infrastructure, but only if we have raised at least enough revenue to sustain and replace the capital stock we inherited and grow it in line with population and the economy.

Aidan,

The 2006 Productivity Commission report on immigration and a number of other reports here and in other countries have found that the per capita economic benefit from mass migration is very small and mostly goes to the owners of capital and the migrants themselves, while there is a slightly negative effect on average wage growth for the bulk of the population

http://www.immi.gov.au/media/publications/statistics/popflows2005-6/Ch6pt3.pdf

Population growth does increase total GDP, giving Big Business and the politicians more to skim, and they also benefit from the distributional effects. A bigger population means more customers, easy profits from real estate speculation, and a cheap, compliant work force. Unlike small business, they don't have to worry about the extra population attracting competitors. These people also tend to be insulated by their wealth from the problems that they are causing for others.

Jane O'Sullivan in an Economic Affairs paper has estimated the cost of infrastructure for an additional person at about $200,000, with about $100,000 to $120,000 representing government infrastructure.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1999200

The economist Ralph Musgrave has estimated non-housing infrastructure costs of 30,000 pounds per migrant for the UK (as of 2008)

http://ideas.repec.org/p/pra/mprapa/6869.html

Musgrave points out that if is likely to take a generation before the migrant has contributed enough to pay the community back for his share of the infrastructure that he has been using since his arrival. No wonder our infrastructure backlog is more than $700 billion.

Now tell us why the bulk of the population, who don't benefit from the population growth, haven't contributed to it, and may even be hurt by it in terms of their quality of life and access to public services, should be more heavily taxed, either directly or by having their taxes diverted to debt repayment, for more infrastructure for more people. How about beneficiary pays?

Providing more infrastructure in a big city that is already built out is also far more expensive than putting it into a greenfields site. It is Big Business and the politicians who have also decided to concentrate most of the development in a few big cities,

ttbn, of course I have no trouble answering. Japan would be a more appropriate example of a high debt country because (like Australia and unlike Greece) Japan has unlimited credit. But it's not a matter of catching up with anyone; rather we should be doing what's economically advantageous for Australia, without our decisions being distorted by an irrational fear of debt.

This little bit of debt isn't directly causing us any trouble whatsoever. What's causing the trouble is the politicians' reaction to it. Taking on more debt was the most economically responsible course of action for the Rudd government after the GFC hit, but the Liberals fooled the public into thinking it was economically irresponsible. It's the Gillard and Abbott governments' attempts to get us back into surplus that are causing us so much trouble.

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Rhian, future generations aren't under any obligation to pay off the government debt. But I am in favour of running structural surpluses – not because of the debt itself but because doing so keeps interest rates down. Even if we had no government debt, I'd still advocate running structural surpluses for that reason.

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Divergence, if infrastructure were planned better then we wouldn't have to spend so much on it. High costs are caused by years of inaction (resulting in loss of skills) followed by frantic spending on grossly overengineered megaprojects.

Whereas if we were doing it right, a higher population would bring economies of scale, and the benefits would flow to everyone including those who'd been there all along.