Infrastructure investment shouldn't rely just on government money - here are the alternatives

Picture: Cameron Spencer/Getty Images.

Our economy needs infrastructure to enable it to function efficiently.

Governments tend to lead the way on infrastructure developments.

This is natural, given the scale and complexity of infrastructure projects, as well as the land acquisition requirements and other elements of major investments that are dependent on public policy and the executive powers of government.

However, private-sector involvement in infrastructure is not – and shouldn’t be – limited to tendering, financing, designing, building and operating. Businesses have an enormous stake in the development of infrastructure requirements.

A key question is how our infrastructure needs are going to be financed.

Governments have a limited ability to raise new taxes to fund projects. Government use of “asset recycling” – privatising assets such as the electricity network and re-investing the proceeds in new infrastructure projects – is one new source of funding.

User pays via tolls (especially for road infrastructure) is of course a common option, but one that also has limits and relies on accurate financial modelling.

Infrastructure driven property development is another potential funding source. The Hong Kong MTR (metro system) has long been one of the city’s main property developers, building commercial and residential properties above railway stations.

The NSW government had considered similar plans for the proposed light rail/freeway to go under the existing Paramatta Road to the Sydney city centre.

Professor Ingo Walter of New York University Stern School of Business uses the example of improvements to the New York subway. He suggests these projects are enormously productive year after year over decades.

“But the costs fall on people in the here and now, while the benefits are widely dispersed over space and time,” Professor Walter says.

“So the former don’t want to pay and the latter can’t easily be made to pay.”

Professor Walter suggest there are plenty of solutions.

“Tax those who don’t pay but benefit most directly, like landowners and developers enriched by the subway”. “Or go for a broader tax net that covers all of New York’s residents and visitors with a permanent City subway tax and hotel surcharge”.

He suggests that even commuters from the suburbs benefit from improved home values and should be made to contribute via property taxes.

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