Friday, July 22, 2011

Energy costs, labour power block road to productivity

A recent AcilTasman report shows Australia's productivity performance has slowed, with Victoria, post-2005, collecting the wooden spoon.

One cause of this in Victoria is increased regulation, including requiring higher spending on expensive renewable energy.

A second factor is reduced labour productivity.  Union power was re-entrenched by the Brumby Government with decisions, like on the Wonthaggi desalination plant, which favoured contractors who would tolerate efficiency being undermined by union dominance.  The Rudd/Gillard Government has aggravated this with workplace legislation that reduces employers' abilities to manage.

Much of Victoria's productivity dip also reflects lower infrastructure spending, especially on roads, which dominate the commercial infrastructure that governments directly provide.  Other commercial infrastructure, like ports and power lines, saw high costs and lousy service under public ownership and had been privatised.

Even roads are built by independent contractors and sometimes privately owned.

Roads account for much of freight transport and 87 per cent of personal travel.

After the ALP came to power in Victoria in 1999, road spending fell from 20 per cent to 15 per cent of the national total.

Last month, the Commonwealth Government's Infrastructure Australia report Communicating the Imperative for Action called for better targeted spending on infrastructure.  But, in practice, the report favoured spending in areas that provided relatively low productivity payoffs.

It offered strong support for ambitious city rail systems, including one proposed by Infrastructure Australia chairman Sir Rod Eddington in work he conducted for the Brumby Government.  None of these would pay for themselves in the way that roads do.

Priority is also placed on cycle tracks, which, offer no infrastructure benefits.

Infrastructure Australia rejected major roads financing except for toll roads.

While it may be fairer to charge motorists for some of their road use, governments spend far less on roads than they collect in vehicle taxes on fuel and licences.  And there is nothing in Infrastructure Australia's report that suggests other taxes should be reduced to compensate motorists for increased receipts from tolls.

Like so many other planners, Infrastructure Australia represents elitist opinion.  This has given us prohibitively expensive desalination plants, solar panels that require a subsidy of five times their cost, a $44 billion white elephant in the National Broadband Network, and other wasteful expenditures.

Much of Infrastructure Australia's proposals pander to trendy green opinions.  These include costly and wasteful measures that respond to the alleged dangers of climate change, including water recycling with higher water prices to discourage use.

Infrastructure underpins productivity.  But, to avoid misuse of taxpayers' money, government provision should be limited to areas where its presence is unavoidable.

Ports, airports, gas and electricity supply and much of rail are now mainly private sector activities and require only a passive government role.

Continued government ownership and decision-making is probably inevitable in provision of roads, water and elements of rail.  To avoid duplicating advisory structures on infrastructure and to improve accountability, oversight should be with the tier of government closest to the users.  This means restricting the Commonwealth's activities to interstate networks, which are largely confined to roads.


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