2018 CCF Victorian Infrastructure Outlook Report 1 | Page 37

An open policy conversation is
needed to drive sustainable long-
term growth
BIS Oxford Economics expects Victoria’s economic
growth to slow further over the next two years, before
a late decade, recovery sees growth strengthen and
return to historical averages early next decade. While
new road and rail infrastructure investment in the State
Budget is welcome – as is achieving budget repair – the
fluctuations in activity brought about by the start and
then the completion of projects in a handful of sectors is
likely to pull back momentum on sustained longer term
economic growth for the state.
An open and transparent discussion on the long-term
economic strategy for Victoria (and indeed for other
states and nationally) should concentrate on leveraging
from (or improving) core (or potential) strengths. For
Victoria, this includes its iconic Australian tourism
destinations and enviable lifestyle benefits. State
Government strategy has focused on boosting programs
to bring new businesses to Victoria including the $90
million investment to help create and retain jobs in priority
industry sectors including manufacturing and aviation. A
core aim of the economic strategy should be to attract
businesses and people to Victoria.
Overall, the public sector investment in total engineering
construction is a sizable component in Victoria, and this
proportion is expected to move higher to peak in 2018/19
before trending downwards mid-2020s. Having such
a sizable proportion, achieving longer-term economic
goals will depend crucially on how the public sector can
develop policies to stimulate private decisions on where
to invest and live.
Victoria’s medium term outlook highlights strong pipeline
of infrastructure in transport and utilities. However,
sustained investment in productive infrastructure will
remain a critical component of a broader economic
strategy of Victoria to ensure cities and regional centres
offer competitive benefits and help keep cost of living
(and cost of business) pressures contained. It also means
investing in critical infrastructure for new growth regions
– which will benefit from the lower post-boom Australian
dollar – to ‘crowd in’ private business investment
decisions.
The availability of funding for sustainable productive
infrastructure investment should not derail investment
itself and the State Government should utilise other
funding levers available to it. Asset recycling has
benefitted Victoria’s government coffers, and remains
a potential source of funding for future infrastructure
projects, so long as there is effective post-sale regulation
of privatised assets to ensure prices remain competitive.
Introducing tolling on major roads (possibly in the form
of, or introducing time- of- use tolling to manage peak
demands) or more fundamental reform such as a broad-
based road user charge, could also help fund future
infrastructure projects – as well as potentially pushing out
the timing for reinvesting in crowded roads networks.
Finally, developing a more constructive relationship with
the Commonwealth Government will also be crucial, and
this extends beyond the use of the Commonwealth’s
balance sheet. With effective business case planning
and vetting for specific infrastructure projects, this may
see greater Commonwealth contributions flow for state
infrastructure projects.
Beyond public investment itself, State and Federal
Governments should also be looking at ways to encourage
the return of private investment (by far the bigger part of
the investment ‘pie’) and re-establish the positive growth
mindset. This can be achieved through good public
investment choices which ‘crowd in’ private investment
(e.g. building better transport links which encourage
broad regional investment by the private sector, or
investing in lower cost energy to attract industry and
other business). Perhaps more importantly, governments
should also set clearer messages about future policy to
give the private sector confidence to invest. Unfortunately,
the record here has not been consistent, with arguments
over energy policy, financing, and tax and spend policies
likely to have had a deleterious impact on business
confidence.
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