The Australian government should learn an important lesson from Mike Pence, Donald Trump’s Vice-President elect, according to a senior economist.
While governor of Indiana, Mr Pence’s administration sold a 65-year lease on the US state’s biggest highway to IFM Investors, a fund management firm linked to industry super funds.
Following that deal, a subsidiary of IFM Investors agreed to invest $US200 million in upgrading the road, which covers 250km of northern Indiana from the Ohio state line to the Illinois state line.
“As our economy continues to grow with more Hoosiers [Indiana residents] working than ever before, I am confident that our roads will continue to serve as the arteries of economic development and help Indiana businesses get goods and products to market,” Mr Pence said at the time.
The project, to be completed by December 2017, is employing hundreds of construction workers to repair pavements and bridges, widen the highway and install a fibre-optic cable.
Stephen Anthony, chief economist at Industry Super Australia, said the Australian government should follow Mr Pence’s example by partnering up with super funds to create jobs and reinvigorate public assets.
“Mike Pence is rightly proud of this achievement in a country that has struggled with the notion of privatisation and has a decaying public infrastructure stock,” Mr Anthony said.
The super sector should engage government
“The hope is that the Australian superannuation industry can achieve the same level of engagement with the federal government.
“Deals like Indiana Toll Roads and the NSW based Ausgrid should prompt governments to consider thinking outside the box on how they can partner with super funds to unlock stronger trend economic growth and higher investment returns.”
These kinds of deals could help break the global economy out of its low-growth, low return funk, so long as the projects are carefully selected, Mr Anthony said.
The ideal projects for super funds to buy or lease are likely to be “brownfield” sites, such as the Indiana highway, which provide “stable, bond-like” consistency in cash flows, he said.
But the Australian government also needs to pump public funds into new (“greenfield”) projects, such as the second Sydney airport and a modern rail freight network for the south eastern states.
Mr Pence was chosen by Donald Trump as his VP pick in July. They are currently celebrating their election win with a thank you tour of key US states.
Dr Anthony’s call echoed that of former Treasury secretary Dr Ken Henry, who last week said public investment in infrastructure is the “elephant in the room”.
Westpac CEO Brian Hartzer also called for action on public infrastructure by state and federal governments, saying Australia’s economy would be lifted by increased spending on roads and transport.
“Our experience shows that where governments invest in infrastructure projects, business investment and particularly small business investment soon follows,” Mr Hartzer said during a speech in Adelaide on December 9.
“In other words, infrastructure investments have a multiplier effect on economic growth.”
Pick your infrastructure targets
Labor’s shadow assistant treasurer, Andrew Leigh, said that infrastructure spending by the federal government is definitely needed, but that projects must be carefully selected.
“Interest rates are certainly low. The Bank of England says they are as low as they’ve been in 5000 years. But that doesn’t take away the responsibility to make sure your projects stack up — that they pass a benefit-cost test,” Mr Leigh told Sky News on Monday.
“I worry that under this government we’ve had too much partisan pork-barrelling. The Auditor General for example said on the mobile blackspots program that a quarter of those towers didn’t add to the signals.
“We’ve seen too many instances of the government effectively run by Barnaby Joyce is investing in infrastructure projects that don’t have a good pay-off for the community. We do need infrastructure investments … but it all turns on the quality of the investment.”
* The New Daily is owned by a group of industry super funds