Debt and deficit have become bogey words in our often vitriolic political debates, but economists argue there's never been a better time to borrow for the right government infrastructure projects.
During the past couple of election cycles, politicians from both sides have debated debt and deficit, making serious discussion on worthwhile public debt difficult.
Economists argue political passions have led to a dumbing down of the government borrowing debate, especially when it comes to worthwhile infrastructure projects.
"When people whinge about debt and deficits, although they don't know it, they should be talking about the recurrent budget where the most prosperous generation we have ever seen by a very long chalk is not paying its way on the day-to-day stuff, the recurrent stuff," says Deloitte Access Economics partner Chris Richardson.
"But there's a different set of arguments about investing in the future and governments aren't handling that well," he says.
He points ruefully to Sydney's City Circle underground train loop that is 90 years old. "That was a superb use of public sector money," he says. "You have to wonder whether with the political and bureaucratic requirements we place on infrastructure these days, that sort of thing would even get done."
Stephen Walters, chief economist at the Australian Institute of Company Directors (AICD), says the political discussion on debt has been too partisan.
"The level of political discourse on debt became very partisan and unfortunately was very successful. We've coloured it so any government running a deficit is bad and any government borrowing and increasing the debt ratio is incompetent," he says.
Make the most of cheap money
Australia's government debt to GDP ratio was at 36.8 at December 2015, according to economic data site tradingeconomics.com, and is relatively low compared with other first-world economies such as the US at 104.17, Britain at 89.2, Germany at 71.2 and Japan at a whopping 229.2.
Interest rates have been at record lows, making borrowing costs cheap as the 10-year bond rate hovers around the 2 per cent mark.
While Australia does have a structural debt problem that needs close attention and recurrent debt is a poor use of borrowing, there's room to move on infrastructure debt, economists say.
"I push back against this notion that all public debt is bad, because not all of it is bad if you are borrowing for a well-researched and analysed project that adds to growth and generates returns down the track," says Walters.
With borrowing rates at all-time lows until very recently, it's made sense to borrow more rather than less for the right projects.
PwC Australia's economics and policy partner Jeremy Thorpe agrees on the timing. "We are in an environment where if you were ever thinking about going into debt this is it," he says. "Long-term bonds to fund it are very low."
Deloitte's Richardson also agrees, saying "we can do more and better with our capital budgets", particularly in this low interest rate regime.
"There's been an historic and gargantuan opportunity around doing more and it won't last forever," he says.
Disruption a barrier
While rates are super low, infrastructure spending has become harder to carry out since the first half of the 20th century because it tends to be more invasive, especially around dense population areas. Digging up Sydney during the 1920s to build the City Circle rail link was probably less fraught in terms of disruption than current work to construct the city's new light rail down George St.
"That early infrastructure was the low-hanging fruit. It was easier to do," says Thorpe. "We now have complex cities and it means disrupting people. Look at the WestConnex [transport] project in NSW. It means compulsorily acquiring a whole lot of houses. The project becomes a political one, not because of the underlying merits, but because of the social dislocation."
"It's hard to think of any major projects now where social dislocation isn't a major burden. Maybe it's always been the case. We had to demolish a couple of suburbs to build the Sydney Harbour Bridge," he says.
Costs are also a dampener on projects these days, says Thorpe. "We are a high-cost infrastructure country, this is a criticism the Business Council of Australia has made consistently. You couldn't build a tunnel across Sydney today for what it cost a decade ago, even adjusting for inflation."
But perhaps the biggest impediment to getting up infrastructure is political partisanship and the rhetoric that goes with it.
The Snowy Mountains scheme, arguably the boldest infrastructure project of the postwar period, was conceived and begun by Labor in the late 1940s but executed and finished by a Coalition government in a long, hard haul that didn't finish until the early 1970s.
Ditch the pork barrel
By contrast, Labor's NBN was fought tooth and nail by the then opposition and radically altered by the incoming Coalition government in 2013. On the other side, Victorian Labor Premier Daniel Andrews abandoned the former Liberal government's East West Link road project last year.
While the merits of the decisions on the NBN and East West Link can be argued both ways, the fate of the projects points to a more politically partisan approach.
"We need both sides of politics to embrace the national interest around some of these projects and I would say infrastructure and social infrastructure [such as] education are the two areas where we need to break that political deadlock," says Thorpe.
Richardson says Australia must take a big picture view when considering investment in large infrastructure projects and move away from the parish pump and the pork barrel.
"This is not a honeypot for money around marginal electorates," he says.
Hope for less bloody political discourse over public works may be found in relatively new oversight bodies, such as Infrastructure Australia and the Parliamentary Budget Office.
"We have come a long way," says AICD's Walters of the founding of Infrastructure Australia in 2008.
"There was nothing before that and it was open slather for governments to pork barrel to their heart's content."
