Australia needs a proper debate on how to get its infrastructure needs right by potentially putting politicians at "arms length" to avoid wasteful decisions and white elephants, says Glenn Stevens.
Noting that Australia's AAA credit rating shouldn't be the only metric by which the budget is judged, Mr Stevens warned that questions around infrastructure should be separated from more urgent questions of how to manage the "recurrent" expenditure.
Two issues dominate the task of making sure investments are value-for-money he suggests – making sure they are well managed, and ensuring they create a revenue stream that's attractive for pension funds or asset managers that will fund.
"It's not about the funding, the funding is the easy bit," Mr Stevens told The Australian Financial Review in an exit interview.
"There's any amount of money out there very cheaply that you could find if the public sector funded it, or even the private sector.
Flow of income
"The critical thing is how do you choose what projects to do. Is that appropriately arms-length from day-to-day politics?
"And then you've got to price the usage once the thing is built, whatever it is, so that there's a flow of income."
The ability of a new project to generate a flow of income from user-fees will be the test of whether it's worth doing, he suggests.
"It's that flow of income that makes it attractive to a pension fund or an asset manager to own."
If those rules are followed, governments will then ultimately have the choice of being able to sell those assets in order to fund the next round of projects, or retain them and the income stream.
"The potential criticism of even having a distinction between capital and recurrent [budgets] is that people will think of all sorts of things they can call capital and waste a bunch of money.
"So you've got to have proper governance … [with] Infrastructure Australia or somebody like that, that says; 'These are the projects that will be done'."
