This issues paper started with a provocation, asking whether because of a failure to invest in the future, we engaging in intergenerational theft? After the provocation it has sought to lay out that challenge and consider some possible solutions. The solutions identified are by no means conclusive and some sharper minds might consider other risk adjusted solutions.
Intergenerational theft is indeed a problem and challenge certainly worthy of focused and deep consideration by all those interested in the future of Australia.
4 June 2018
Professor Talal Yassine OAM,
Australian National University,
Managing Director, Crescent Wealth
Associate Professor Michael Rafferty
Mr Ronan Walsh
Chief Investment Officer,
After more than a quarter of a century of uninterrupted economic growth, Australia has developed an enviable international economic record. We have an economy that has been growing for 26+ years – healthy GDP growth and low unemployment.
But like many other countries that record is not unblemished. There is the stubborn issue of inequalities of income and wealth, of education and health outcomes and access to social infrastructure. Thomas Picketty and others have shone a light on some of inequality’s structural causes, and they make the case that without concerted public policy action, growing inequality is a more or less inevitable outcome of market processes, including the very processes that produce economic growth. These inequalities are not just bad economically because we don’t get to use all of our talents and capacities. They also create political tensions and tear at the fabric of our social order.
Another problem, and the subject of this paper is the emergence of a large and growing infrastructure deficit. One sector where our economy has not grown in balance is an under-investment in the future and in particular in infrastructure. Despite the many economic positives, we appear to be investing less and less. Why is this so? How is it that we became scared of building for the future?
One reason is that public policy and debates about fiscal and infrastructure policy in particular have become a prisoner of meeting targets based on an out-dated accounting category – reducing the government debt and the budget deficit. The budget balance (deficit or surplus) is an accounting number with little economic meaning. Leading economists now refer to the budget balance as little more than ‘a number in search of a concept’. One pernicious effect of this is that the really important issues associated with taxing and spending, including education, health care, housing and infrastructure get shifted off main stage. There are signs that this may be changing internationally. But unfortunately, public policy in Australia seems to be taking this deficit fetishism to its (il)logical reductio ad absurdum. To use a term our younger, and more geeky, colleagues would understand the annual budget balance forecasts are a fiscal version of ‘that’s numberwang’, so arbitrary it could almost be compared to the Microsoft Excel Goalseek function, that lets you adjust values used in a formula to achieve any specific target number.
Under-investment in social and public infrastructure is one of the results of this sort of public discourse. That under-investment is becoming so serious that it raises intergenerational efficiency and equity issues. This paper seeks to contribute to changing public policy discourse to re-engage in the ‘forward-thinking’ so necessary to sustain our lifestyle. Just as with inequalities that the French political economist Thomas Picketty raises, it has become clear that unless we change public policy and discourse to focus on social and economic infrastructure, we will pass existing inequalities into the next generation and perhaps make them worse. The paper frames this by way of a provocation. It asks whether, because of an inability to make the necessary investments in the future, we are engaging in intergenerational theft?
Where has the investment in the future and the ambitious ideals for future generations gone? Today, despite being wealthier than any time in our history, there is general agreement that perhaps AU$1 trillion or more is required to build the infrastructure that our nation so desperately needs and future-proof our growth, as well as ensuring social cohesion and fairness.
Infrastructure in Australia is predominately funded by the public. ‘Funding’ in this context refers to how debt or equity is raised to deliver and operate a project, but also how it is funded longer term by taxes or by user charges, with or without Public Private Partnerships (PPPs). Although we are finding it difficult to fund necessary infrastructure, the paper suggests it isn’t a funding problem at all but a conceptual one.
This situation needs to be addressed for the sake of our future.
If we don’t address the situation, the world will move ahead of us in terms of their infrastructure needs whilst Australia lags behind. We must change our thinking and address this anomaly. It is not enough to simply be the “lucky country”, rather we ought to invest, plan and become the forward-thinking nation that the 21st century demands.
Our forefathers, whilst not perfect, (they did a bit of generational theft themselves but we are getting much more efficient at it) were in fact more successful in investing for the future. Think Harbour Bridge and Snowy Hydro Scheme. So how do we arrest this problem?
There are several ways of helping change the course of this negative trajectory, but there is no ‘silver bullet’. Indeed, we will probably have to re-purpose some of the options that have brought us to the situation we now find ourselves in. This paper attempts to address the situation with some, but not all, possible solutions including:
- Government Borrowing and Building;
- Superannuation funds, Asset Recycling and investment; and
- Financing including Islamic Finance Investment.
As a country we need to have an answer, or several partial answers. What is clear is that we cannot continue to pass the buck, blame it on someone else, or say it’s just too hard. The status quo cannot be the answer.
This Issues Paper engages that challenge in the hope that public policy and discourse can more fully embrace its mission of nudging the debate in the direction of nation building.