Malcolm Turnbull Smart Cities plan a solution in search of a problem

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Mr Turnbull stepped into the lion’s den when he announced his Smart Cities policy in Melbourne on Friday. Infrastructure funding has been a bone of contention between Canberra and Spring Street since Victorian premier Daniel Andrews cancelled the $6 billion East West Link project in late 2014 and the federal government promptly asked for its $1.5 billion back.

The Andrews Government insisted on “re-purposing” it as a contribution to the $11 billion Melbourne Metro Rail tunnel, but the coalition government in Canberra never agreed. Now there’s a federal election coming, and the state Labor government is reminding Victorians of the snub at every turn.

Unveiling a flush state budget on Wednesday, Victorian Treasurer Tim Pallas accused the federal government of short-changing Victoria on infrastructure grants and declared the state would “go it alone” and fund Metro Rail and its share of the $5.6 billion Western Distributor from its own coffers. The Victorian budget papers say the state expects to receive only about 9 per cent of federal infrastructure grants over five years to 2018-19, or $6.3 billion less than the average state. This “is clearly insufficient and inequitable”, the budget papers say.

Mr Pallas taunted the Prime Minister for offering a $10 million loan for feasibility studies, saying: “Stop pretending you’re a merchant banker and start being a Prime Minister.”

That’s just what Mr Turnbull’s Smart Cities outlines: the creation of a new infrastructure financing unit – a federal investment bank – to prioritise and broker infrastructure deals.

“The unit will create integrated project teams with the private sector and key agencies to broker investment in landmark projects through innovative financing solutions,” the Smart Cities brochure strives to explain.


Anyone who travels on Melbourne’s claustrophobic peak hour trains and trams or Sydney’s gridlocked freeways will welcome Canberra taking a greater interest in their cities. Hour-long commutes are not unusual.

Congestion in Perth – the fastest-growing city – is so bad that commuters can spend more than an hour driving the 25 kilometres from the South suburbs along the Kwinana Highway, and are set to make their feelings known in the state election next March. Commuting from the Gold Coast to Brisbane is almost as bad.

Yet our cities are the factory towns of the 21st century.

Hundreds of thousands of commuters stream into and out of Melbourne and Sydney – and Brisbane and Perth – each day to create value in the “knowledge” and tech industries that are increasingly driving prosperity in the post-mining boom economy.

If these cities – and smart regional cities – can be made to work better, to get people in and out more easily to rub shoulders, spark ideas and do deals, the whole nation will be better off.

So it’s a welcome change for the harried citizens of Australia’s big and rapidly growing cities to have a government in Canberra wanting to take a coherent view of their transport, communications and other needs.

But coherence is not the strong suit of the Smart Cities materials released to date, and some infrastructure experts say it’s mostly a solution in search of a problem. Much of it is welcome.

A sharper focus on prioritising the most economically valuable transport and infrastructure projects would help, because the capacity of the states to do this varies wildly. Fifty million dollars in the budget towards better feasibility studies can’t be a bad thing.


But there is already a federal agency whose job it is to urge the states to sharpen their pencils on business cases for projects and prioritise the projects with the best economic returns – Infrastructure Australia. And it wasn’t able to avert the Andrews Government’s about-turn on the East West Link, which has cost taxpayers $1.1 billion.

Infrastructure Australia has just released – in February – a National Infrastructure Plan. It urged governments to create national transport, energy and water markets, embrace more user charging for roads and rail and radically improve their planning and funding. It named national priority projects – the Perth Link project and the widening of the Tullamarine Freeway from the CBD to Melbourne Airport – and a longer list of high priority “initiatives” that have yet to pass muster.

“30 Minute Cities” makes a brilliant, ambitious-sounding election slogan but rings a little hollow to residents of big cities. There is no city of more than 4 million people – like Sydney and Melbourne – in the world where everyone can get from their home to their place of work within 30 minutes.

Still, any reduction in travelling times will help.

The Smart Cities brochure goes on to list “private partnerships, [Commonwealth] balance sheet leveraging and value capture” as if they were new ideas that had eluded state governments and their smart bankers.

But the expertise on public private partnerships resides mostly in Melbourne, which has the most successful record, and Sydney. It is hard to know what a new unit of federal bankers can add to the design of PPPs in these cities.

“Value capture” – docking landowners near new infrastructure for a small percentage of the value increase they owe to the development – is worth pushing. But infrastructure experts say the announcement risks inflating expectations about how much revenue can be raised this way.

Using the Commonwealth’s balance sheet to help fund greenfields projects that private investors are wary of because of poor past performance – such as tollroads in Brisbane – could help some get up and shave a few hundredths of a per cent off their interest rate.

The extra borrowing power could be welcome in those states that can’t easily raise capital.

But capital is not the missing ingredient for most infrastructure projects today. The revenue to pay for them is.

For that, states need to create markets through road charging and the like, or fund the projects themselves. Victoria and NSW are getting on with it.

The other states are constrained because they have weak balance sheets and sluggish economies. Offering to raise debt on their behalf may not be the best thing for them.

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