LOCAL GOVERNMENT IN THE MACRO-ECONOMIC PICTURE PRESENTATION TO THE 2017 LOCAL GOVERNMENT NSW FINANCE SUMMIT CUSTOMS HOUSE, CIRCULAR QUAY, SYDNEY 11 TH SEPTEMBER 2017
LOCAL GOVERNMENT IN THE MACRO-ECONOMIC PICTURE
PRESENTATION TO THE
2017 LOCAL GOVERNMENT NSW FINANCE SUMMIT
CUSTOMS HOUSE, CIRCULAR QUAY, SYDNEY
11TH SEPTEMBER 2017
Infrastructure investment is ‘flavour of the month’ – globally and in Australia
“The case for increasing public investment is very strong almost everywhere in the world in light of
the low long-term borrowing costs and substantial infrastructure deficiencies” − International Monetary Fund, Fiscal Monitor, April 2017
“A more active use of fiscal and structural policies is needed to boost potential output and support
aggregate demand, given waning benefits from monetary policy support … Fiscal measures could
include increased spending on hard, soft and remedial infrastructure investment and other measures
that add to demand and enhance supply” − Organization for Economic Co-operation and Development (OECD), Economic Outlook, June 2017
“We stress the importance of quality infrastructure investment, which aims to ensure economic
efficiency in view of life-cycle cost, safety, resilience against natural disaster, job creation [and]
capacity building … while addressing social and environmental impacts and aligning with
economic and development strategies … Infrastructure connectivity is key to achieving sustainable
development and shared prosperity” − G20 Leaders’ communiqué, Hangzhou, China, 5th September 2016
“Government spending on infrastructure, where this is backed by a strong business case … can
provide support for the economy and can help generate the productive assets that a prosperous
economy needs” − Philip Lowe, RBA Governor, Address to Committee for the Economic Development of Australia
(CEDA), 15th November 2016
2
For more details…
Why is infrastructure spending ‘flavour of the month’?
The world needs to spend US$3¼ trn a year on infrastructure to keep pace with economic growth – but is spending about $350bn less than that
Global annual economic infrastructure investment required to keep pace with projected
economic growth, 2016-2030
4
Note: Assumes global GDP growth averaging 3.3% pa between 2016 and 2030. Estimates of required infrastructure investment excludes infrastructure spending required
to mitigate climate change and its effects, and to achieve the UN Sustainable Development Goals.
Source: McKinsey Global Institute, Bridging Global Infrastructure Gaps, June 2016.
0
500
1000
1500
2000
2500
3000
3500
Roads Rail Ports Airports Power Water Telecom Total
US$ billions (2015 prices)
Aggregate
spending 2016-30 (US$ trn)
11.4 5.1 0.9 1.3 14.7 7.5 8.3 49.1
The quality of infrastructure is perceived as deteriorating in most ‘advanced’ economies – whilst improving in many ‘developing’ countries
World Economic Forum Global Competitiveness Index assessment of quality of overall
infrastructure, 2006-07 and 2016-17
5
Note: The World Economic Forum’s Executive Opinion Survey is based on the responses of 13,877 executives in 135 economies. The infrastructure questions ask
respondents to assess ‘the general state of infrastructure’ in their country from 1 (‘extremely underdeveloped – the worst in the world’) to 7 (‘extensive and efficient –
among the best in the world’). Source: World Economic Forum, The Global Competitiveness Report 2016-17 and GCI database.
0
1
2
3
4
5
6
7
Aus-
tralia
Can-
ada
France Ger-
many
Japan New
Zealand
Norway Sing-
apore
Sweden United
Kingdom
United
States
Brazil China India Indo-
nesia
Philip-
pines
2006-07 2016-17
Average score
Infrastructure investment is (in principle) more effective in stimulating economic activity than other fiscal policy measures
Short-term ‘multiplier effects’ of alternative fiscal policy instruments in the US and EU
6
Note: Multipliers show the impact of a change in each instrument equivalent in magnitude to 1 pc point of GDP on the level of real GDP in one year’s time, according
to a range of DSGE (dynamic stochastic general equilibrium) macro-economic models.
Source: Nicoletta Batini and others, Fiscal Multipliers: Size, Determinants and Use in Macroeconomic Projections, International Monetary Fund (IMF) Fiscal Affairs
Department Technical Notes and Manuals no. 14/04, September 2014, Appendix II.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Consumption
taxes
Company
income taxes
Personal
income taxes
Transfer
payments
Government
consumption
Government
investment
US EU
And infrastructure investment may be more effective when monetary policy has reached the limits of what it can do to stimulate growth
Central bank policy interest rates in major ‘advanced’ economies
Private non-financial sector debt in major
‘advanced’ economies
Sources: US Federal Reserve; European Central Bank; Bank of Japan; Bank of England; Bank for International Settlements.
7
-1
0
1
2
3
4
5
6
7
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% pa
US
Japan UK
Euro area
120
130
140
150
160
170
180
190
200
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% of GDP
US
Euro area
UK
Japan
Hence many governments have increased their infrastructure investment spending since the financial crisis
Government investment as a proportion of GDP, Australia and other OECD countries
8
Source: OECD Economic Outlook 101, June 2017.
0
1
2
3
4
5
6
7
8
Australia Belgium Canada Den-
mark
Finland France Ger-
many
Japan Korea Nether-
lands
New
Zealand
Norway Sweden Switzer-
land
United
Kingdom
United
States
1990-2007
2011-2016
2008-2010
% of GDP
The RBA hasn’t thought it necessary to push Australian interest rates to (or below) zero, but monetary policy may have reached its limits here too …
RBA cash rate Australian private sector debt
Sources: Reserve Bank of Australia; ABS Australian National Accounts: Finance and Wealth (5232.0), March quarter 2017.
9
0
5
10
15
20
25
62 67 72 77 82 87 92 97 02 07 12 17
% pa
40
50
60
70
80
90
100
110
120
130
140
90 93 96 99 02 05 08 11 14 17
% of GDP
Households
Non-financial
corporations
… as both the previous and current Governors of the Reserve Bank have recognized
“The most powerful domestic expansionary impetus that comes from low interest rates surely comes
when someone, somewhere, has both the balance sheet capacity and the willingness to take on
more debt and spend. The problem now is that there is a limit to how much we can expect to
achieve by relying on already indebted entities taking on more debt”
− (former) Reserve Bank Governor Glenn Stevens, “An Accounting”, 10th August 2016
“One of the ways in which monetary policy works is to make it easier for people to borrow and
spend. But there is a balance to be struck. Too much borrowing today can create problems for
tomorrow, because debt does have to be repaid. At the moment, most households with borrowings do seem to be coping pretty well. But the current high level of debt, combined with low nominal
income growth, is affecting the appetite of households to spend, and we are seeing some evidence
of this in the consumption figures. The balance that is required is to support spending in the
economy today while avoiding creating fragilities in household balance sheets that could cause
problems for the economy later on”
− RBA Governor Philip Lowe, Opening Statement to House of Representatives Standing Committee on Economics,
24th February 2017
10
Record low interest rates promoted a surge in property investment
Interest-only loans
Sources: ABS, Housing Finance (5609.0);
Residential property prices Housing finance
commitments
11
Australian Prudential Regulatory Authority, Quarterly Authorized Deposit-Taking Institution Property Exposures;
0
2
4
6
8
10
12
14
16
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Investors
Owner-
occupiers
A$bn per month
25
30
35
40
45
50
08 09 10 11 12 13 14 15 16 17
% of loans (lenders with > $1bn in loans)
New loans
All loans
0
200
400
600
800
1,000
1,200
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
$000
Sydney
Mel-
bourne
Other capitals
Regions
, riskier lending practices , and a further spike in property prices
CoreLogic.
APRA
tightens
regulatory
requirements
Sluggish wages growth has meant weak growth in household incomes and depressed levels of consumer confidence
Real household disposable
income
Sources: ABS, Wage Price Index (6345.0)
Consumer confidence
-2
0
2
4
6
8
10
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% change from year earlier
Trend
Seasonally
adjusted
Average, Q4 00 – Q2 11
(4.5% pa)
Average, Q3 11 – Q2 17
(1.8% pa)
Nominal and real wages
12
-1
0
1
2
3
4
5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% change from year earlier
Wage price index
(WPI) (excl. bonuses)
Wage price index
(WPI) minus CPI
80
85
90
95
100
105
110
115
120
125
130
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Index
Trend
Westpac and Melbourne Institute of Applied Economic & Social Research.
and Australian National Accounts: National Income, Expenditure and Product (5206.0);
Weak wages growth has been common among ‘advanced’ economies, especially following periods of high unemployment
Wages growth – Australia vs four largest ‘advanced’ economies
Unemployment – Australia vs four largest
‘advanced’ economies
Sources: US Bureau of Labor Statistics; Japan Ministry of Health, Labour & Welfare; Deutsche Bundesbank; UK Office for National Statistics;
Australian Bureau of Statistics.
13
0
1
2
3
4
5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Average of four largest
'advanced' economies
(US, Japan, Germany & UK)
Australia
% change from year earlier
2
3
4
5
6
7
8
9
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% of labour force
Average of four largest
'advanced' economies
(US, Japan, Germany & UK)
Australia
Employment growth seems likely to pick up, which should eventually be reflected in stronger wages growth
Westpac-ACCI survey –
employee numbers
Sources: National Australia Bank; Westpac and Australian Chamber of Commerce & Industry; Sensis.
Sensis SME survey – size of
workforce NAB survey of employer
hiring intentions
14
-30
-25
-20
-15
-10
-5
0
5
10
15
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Net balance (%)
Trend
-40
-30
-20
-10
0
10
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Net balance (%)
Actual
Expected
-10
-5
0
5
10
15
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Net balance (%)
Actual
Expectations
Similarly it seems likely that business investment has ‘bottomed out’ and will pick up over the next year
Business confidence
Sources: National Australia Bank; Westpac and Australian Chamber of Commerce & Industry; Sensis.
Business survey capital
expenditure expectations Business investment –
mining vs other sectors
15
0
5
10
15
20
25
30
35
40
45
50
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
$2014-15 bn per quarter
Mining
Other sectors
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Net balance (%)
Trend
-40
-30
-20
-10
0
10
20
30
40
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Net balance (%)
NAB
Westpac-ACCI
Sensis SME
Infrastructure spending by Australian governments has declined (as a proportion of GDP) over the past five years …
Engineering construction work done for the public sector, by sector, as pc of GDP
Engineering construction work done for
the public sector, by type, as pc of GDP
Note: Estimates of work done by type for 2016-17 are based on data for the first three quarters of the financial year.
Sources: ABS, Engineering Construction Activity (8762.0), March quarter 2017 and Construction Work Done, Preliminary (8755.0), June quarter 2017. 16
0.0
0.5
1.0
1.5
2.0
2.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
By private sector for public sector By public sector for public sector
% of GDP
Financial years ended 30 June
0.0
0.5
1.0
1.5
2.0
2.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Roads, highways & subdivisions Railways
Water, sewerage & drainage Electricity
Telecoms Other
% of GDP
Financial years ended 30 June
… although it seems likely to increase again over the next few years …
Engineering construction commencements
for the public sector
Engineering construction work for the
public sector yet to be done
Note: Estimates of commencements and work yet to be done for 2016-17 are as at 31 March 2017
Sources: ABS, Engineering Construction Activity (8762.0), March quarter 2017. 17
0.0
0.5
1.0
1.5
2.0
2.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
By private for public By public for public
% of GDP
Financial years ended 30 June
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
By private for public By public for public
% of GDP
Financial years ended 30 June
… as it needs to, given that Australia’s infrastructure ranks poorly, and detracts from our international competitiveness …
Australia’s overall competitiveness and ‘infrastructure quality’ rankings
Perceived quality ranking of Australian
infrastructure, 2007 and 20017
Note: The quality of infrastructure rankings are based on responses to the World Economic Forum Executive Opinion Survey. The overall competitiveness rankings
are derived from a combination of 114 indicators including both ‘hard’ statistics and results from the Executive Opinion Survey.
Source: World Economic Forum, The Global Competitiveness Report, 2016-17 and previous years. 18
0
5
10
15
20
25
30
35
40
06 07 08 09 10 11 12 13 14 15 16 17
Ranking
Overall competitiveness
Quality of infrastructure
1 0
5
10
15
20
25
30
35
40
45
Roads Rail Ports Air transport Electricity
supply
Ranking
… and that the demands on Australia’s infrastructure are likely to continue to grow
19
Key findings of Infrastructure Australia’s National Infrastructure Audit 2015
Australia’s population is growing faster than that of any other ‘advanced’ economy with more than 10mn people, and is expected to exceed 30mn by 2031 (up from 24.6mn today)
− more than 70% of this growth is expected to occur in Sydney, Melbourne, Brisbane and Perth
‘Demand’ for infrastructure services is expected to grow by 3.6% pa through to 2031 − ½ pc point per annum faster than the projected growth rate of the Australian economy
In the absence of additional capacity and/or ‘demand management’, the cost of congestion in capital cities is expected to increase by 290%, to over $53bn, by 2031 (from $13.7bn in 2011)
The national land freight task is expected to have grown by 80% by 2031 compared with 2011 levels,
while traffic through some ports is projected to “significantly exceed current capacity by 2031”
Demand for airport infrastructure is projected to have doubled from 2011 levels by 2031
Although demand for water infrastructure is projected to grow “significantly slower than GDP”, water
quality in parts of regional Australia “does not meet relevant standards”
Climate change “is likely to have considerable impacts on infrastructure assets”
“There are grounds for concern that Australia’s infrastructure networks and the systems under which they are managed are not meeting” Australians’ expectations that “their infrastructure networks
support a high quality, first world standard of living” and “to improve their quality of life in the future”
Source: Infrastructure Australia, Australian Infrastructure Audit: Our Infrastructure Challenges, Volume 1, April 2015.
NSW accounts for just under 30% of the projected increase in national infrastructure demand – a little less than its current population share
Projected growth in infrastructure demand, 2011-2031, by State and Territory
20
Source: Infrastructure Australia, Australian Infrastructure Audit: Our Infrastructure Challenges, Volume 2, Appendix 2, April 2015
0
20
40
60
80
100
120
NSW Vic Qld SA WA Tas NT ACT
2011 2031 (Projected)
$bn (2011 prices)
Direct economic contribution of infrastructure
Pc of national total, 2011
Projected pc change,
2011-2031
Pc of national total
projected change
NSW 32.3 78.0 28.8
Vic 22.8 89.9 23.4
Qld 19.2 107.1 23.5
SA 7.2 71.2 5.9
WA 13.6 91.6 14.2
Tas 1.8 44.5 0.9
NT 1.1 107.6 1.3
ACT 1.8 95.6 2.0
Total 100.0 87.7 100.0
Much of the growth in NSW infrastructure will be in Greater Sydney, but also in the Hunter, Newcastle, Illawarra and Central West regions
Direct economic contribution of infrastructure in NSW, 2011
Projected direct economic contribution
of infrastructure in NSW, 2031
Note: The quality of infrastructure rankings are based on responses to the World Economic Forum Executive Opinion Survey. The overall competitiveness rankings
are derived from a combination of 114 indicators including both ‘hard’ statistics and results from the Executive Opinion Survey.
Source: World Economic Forum, The Global Competitiveness Report, 2016-17 and previous years. 21
$mn (2011 prices)
38% of the infrastructure construction work being done, and 45% of the work to be done, is in New South Wales
New South Wales
Engineering construction work done, and yet to be done, for the public sector, by State
Note: Estimates of work done in 2016-17 are for the first three quarters, at an annual rate, while the estimate of work yet to be done is as at 31 March 2017.
Figures exclude work on electricity assets and pipelines given the differences in public vs private ownership of these assets across States and Territories.
Sources: ABS, Engineering Construction Activity (8762.0), March quarter 2017. 22
Queensland
0
2
4
6
8
10
12
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
0
1
2
3
4
5
6
7
8
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
South Australia
0
1
2
3
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
Victoria Western Australia Tasmania
0
1
2
3
4
5
6
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
0
1
2
3
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
0.0
0.2
0.4
0.6
0.8
1.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Work done Work yet to be done
$bn
Financial years ended 30 June
For more details…
And what’s the relevance of all this to local government?
Local government accounts for a very small share of total public sector taxation revenue
Share of own-purpose
‘operating expenses’, 2015-16
Source: Australian Bureau of Statistics, Government Finance Statistics (5512.0), 2015-16
Share of employment,
2015-16 Shares of taxation
revenue, 2015-16
24
Commonwealth
State/
Territory
Local (3.6%)
Commonwealth
State/
Territory
Local (5.8%)
Common-
wealth
State/Territory
Local (9.7%)
; Employment and Earnings, Public Sector (6248.0.55.002), 2015-16.
, recurrent spending and employment …
… but for a much larger share of total public sector assets
Share of gross fixed capital
formation spending, 2015-16
Source: Australian Bureau of Statistics, Government Finance Statistics (5512.0), 2015-16.
Share of revenue from user
charges, 2015-16 Shares of land and fixed
assets owned, June 2016
25
Common-
wealth
State/
Territory
Local (34.4%)
Commonwealth
State/
Territory
Local (28.5%)
Common-
wealth
State/Territory
Local (28.9%)
, capital expenditures and user charges
Local governments have a larger role in infrastructure spending in NSW than in most other States
Engineering construction (EC) work done by local governments in NSW
EC work done by local governments as a
pc of total for the public sector, 2015-16
Source: Australian Bureau of Statistics, Engineering Construction Activity (8762.0), March quarter 2017.
26
0.0
0.1
0.2
0.3
0.4
0.5
0.0
0.5
1.0
1.5
2.0
2.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
$ bn % of GSP
Financial years ended 30 June
As a pc of gross state product (GSP)
(right scale)
0
10
20
30
40
50
60
70
80
90
100
NSW Vic Qld SA WA Tas NT ACT Aus
By local governments By other levels of government By the private sector
% of work done for the public sector
Local government projects are often relatively small, but smaller projects often deliver relatively high productivity benefits
Capital cost of infrastructure projects vs benefit-cost ratios (BCRs)
27
Source: Infrastructure Australia, Australian Infrastructure Plan: Priorities and reforms for our nation’s future, February 2016, p. 25.
Big or small, infrastructure projects have to be paid for – what are the options for local government?
Higher rates − limited scope in NSW given long-standing rate-pegging, and state-mandated exemptions and concessions
− problematic for councils outside of major urban areas
− unfair to make current generations pay full cost of infrastructure that will benefit future generations as well
User charges − have considerable merit in principle on ‘fairness’ grounds, and (if intelligently structured) as a way of encouraging
more rational use of both existing and new infrastructure
− were supported by 2009 Henry Review
− technology is opening up new ways of charging users of infrastructure (eg roads)
New ways of tapping into increases in property values associated with infrastructure projects − ‘value capture’ could contribute 10-30% of direct infrastructure costs within a defined area
− used overseas (eg London Crossrail) and in Australia (eg Sydney Harbour Bridge, Melbourne City Loop)
− supported by Productivity Commission, Business Council of Australia, the RBA and Infrastructure Australia
− but would require change in state government policy
Grants from other levels of government − difficult given budgetary constraints facing Commonwealth government
Increased borrowing − prudent borrowing is a fair way of making future generations meet part of the cost of providing infrastructure from
which they will benefit
− many local governments have scope to take on more debt
28
There is a stronger case for raising local government rates in NSW than in any other State
Local government rates as a pc of gross state product, 2015-16
Increases in local government rates and
state land tax, 2000-01 to 2015-16
Source: Australian Bureau of Statistics, Taxation Revenue (5506.0), 2009-10 through 2015-16, and State Accounts (5220.0), 2015-16.
29
0.0
0.5
1.0
1.5
2.0
2.5
3.0
NSW Vic Qld SA WA Tas NT ACT Aus
% of gross state product, 2015-16
0
50
100
150
200
250
300
350
400
NSW Vic Qld SA WA Tas NT ACT Aus
Municipal rates
Land tax
% change, 2000-01 to 2015-16
na
Note: There is no land tax in the Northern Territory; while in the ACT, municipal rates are levied by the Territory Government.
‘User pays’ leads to better infrastructure maintenance outcomes
30
Source: Infrastructure Australia, Australian Infrastructure Plan: Priorities and reforms for our nation’s future, February 2016, p. 83.
Comparison of user pays and maintenance across infrastructure sectors
Further extension of user charges by NSW local governments could be politically challenging unless very well ‘sold’
Local government rates and user charges in NSW
Local government user charges as a pc
of gross state product, 2015-16
Source: Australian Bureau of Statistics, Government Finance Statistics (5512.0), 2011-12 through 2015-16, and State Accounts (5220.0), 2015-16.
31
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Rates
User charges
$ bn
Financial years ended 30 June
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
NSW Vic Qld SA WA Tas NT ACT Aus
% of gross state product, 2015-16
na
It’s surprising how little debt local government (as a whole) has, given the size of their asset holdings
Net debt by level of government, Australia Net debt by level of government, NSW
Note: Figures for Commonwealth and State/Territory net debt include non-financial public enterprises.
Source: Australian Bureau of Statistics, Government Finance Statistics (5512.0), 2011-12 through 2015-16, and State Accounts (5220.0), 2015-16. 32
-5
0
5
10
15
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
% of GDP
Financial years ended 30 June
Commonwealth
Local
State/
Territory
-2
0
2
4
6
8
10
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
% of GSP
Financial years ended 30 June
Local
NSW State
Local governments in NSW have (in aggregate) a lot of financial assets, and (at least on the surface) would seem to be able to carry more debt
Local government financial
assets, 2015-16
Local government net
debt, 2015-16 Local government gross
borrowings, 2015-16
33
0
5
10
15
20
25
30
35
40
45
50
NSW Vic Qld SA WA Tas NT ACT Aus
% of revenue, 2015-16
0
10
20
30
40
50
60
70
80
NSW Vic Qld SA WA Tas NT ACT Aus
% of revenue, 2015-16
0
5
10
15
20
25
30
35
40
45
50
NSW Vic Qld SA WA Tas NT ACT Aus
% of revenue, 2015-16
Source: Australian Bureau of Statistics, Government Finance Statistics (5512.0), 2011-12 through 2015-16.
However in practice councils vary considerably in their capacity to borrow more
NSW councils, debt service ratio by OLG group, 2014-15
NSW councils, debt service ratio vs
revenue, 2014-15
Note: Figures for OLG groups are averages for each council in the group weighted by revenue from continuing operations.
Source: NSW Office of Local Government, Comparative Information on New South Wales Local Government Councils 1994/95 to 2014/15.
34
0
5
10
15
20
25
30
35
40
0 100 200 300 400 500 600 700 800
Revenue ($mn)
De
bt
serv
ice
ra
tio
(%
)
Sydney Blacktown The Hills
Young
Coffs Harbour
Gosford
0
1
2
3
4
5
6
7
8
City of
Sydney
Metro-
politan
Metro-
politan
fringe
Regional
town/
city
Large
rural
Other
rural
%
For more details…
The importance of good project selection and governance
Infrastructure investment is only a ‘Good Thing’ if projects are rigorously selected and subject to appropriate governance
“Poor governance is a major reason why infrastructure projects often fail to meet their timeframe, budget and
service delivery objectives”
− OECD, Getting Infrastructure Right: The Ten Key Governance Challenges and Policy Options, March 2017, p. 2
“All government spending, whether for day-to-day operations (recurrent) or capital, should be closely
scrutinised for its quality. This requires a strong commitment to rigorous project assessment and program
evaluation to determine which spending generates the strongest public benefits”
− Australian Government, 2017-18 Budget Paper No. 1, Budget Strategy and Outlook, May 2017, p. 4-5
“There are many examples in Australia of poor project selection leading to highly inefficient outcomes. In
such cases investment in public infrastructure is a drain on the economy and tends to lower productivity and
crowd out more efficient projects”
− Productivity Commission, Public Infrastructure, Inquiry Report No 71, May 2014, p. 75
“Strong governance is critical to make sure money is spent wisely in this area. There is no substitute for
rigorous and transparent cost-benefit analysis … Building public confidence in the governance process not
only helps ensure that the most pressing projects are selected, but also helps build public confidence that
the money is being spent wisely”
− Then Deputy RBA Governor Philip Lowe, ‘Productivity and Infrastructure’, 26th November 2013
“Australia needs key infrastructure investments but there is a lack of rigor in identifying and assessing them
… There is unacceptable secrecy surrounding many projects; secrecy which undermines democratic
accountability, erodes community trust and leaves everyone open to being misled and blindsided”
− John Menadue (former Secretary PM&C, Qantas CEO), Pearls & Irritations, 8th September 2017
36