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The efficient delivery of both economic and social infrastructure have fundamental productivity implications. These implications vary across :
1. The capacity to unlock new opportunities to deliver new products and services.
2. The capacity to more efficiently deliver existing products and services through:
1. Agglomeration benefits that bring people, employment and supply chains closer together; and
2. Improvements in human capital through the provision of the right mix of infrastructure in the right location with the optimal supporting mix of social infrastructure.
This approach builds on the lessons learned by Central Government in the United Kingdom, which have led to a national transition toward ‘City Deals’ to deliver regionally significant infrastructure projects.
The United Kingdom has selected Gross Value Added (GVA) as the metric against which infrastructure benefits will be measured, and projects will be prioritised. This has been selected because GVA (equivalent to GDP) represents:
• A strategic measure of a City Region’s economic success
• A key driver of tax receipts and hence of the long term return to government expenditure
• An estimate of the net impact (it is genuinely additional rather than simply a measure of redistribution)
1. We need to align our infrastructure investment decision criteria with the outcomes that we are seeking from that investment. If productivity is a core objective, then our approach to prioritisation needs to reflect this.
2. CBA represents a tool for measuring the welfare outcomes of project investment. If productivity is a core objective, new or right tools are needed to specifically measure productivity outcomes.
3. When considering prioritisation, private funding is critical to a project’s ranking, as it enables a greater ‘bang for buck’ when considering the benefits of the project, relative to public investment.
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The Right Tools Are Needed
There is a need to go beyond the traditional CBA to
effectively articulate the impact of infrastructure investment.
This enables better prioritisation on the basis of
• In the United Kingdom, user charging, value capture, and special purpose financing mechanisms have all been applied to maximise regional contributions to a collective infrastructure fund.
• This fund is then topped up by the Central Government to deliver a prioritised program of infrastructure.
• The benefits of this infrastructure investment (i.e. GVA and tax uplift) are then leveraged through a tax increment finance deal between the two government entities to ensure a share of tax uplift is reinvested into the infrastructure fund for future investment.
Collectively , this payment by results mechanism has proven integral to effective prioritisation, funding and stakeholder buy-in.
Australia can learn from global experience in infrastructure project prioritisation, funding and governance to ensure that:
1. Project decision making and prioritisation account for the real economy impacts that the infrastructure can be expected to deliver.
2. Infrastructure financing arrangements are structured to reinforce prioritisation decisions, and deliver greatest ‘bang for buck’ for public investment.
3. The right metrics (i.e. productivity) form the cornerstone for transparent, quantitative decision making around infrastructure investment.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions contained in the presentation are those of the author and do not necessarily represent the views and opinions of KPMG, an Australian partnership, part of the KPMG International network. The author disclaims all liability to any person or entity in respect to any consequences of anything done, or omitted to be done.
Please note that the forecasts included within the presentation are based on a number of assumptions and estimates and are therefore subject to contingencies and uncertainties. The forecasts should not be regarded as a representation or warranty by or on behalf of KPMG or any other person that such forecasts will be met. Forecasts constitute judgment and are subject to change without notice, as are statements about market trends, which are based on current market conditions.