Getting the roads we need. Let's talk about it.

WHAT would you think if the state decided to sell the Eastern Freeway, West Gate Bridge, or the Western Ring Road to become privately owned toll roads - and invest the revenue from the sales to build better road and rail links?

How would you react if, in future, there were no new freeways, only toll roads, so that the cost of building them falls entirely on users, rather than on taxpayers?

Would you agree if the state decided to give up its AAA credit rating and pay higher interest rates so that it could borrow more money and build the really big projects, such as giving Melbourne an east-west link or a metro rail network like that of Paris or London?

And would you object if the government built a smaller toll road to the port for trucks and commercial vehicles only, with the rest of us banned so that we don't clog it up?

If you haven't thought about all this, better start now. These radical ideas are proposed by federal Treasury, Infrastructure Australia and the private sector to solve the problem of how to finance the $700 billion of infrastructure Australia will need over the next generation.

These ideas are not Baillieu government policy; far from it. Treasurer Kim Wells says the state is considering all options (toll roads) for funding future freeways, but has no plans to sell existing freeways.

Still, that doesn't rule it out. And while the Kennett government took a bit of flak when CityLink turned existing freeways into toll roads, that didn't cost it any seats.

The Gillard government too hasn't endorsed these ideas. Infrastructure Australia chairman Sir Rod Eddington wants governments to start a community debate, but Treasurer Wayne Swan and Infrastructure Minister Anthony Albanese have been too shy to say a word about them.

Some think governments would rather sell off assets remote from our daily lives: ports, for example, although that has its own problems. And you can understand why any politician would be reluctant to suggest that we pay to drive on roads that we now use free of charge.

Similarly, it would take a brave politician to argue that Victoria should double its debt to build the infrastructure we need, rather than accept congestion and poor services as the price of a AAA credit rating.

But Infrastructure Australia, and their advisers on the infrastructure finance working group, are right: this is a debate we have to have. These are issues that touch on our daily lives: the taxes and charges we pay, and the efficiency and convenience of the cities we live in.

Yet our knee-jerk reaction is to oppose all this. Yes, we want better infrastructure, but we're against having to pay for it through higher taxes. We're against governments taking on higher debt to pay for it. And we're against having to pay for it through user charges such as tolls.

The debate needs to move beyond these prejudices. If we don't, our politicians will remain trapped within them, and we will not get the new infrastructure we need. Anyone who wants Melbourne to have better roads, or a metro rail system, needs to start thinking about how they should be paid for.

A good place to start is the refreshingly frank report of the infrastructure finance working group, Infrastructure Finance and Funding Reform, at www.infrastructure.gov.au. Chaired by Jim Murphy, deputy secretary of federal Treasury, the group brought together infrastructure and finance experts from the federal government and the private sector - but no one from the states, which allowed it to be very candid about the options.

It argues that the states have no more room to borrow without losing their AAA credit ratings. In Victoria, John Brumby and Ted Baillieu have pushed state debt almost to the limit for AAA-rated borrowers. Even to keep up existing infrastructure spending after 2012-13, Baillieu would have to tax more, or cut spending on other priorities, or bust the AAA limit and accept a downgrade and higher interest rates.

Clearly, none of those are politically palatable options, but the working group urges governments to think hard about the last one. If the benefits of having the infrastructure outweigh the benefits of having a AAA rating, then it makes sense to borrow and build. The group notes that federal government transport economists estimate that its current infrastructure projects will deliver a return of $2.65 on every $1 invested.

In the past, roads such as CityLink were built as private toll roads, but will ultimately revert to state ownership. The report suggests this be reversed. After new toll roads in Sydney and Brisbane fell far short of targets, superannuation funds see the privatisation of existing roads as much safer investments. The report argues that the states should sell them, use the money to build new toll roads, preferably as joint ventures, then once they're running smoothly, sell them and build more.

The report makes one ugly call. Believing the states will be reluctant to embrace toll roads and asset sales, it wants the federal government to coerce them into doing so, by funding new road projects only if they are built as toll roads. To me, giving Canberra more power is not progress.

Another concern is that its blueprint envisages a road network with multiple private sector owners, yet operating as one flowing entity. This suggests serious challenges that the report does not explore.

But the working group and Infrastructure Australia have put this on the table, as one of the big issues Australia must face up to. If the politicians are reluctant to do so, it's our job as a community to take it up, to think past the stereotypes and simplicities, and face those hard decisions. If it were our choice, what would we do?

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Every major road a tollway?

FREEWAYS could be sold to the private sector and converted to tollways under a radical proposal for state governments to raise money for expensive new road and rail links.

The proposal, if adopted in Victoria, could lead to major roads such as the Eastern Freeway, the West Gate Freeway and the Western Ring Road being privatised and tolled.

Infrastructure Australia, the independent adviser to the federal government which has proposed the plan, says the proceeds could be used to build infrastructure such as hospitals, the Melbourne metro rail network, the missing link of Melbourne's outer ring road, and the proposed East West link under Melbourne's inner north.

But the plan, first proposed by a federal government and private sector working group headed by Treasury deputy secretary Jim Murphy, is being resisted by the Baillieu government.

A spokeswoman for Victorian Treasurer Kim Wells told The Age: "The Victorian government stands by its position that existing roads will not be tolled".

Infrastructure Australia, in a new report on ways to bring Australia's $700 billion infrastructure wish list to fruition, endorses radical options proposed by the working group and suggests states consider:

. Building all new major roads as tollways, not freeways.

. Breaking the narrow borrowing limits required for states' AAA credit ratings to build major new infrastructure projects, if analysis shows the benefits of having the infrastructure outweigh the benefits of having a AAA rating.

. Cutting costs for road freight links to ports by making them smaller and banning private cars from them making them simply toll roads for trucks and other commercial vehicles.

But Infrastructure Australia stopped short of endorsing the working group's idea that the federal government coerce the states by funding new roads only if they are built as joint ventures for eventual private ownership.

The rules currently require states to consider building new federally-funded roads as toll roads.

While the Baillieu government says it has no plans to toll existing roads, it has blocked the release of 27 documents on the issue, after a freedom of information request from The Age.

Mr Wells' spokeswoman said Victoria would not follow Queensland's example and allow its credit rating to be downgraded in order to build new infrastructure.

"We have made it pretty clear that we believe it's important that we retain our AAA credit rating," the spokeswoman said.

The Infrastructure Australia report comes as the Baillieu government ramps up plans to build the controversial East West Link (which was part of a broader transport plan drawn up for the previous Labor government in 2008 by Sir Rod Eddington) just days before the Melbourne byelection.

The Department of Transport has invited 100 local, interstate and international financiers and constructors from 50 companies to a meeting today to discuss how to finance and build the tunnel, which would run under the inner northern suburbs and provide non-stop connections between the Eastern Freeway, City Link and the Western Ring Road.

It is believed the meeting will canvass whether it should be a toll road, the financing options, construction methods, and whether it will include off-ramps into the city.

The tunnel proposal will be a key issue in Saturday's byelection which, in the absence of a Liberal candidate, has in effect become a two-way contest between Labor and the Greens.

The Greens are adamant that the road tunnel should not be built, but Labor's position is more nuanced. It opposes off-ramps to the city rather than the tunnel itself.

Transport Minister Terry Mulder said the road would be one of the most complex projects ever constructed in Victoria. "We are doing our due diligence to ensure that we consider the latest innovations in developing, delivering and funding projects in a challenging financial environment," Mr Mulder said.

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Melbourne's East-west link gets tentative support

INFRASTRUCTURE Australia has given tentative support to the Baillieu government's plans to build the controversial east-west link, a road tunnel under inner Melbourne. But it has refused to back plans to build a rail link to Avalon Airport.

In its 2012 update of infrastructure priorities, the federal government's independent infrastructure adviser again warns Australians they need to embrace ''user pays'' pricing for roads or end up with second-rate infrastructure.

The report says all infrastructure is ultimately paid for by taxpayers or users. Since big road projects can be easily financed by users, it says, future road projects should be built as toll roads, leaving taxpayers to finance other needs, such as railways and hospitals.

In another controversial finding, it urges the federal and state governments to allow 36.5 metre-long B-triple trucks on the Hume Highway, saying this would lift freight productivity. Infrastructure Australia puts the Melbourne metro rail project and a similar scheme in Brisbane at the top of its priority list as Australia's most urgently needed projects.

Also up there is a further rollout of IT equipment to monitor conditions on the Monash Freeway so motorists have instant updates, and upgrading the rest of the Pacific Highway between Sydney and Brisbane to a freeway.

The east-west link, which the Baillieu government calls its top transport priority, made it to the second rung of priorities, being rated as one of 20 projects with ''real potential'' to address ''a nationally significant issue''.

Its ranking implies that governments should pay for a full study of the project. Victorian Treasurer Kim Wells declared victory and ramped up his demand for the Gillard government to put $30 million into developing a business case for the controversial link.

The report's backing came at an embarrassing time for Labor, just a week before the Melbourne byelection.

The Greens oppose the project but Labor is divided, with influential Labor figures saying the city needs to link its key freeways.

The 18-kilometre project would start from the Western Ring Road in Sunshine, cut through the western suburbs and over the Maribyrnong, then run in a tunnel under the inner northern suburbs to link up with the Eastern Freeway. ''Julia Gillard must ignore the opposition of Daniel Andrews and the state Labor Party, who clearly don't care about the jobs and investment this project will bring to Victoria,'' Mr Wells said. It is assumed the project would be built as a toll road.

But an earlier version failed a cost/benefit analysis and with six-lane urban road tunnels now costing $600 million a kilometre, some believe the government will have to scale down its ambitions to make it a paying proposition. Infrastructure Australia refused to support the Baillieu government's request to finance a study into a rail link to Avalon Airport. It also passed over a request for funding to study removing level crossings.

Infrastructure Australia chairman Sir Rod Eddington said the community must ''look hard and long at our future infrastructure needs and the sorts of cities and regions we want to live in''.

''Our communities deserve appropriate, well-functioning infrastructure and we need to examine ways to provide these assets at least cost to the community,'' Sir Rod said.

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Think smaller on roads

VICTORIA should build fewer mega-road projects such as the proposed freeway under the Maribyrnong, and invest instead in more small road projects to clear choke points in the network, a report to a state government inquiry has recommended.

In findings that implicitly criticise the former Labor government's approach to decision-making, economic consultant ACIL Tasman reports that the headline-grabbing big road projects in Victoria have barely paid their way, returning benefits no bigger than the costs.

By contrast, it says, evaluations published by the industry's research arm, Austroads, show that smaller road projects in Victoria typically deliver benefits worth two to four times the cost of the project.

The report says the decision to build Australia's biggest desalination plant in one hit, rather than adopt a staged approach, has been "quite costly" for the state. It also finds that too much emphasis was put on water restrictions, when raising the price of water would have done the job more simply.

Tackling a wide range of topics, the report also suggests that the Baillieu government should:

Consider a historic tradeoff to cut stamp duties, such as those on property sales, and raise more revenue from land tax, by overhauling the exemptions that mean most land goes untaxed.

Introduce congestion pricing on Melbourne's roads, and earmark the money to pay for improving roads and public transport.

Allow private operators to run Manila-style jeepneys, minibuses or group taxis on routes poorly served by public transport, or at times when trams, trains or buses are rare.

Offer 2500 to 3000 lucrative postgraduate scholarships to the world's best and brightest, to attract them to Melbourne, where they could become generators of future opportunity.

ACIL Tasman prepared the report for the Victorian Competition and Efficiency Commission, the state's equivalent to the Productivity Commission, which has been asked by Treasurer Kim Wells to prepare a state-based reform agenda.

The report, Victoria's Productivity, Competitiveness and Participation, finds that in general Victoria's infrastructure is in good shape, relative to that in other states, and well-run. But it warns population growth is putting it under more pressure, intensifying the need to get value for money.

It says the avoidable costs of congestion of Melbourne roads are on track to double by 2020 and urges the government to build the case publicly for congestion taxes, with proceeds earmarked for road and rail projects, to dissuade people from driving at peak hours.

On taxes, it points out that Victoria has the lowest land tax revenue of any state but the highest reliance on stamp duty on property sales, taxes on insurance and gambling taxes.

It says Victoria could achieve real productivity gains by shifting its tax balance to get more from land tax which "has a broad and immobile base, thus minimising the effect on economic decision-making" and less from taxing business transactions.

The report says Melbourne's public transport compares well with that in other capital cities, but it urges the government to relax restrictions to allow informal minibuses to operate where there are unmet needs.

It also warns the Baillieu government that to put a rail link into the proposed container port at Hastings "would be challenging" and it might have to settle for a port serviced only by trucks.

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Bonds are second-best, but better than much else on offer

THE Coalition's infrastructure policy may be a second-best policy. But given the political realities, it is one of the best economic policies of this campaign.

It's second-best in that some of the projects it enables would be more expensive than if they were built in the old way - where governments borrow the money, build the project, and run it.

Private sector operators have to make a profit, and pay higher interest rates (though hopefully not the 10 per cent Andrew Robb cited in selling the Coalition's plan).

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Sometimes their managerial skills will allow them to do all this and still run the project at lower cost to the public. Sometimes they won't. But the reality is that while it makes economic sense for governments to take on debt to build infrastructure, in our climate it doesn't make political sense. The Coalition has fanned a scare campaign against government debt, and Labor has buckled under.

As a nation we seem to think it's OK for us to take on debt to buy overpriced homes, but not for governments to take on debt to build the roads, rail, water projects and broadband that we need. So how will we build it?

The Coalition proposes tax breaks to help private operators to raise the money to build some of it. Under its plan, super funds would pay tax of just 5 per cent on interest from approved projects, a big cut from 15 per cent now.

It's a perfect fit. Super funds are long-term investors, and infrastructure is a long-term investment.

But it's not a total solution.

In some cases, it will shift the real cost from us as taxpayers to us as motorists paying tolls. In others, taxpayers will still pay, but the cost is pushed downstream and into less obvious channels.

Investors might also remain wary. Toll roads are not doing well. In Sydney, the Cross-City Tunnel and the Lane Cove Tunnel went bankrupt. In Melbourne and Brisbane, Eastlink and the Clem7 tunnel are running well below target.

But the tax breaks would give investors more confidence - particularly in ambitious, high-cost projects such as the Brumby government's plans for Melbourne's rail network. And the tax breaks would also apply to state-run projects.

The Coalition also pledges to publish benefit/cost analyses of all projects. It would sound great if only it hadn't also pledged to start building the Melbourne-Brisbane inland rail link - which, the benefit/cost analysis found, would return just 58 cents in benefit for every dollar spent on it.

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