Infrastructure spends take time
Jim Rose writes:
Big outlays on infrastructure to rebuild the economy are a bad idea because it takes several years for any infrastructure spending to pick up speed.
The Greens want to cover the country with electric railways. It will take several years to work out where they might go, what is precisely wanted, let tenders, for contractors to acquire land and then a few years from now there are workers hired to new jobs in the construction industry.
Infrastructure projects have a terrible history of cost overruns and benefit shortfalls. The average cost overrun for rail projects is 45 per cent; costs over run in nine out of 10 projects. Benefits from rail projects fall short of projections by an average of 50 per cent.
This is key. Rail infrastructure won’t result in any increased economic activity (except consultants) for many years. It will do nothing to help mitigate the economic recession we now face.
And the history of cost overruns and over-estimated benefits means that you really want BCRs well above one to be sure any investment adds up.
The industries doing worst because of Covid-19 are in the in-person services sectors: travel, tourism, education exports, entertainment, cafés, pubs and restaurants.
Do the workers hired for an infrastructure project seem to come from the same part of the labour market skill domain as workers in travel, tourism, education and retail?
Those who work in outdoor hard-labour jobs and those who work in indoor personal service jobs are cut from a different cloth.
The Government appears to want to throw money away big time at the opposite end of the economy to where most of the 20 per cent unemployment is right now.
Also an excellent point.
When the hundreds of thousands of unemployed travel, tourism and retail sector workers look for new jobs this winter, infrastructure projects that don’t start hiring until a few years from now are of no use to them.
What the Government can do now is change incentives for businesses. Deregulation and a lower company tax rate are an immediate boost to the ability to stay in business. We could close to halve the company tax rate by abolishing the regional growth fund and corporate welfare.
Much better ideas.