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Conditions necessary for BAF funding
letter published in the AFR, 7 Oct 2008

You report that the adverse effects for Australia from the worsening overseas economic outlook has led Prime Minister Kevin Rudd to decide that $20 billion from the commonwealth's proposed Building Australia Fund (BAF) should be allocated for major infrastructure projects and that legislation will be introduced on 13 October to establish this fund ("Rudd urges support for building fund", October 4-5).

For the commonwealth to spend $20 billion directly on such projects would involve a dramatic change in its public investment role, currently running at about $4 billion a year apart from defence. It must be assumed that most of the funding would be allocated to the states for expenditure by them. This immediately raises the question as to what conditions would apply to any such funding.

If the funding is to result in a net addition to total public investment (presumably the object) that will require the states not to make offsetting reductions in their own infrastructure programs. But does the commonwealth have details of those programs and commitments by the states not to effect any reductions in their own planned spending?

It will also be important that funding by the commonwealth only be allocated for projects that have substantive economic justification. This suggests that proposals should be assessed by joint reports of commonwealth and relevant state treasuries and that such reports be published.

That would help avoid a repetition of past experience under the Loan Council (when I was secretary) when such reports were not published and when initial unfavourable reports by the treasuries on marginal projects submitted by state premiers were over-ruled by commonwealth and state ministers for "political" reasons.

Des Moore
Institute for Private Enterprise
South Yarra Vic

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