Tackling the Australian Local Infrastructure Backlog: The Case for a National Bond Bank

Abstract

A series of state and national inquiries into Australian local government have demonstrated that it faces a massive and growing infrastructure backlog. Under existing fiscal arrangements, it is impossible for local government itself to fund the infrastructure backlog making it imperative to explore new funding options. Some work has already been directed at alternative funding methods: McNeill and Dollery (2000; 2003) have investigated developer charges, Dollery et al. (2007) proposed a Commonwealth asset fund, Beresford-Wylie et al. (2006) argued in favour of public private partnerships, and Byrnes et al. (2008) considered an Australian municipal bond market. However, this work has ignored the most promising option; a national local government finance authority or 'bond bank', which could borrow funds cheaply since risk would be pooled and debt underwritten by the Commonwealth government, and run on analogous grounds to existing arrangements in Nordic countries, some American states and Canadian provinces, New Zealand and the Australian state of South Australia. Drawing on the theoretical literature, as well as real-world experience in other local government systems, this paper seeks to make a case for an Australian national local government finance authority.