There is an unprecedented pipeline of multi-generational infrastructure projects that will help shape Australia’s cities and regions for the future. Investing in the right projects has the potential to create a multiplier effect throughout the economy, generating lasting economic, social and environmental benefits.
These long-term investments reflect the needs of the community over differing time horizons, and often come with delivery periods of a decade or more, along with economic lives of up to 100 years – such projects can be truly transformative and multi-generational. Given the scale and scope of the potential benefits it is appropriate that assessments of such investments reflect these characteristics.
Infrastructure Australia, as well as Australia’s state and territories' treasury and finance departments, advise the use of a discount rate of seven percent (real) for most public infrastructure projects. This rate has been in place since (at least) 19891 and may be considered appropriate for assessment of investments with relatively short delivery periods and, in turn, relatively short assessment periods. But there has been growing support for revised discount rates for multi-generational projects.
Download our report which explores the perverse outcomes the use of artificially high discount rates might create and recommends using alternative discount rates for assessing large, multi-generational infrastructure projects.
Footnote:
- Terrill, M. and Batrouney, H. (2018). Unfreezing discount rates: transport infrastructure for tomorrow [745KB]. Grattan Institute. Accessed 23 March 2020
