generally accepted that there are social benefits to providing these kinds of assets that are not fully captured by a profit - making provider. without some provision by the state, such infrastructure will be underprovided. another is the network nature of these facilities. where there is a network, there is an element of monopoly power, and thus often a role for state regulation if not actually state ownership. at the very least, someone needs to set the rules of the game, whether that is the side of the road we drive on or the protocols used in telecommunications. despite the role of the state in the provision and management of these types of infrastructure, they are not ‘ public goods ’ in the textbook sense. textbook public goods are non - rival and nonexcludable : their benefits aren't diminished by an extra person enjoying them and, in any case, you can't prevent people from having those benefits. clean air and a defence force fall into this category. by contrast, physical infrastructure can clearly suffer from congestion. it is also conceptually possible to exclude free riders from the use of the infrastructure, though this is more easily achieved in some cases than others. it is from these characteristics – congestion, excludability and the underlying monopoly network – that most of the policy challenges around infrastructure arise. what policy challenges does infrastructure pose? much like any business decision faced by private firms, decisions about infrastructure involve a lot of uncertainty. businesses grapple with these questions every day. should we build it? is the market big enough? where should we build it? what design and methods should we use? what price should we set? it is tempting to think that physical infrastructure is no different. many of the questions are the same. but there are differences, and the policy challenges around infrastructure stem from that. firstly, infrastructure can be very long - lived, which compounds the uncertainty about future usage rates and congestion. secondly, the network element of the infrastructure makes it especially difficult to forecast market size. thirdly, the social benefits that spill over to the broader economy are harder to quantify than a forecast revenue stream. all countries face the same challenges of providing enough infrastructure in the right places to serve the needs of their populations. so it is no surprise that infrastructure has been a recurring topic in the deliberations and work of the g20 group of major economies. australia elevated the topic further during its presidency year in 2014. this year, the argentine presidency has also included it as one of

such as electricity and water, as well as transport links, need ongoing investment to accommodate a rising population. this challenge has clearly been recognised and, over recent years, governments at both the state and federal level have been increasing infrastructure investment. as can be seen from this graph, public investment in communications infrastructure has increased with the rollout of the nbn. transport infrastructure – road and rail – has increased even more sharply and is back close to the share of gdp it represented in the years immediately after the global financial crisis. graph 1 https : / / www. rba. gov. au / speeches / 2018 / sp - ag - 2018 - 06 - 15. html 4 / 8 6 / 15 / 2018 how infrastructure fits in | speeches | rba the recent federal budget foreshadowed additional infrastructure spending. more broadly, investment by the federal government is projected to increase over coming years. most of the infrastructure spend is by state governments, however. this has already increased noticeably, particularly in the south - eastern states, and according to state budgets it is projected to increase further in the next couple of years. much of this work is in urban transport projects, both road and rail. graph 2 another area of infrastructure attracting substantial investment at the moment is renewable energy. the value of renewable generation projects slated for the next year or so is similar to the average of recent years'investment in electricity generation, distribution and transmission, a much broader total set of activities. most of the investment in renewables is by the private sector. these projects have become more attractive lately as the cost of the underlying technology has fallen. at the same time, the costs of fossil - based inputs to existing generation methods has risen, and so has the price of electricity. so renewable energy projects are becoming increasingly commercially viable. as such, it is an area where the private sector can provide the infrastructure. and that is indeed what we are seeing. a range of data sources on both capital expenditure and financing show greatly increased activity recently ( graph 3 ). a few years ago, much of the https : / / www. rba. gov. au / speeches / 2018 / sp - ag - 2018 - 06 - 15. html 5 / 8 6 / 15 / 2018 how infrastructure fits in | speeches | rba investment in renewables was in small - scale rooftop solar. more recently, as the economics of these projects has changed, we are seeing more large - scale solar and wind projects being financed and built. graph