"There is considerable merit to a Good Debt-Bad Debt approach that distinguishes between public sector debt used to finance productivity-enhancing and community-enriching long-lived investments and debt used to bridge the gap between recurrent spending and recurrent revenue.
"In particular, it makes sense to remove unnecessary constraints that inhibit public investment in worthwhile infrastructure projects. Over recent decades, these constraints have seen the development of infrastructure deficits in Australia and they have encouraged governments to make questionable decisions about the terms of some transfers of public assets to private-sector ownership.
"At the same time, some constraints and controls are appropriate and the Treasurer's proposals should be examined closely before they are put into practice.
"An important consideration is the risk of making it too easy for governments to approve investments in projects that do not stack up to careful scrutiny.
"One way to manage this risk would be to insist that only debt used to finance the most rigorously and transparently evaluated investments could qualify as 'good debt'. There could, for instance, be a requirement that 'good debt' status could be achieved after a positive evaluation of a project by an open and independent agency such as Infrastructure Australia. Such a constraint would inhibit the emergence of debt-fueled pork-barreling," Mr Willox said.
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