Partnerships 2012: Infrastructure & Investment Conference
7th September, 2012
The Hon. Mark Birrell, IPA Chairman, Brendan Lyon, IPA CEO, ladies and gentlemen, thank you for the opportunity to address your conference today.As we all know various reports have put Australia's infrastructure gap at anywhere between $700 billion and $800 billion.
This gap will never be filled entirely - there will always be a new project in need of completion - expectation rise beyond capability . We need to invest more now.
If we don't, it will cost Australia dearly.
Productivity will continue to decline as congestion rises, impacting on economic growth, not to mention its social toll, adding to the stress and anxiety of daily life.
Clearly, given the sheer size of the task ahead of us, and the current budgetary position of Commonwealth and State Governments, government investment alone is not going to be enough - it's going to take a combination of government and private funds, together with regulatory reform to encourage investment.
Government expenditure
As you would all be well aware, the Government has just begun negotiations with the States and Territories about the next federal-state road and rail funding agreement, due to commence in 2014.
It's a magical date for the Gillard government... like lots of things lately, the money will not have to be found until after 2014 - after the next election.
While agreement on the size and priorities of the next federal-state agreement is some way off, the programme needs to be focussed on taking productivity-enhancing projects from concept to construction and completion.
When Labor spent not one, but two, stimulus packages, the rhetoric proclaimed a nation-building agenda.
Yet, the Business Council of Australia estimates that only 14% of total spending went to productivity enhancing infrastructure - and most of the projects have not yet been completed.
Studies have shown that investment in infrastructure has a positive effect on economic growth and has a higher return on investment than spending in other sectors.
As a government, and as a nation, we need to place a higher value on ensuring that we have a modern and integrated multi-modal national transport network.
The Coalition has a track record of investing in worthwhile projects to grow our economy, build our communities and connect our regions.
In May 2002, the Coalition announced its plan to create a revolutionary new national land transport policy.
When AusLink was introduced in 2004 it represented the most significant change since federation to the way national transport infrastructure is funded in Australia.
For the first time investment in road and rail was based on a longer term agenda and corridor studies addressing the longer term freight task.
The Coalition remains committed to the programme and to its important components, including Roads to Recovery, the Black Spot program and the strategic regional roads programme.
The Coalition is also committed to a Bridges Renewal programme to fund the upgrade of some of the 20,000 local bridges across the country that are nearing the end of their life.
Substantial upgrades are often beyond the financial resources of local governments and, as a result, many bridges now have strict weight limits imposed, which impacts on productivity.
Infrastructure Australia
Infrastructure Australia was established in 2008, amid great expectations that infrastructure investment would be more focused on delivering 'nation building' projects.
As Minister Albanese said in 2007:
"By operating at arm's length from Ministers, Infrastructure Australia will ensure decisions are no longer based purely on political interests or the margin of a particular seat."
But the government then went on to choose multi-billion dollar projects of its Nation Building Programme without prior Infrastructure Australia assessment.
The main South Australian project, Obahn, was reportedly chosen by Prime Minister Rudd and the SA Premier during a cold evening walk around Hobart streets.
As we all know, a $2.1 billion election commitment for the Parramatta to Epping rail link wasn't considered by Infrastructure Australia before its announcement and no cost-benefit analysis has been publicly released.
The Infrastructure Australia 'pipeline' is choked with much-needed projects that have failed to move from concept to planning and design to construction and without any timetable for completion.
On the other hand, the role and process of Infrastructure Australia are not well understood or explained. Some think an Infrastructure Australia approval is a guarantee of funding.
I was surprised that the 2012 Infrastructure Australia priority list gave the next stage of the Bruce Highway Cooroy to Curra project in my electorate a rating of "early stage" even though the route was chosen years ago and the final planning and design is almost completed.
Yet, the Cross River Rail project in Brisbane was listed as "ready to proceed", when we all know that the LNP Government is in the early stages of considering how it can address inner city congestion issues in an affordable and responsible way and has not decided whether this will be a $1 billion, $4 billion or $40 billion project.
From the Coalition's perspective, we are keen to support Infrastructure Australia and give it a meaningful role in project assessment.
The Coalition will task Infrastructure Australia with creating an infrastructure plan of pipeline projects. This pipeline will need to look at least 15 years ahead with a review every five years to provide a timetable for future priorities and investment.
This will be created collaboratively with the states and territories and will provide a comprehensive and evidence-based framework to encourage investment.
The Coalition will also require all major Commonwealth-funded infrastructure projects to undergo a full cost-benefit analysis by Infrastructure Australia.
Regulatory reform
The Coalition is committed to reducing red tape for business, improving our international competitiveness and maximising value for money in projects.
It is a bewildering fact that around 40% of funding for infrastructure projects is spent before there is a bulldozer on site.
Community consultation and protecting our environment are important and boundaries do need to be drawn but the fact that projects take years to get through the planning and approval process is something that needs to be addressed.
A recent report by the Business Council of Australia found that resources projects are 40% more costly in Australia than in the USA, hospitals cost 62% more, schools 26% more and airports a staggering 90% more.
Since Labor was elected in 2007, the Rudd-Gillard governments have introduced over 16,000 new regulations, while repealing less than 100.
Inspite of Labor's election commitment to abolish one regulation for each new one imposed.
Private investment in infrastructure
While total investment in infrastructure has increased dramatically in recent years, private sector investment has only marginally increased over the same period.
In Australia, infrastructure investment by super funds has been of interest to policy-makers for a number of years.
The introduction of compulsory superannuation twenty years ago has seen investment in superannuation funds in Australia soar.
Today 12 million Australians have around $1.3 trillion invested in superannuation funds. It is estimated that over the next 15 years this could rise to up to $5 trillion.
To date, superannuation funds have had a limited role in infrastructure financing in Australia. Research on APRA regulated super funds has indicated that only around 5% of their total asset allocation is in infrastructure.
Previously the IPA has estimated that if we get the regulatory settings right super funds could provide an extra $18 billion in additional funding each year. This could go a long way to helping fund the vital infrastructure we need to improve productivity across Australia.
Super funds will not take risks with members funds and expect a solid return on their investments.
Government and industry need to work together to get the regulatory settings right so that we can begin to fill this infrastructure deficit.
While there is no 'silver bullet' and no one policy measure that will stimulate the unprecedented levels of investment required to provide the sort of infrastructure Australia needs to continue to grow, a new approach is essential.
That approach must harness business and governments, to work more constructively to provide Australians with a quality transport network that represents value for money.
In June the Infrastructure Finance Working Group's report was released. The Working Group brought together Australia's major private investors and their representatives to look at avenues for regulatory reform to encourage investment.
This report addressed many of the hindrances to private sector investment: high bid costs, the lack of a clear project pipeline and risk allocation, to name a few.
Given the task ahead of us, we need to look at all the options and find innovative ways of structuring financing and risk allocation to get the maximum value for investment and a larger number of projects underway.
Earlier this year I held a meeting with a number of private sector investors, super funds and others, and while all were actively considering potential infrastructure investments, none of this investment was in Australia.
We need to do better than that.
There needs to be a political will to get projects under construction. But the private sector should not wait for governments to get projects underway.
Sometime ago, I suggested that companies with ideas and infrastructure projects in mind should come forward and tell governments of their interest. If they are prepared to make it happen - so are we.
NSW is doing it. The NSW Government is considering an unsolicited private sector offer by Transurban to design and construct the F3 to M2 link.
A proposal to put tilt trains on NSW inter-city and regional passenger routes has the potential to put fast trains in existing tracks - much more affordably than a Very Fast Train.
As we all know, significant investment in Sydney's transport network is long overdue and much of that will only be achievable through partnerships between the private sector and governments.
The Coalition is continuing to work to find new policy measures to unlock the financial capital for the private sector to build much needed infrastructure.
We are looking at a number of innovative ideas, including leveraging the government's AAA credit rating to provide cheaper loans for projects on Infrastructure Australia's priority list.
We believe this may assist the private sector and local governments to make priority projects a reality.
We will have more to say about our final commitments on policy measures to leverage greater private sector investment in infrastructure closer to the next election.
Conclusion
We need 21st century solutions if we are to have a 21st century infrastructure system.
Too often when we talk about infrastructure we do so in the context of costs... hardly ever in terms of the opportunities.
The importance of better road and rail networks that actually link into ports to get products to markets - here or overseas - in the most efficient way possible cannot, and must not, be under-estimated.
Those productivity gains are the difference between winning and losing in the ever-changing domestic and global marketplace.
So when I look at infrastructure across Australia I see the costs, but I also see opportunities - as well as the costs of not getting on with the genuine nation-building to take us into the next 20 years of meeting bourgeoning demand.
Our miners will continue to mine and process resources for the world. Our farmers will continue to produce food and fibre for an ever-hungrier world.
But they will only be competitive if our infrastructure system is world-class.
We have to ensure that our infrastructure is geared to meet those growing demands and that our communities can share in that growth.
Thank you, again, for the opportunity to address your conference today.
[ENDS]
