IPA Partnerships 2016 Leaders Dialogue



09 September 2016

The Crown Melbourne

On behalf of the Australian Government, I thank IPA for its ongoing work in the infrastructure space, particularly in promoting genuine, cohesive partnerships between governments and industry.

Today, I'll outline the Australian Government's position on infrastructure investment in the transport sector.

You may have heard the PM say this will be a term of delivery. The bottom line is—we're building for the future.

Our record $50 billion investment is changing and saving lives. We're investing in our cities, getting a fair share for our regions and working across all modes of transport.

We're also on board with the many advances in technology that we know will change the way we plan, deliver and use transport services now and into the future.

In building for the future we are addressing three major areas:

Safety—because it is paramount. It must be integral to everything we do. And while we've made some great gains in road safety in Australia since the early 1970s, in the past two years the trend has gone in the wrong direction.

Growth—our choices about the transport infrastructure we build must be informed by each project's capacity for economic growth and productivity at the local, regional or national level.

And as I said earlier…Delivery—this term of government is about delivery. Not just writing and reading reports, but delivering on actions.

By effectively establishing a long term project pipeline, as well as delivering ongoing reforms to project planning, prioritisation and funding, we are enabling a strong national investment program.

There are some great projects on the go—don't worry, I won't bring out the list which makes up our $50 billion Infrastructure Investment Program …

Here in Victoria we're working with the Victorian Government to address congestion in the nation's fastest growing city, as well as investing in the regions.

We're setting up western Sydney to achieve its growth potential with an airport, improving road connections and looking into rail.

We also now have 70 per cent of the Pacific Highway as four-lane divided road, and fatal crashes have almost been halved, down from the mid-40s annually to now in the 20s.

We will change the face of our eastern seaboard with the Melbourne to Brisbane Inland Rail project. It is truly game changing and will transform how we move goods around the country.

Inland Rail is the smart solution. It's in the nation's best long term economic interests. It's also on Infrastructure Australia's priority list.

Industry can plan on inland rail happening. One of my first achievements as Minister, and something that I am very proud of, was to secure an additional $594 million in the 2016–17 Budget to advance pre-construction, acquire necessary land, and engage with stakeholders along the route.

The benefits will start accruing from day one. Inland rail will create around 800 jobs per year during construction and 600 operational jobs per year thereafter, mostly in regional centres along the corridor.

It will get 200,000 truck movements off our roads each year, improve market access, lower supply chain costs and enhance commercial opportunities for producers.

We're actively market-testing to get private sector expertise and financing ideas on board in partnership with the Australian Rail Track Corporation.

In short, we're looking at ‘whole-of-project’ to better manage risks, lower costs and drive new business prospects.

But we recognise Australia has an infrastructure funding problem, which is significant challenge for the Government. The current approach to infrastructure funding is unsustainable.

The cost of building and maintaining roads is growing at a faster rate than the income we receive from road related revenue. Our revenue models are based on an old world order.

Advances in vehicle technology, such as improved fuel efficiency and driver-less cars, point to a long-term decline in road-related revenue at all levels of government.

A growing and ageing population, and competing budgetary pressures on all levels of government make it hard to fund the required infrastructure, especially as the demand for road services increases.

Long-term sustainability, efficiency and value-for-money must now form the basis for any infrastructure investment decision by governments.

We need to make sure we are paying the right price for infrastructure, and that we are more accountable to the public for the revenue that is collected.

Part of this is about getting the best use out of our existing infrastructure. We should leverage and improve the capacities of our current systems, such as hot lanes, variable speed limits, and traffic management systems. This will lead to better value for money and increased efficiencies.

But faced with increasing budgetary pressures, we also need to factor in the long-term maintenance costs for infrastructure so we are not left worse off.

If we know what the issues are, what are we doing about it?

In addition to investigating road pricing as a long term reform option we are increasingly looking to the private sector as a funding partner.

I'll comment on road pricing first, because I know it is of particular interest to IPA.

The Turnbull Government is actively investigating road pricing. Our responses to the Competition Policy Review and the 2014 Productivity Commission Public Infrastructure Inquiry are on the public record.

The progression of the Heavy Vehicle Road Reform means the time is right to start having conversations with states and territories around road pricing.

In December 2015, COAG agreed that governments would work together to investigate the high level costs, benefits and options of extending direct user charging to all vehicles.

And just last month, transport ministers had a very useful conversation about how to progress this work.

A reform of this type is substantial. We're talking, long term micro-economic reform.

Given that the Commonwealth is not a primary road owner—that's a role for the states and territories—to be successful, we require a strategic, whole-of-government approach involving all levels of government.

We need to bring the public with us and have an informed debate. The last thing any of us need is a front page headline about a new ‘road tax’ that will erode any chance of getting this done.

We will need to have broad agreement across industry, and across the political spectrum, to ensure that this reform is not hijacked. And we will need strong, rational industry advocates to help governments make the case.

The benefits of reform measures such as revenue, access and equity, in an Australian context, need to be explored in further detail and then explained to the broader public.

In regional areas, for example, we have identified that $1700 per capita is spent on roads from funds specifically raised by local governments, compared to $200 per capita raised by local governments in urban areas. For regional areas, this means there is less money to spend on other services.

This isn't something that will be fixed with a simple grant program: it is structural market failure. Market reform requires proper price and service management or, put in a simpler term—transparency.

For governments, understanding how that impacts with, say the tax transfer system, and how we could address issues like equity, is of absolute importance.

Market reform is usually accompanied by innovation, and innovation facilitates the growth of new technologies, enhances competition and provides greater benefits to consumers.

We have seen this through reform of the aviation and telecommunication sectors, which led to high levels of innovation—for example integrated ticketing systems and logistics for airports, private sector investment, competitive pricing, user choice and a renewed focus on service delivery.

But the best technology solutions are not necessarily the best fit for purpose. Governments still need to be clear about what they want to achieve through technology and weigh this up against other considerations such as the potential costs to users.

Work stills needs to be done to understand the impacts of reform on all users of the road system—with particular regard to community service obligations, service level standards and how best to structure charges across road networks.

Governments will not be in a position to make credible decisions on this reform without targeted analysis.

This is the work that is underway in my Department, hand in hand with Treasury. There is a lot of work to be done and room for many voices on these issues, and I welcome Transurban's Road Usage Study as a contribution to this debate.

Ultimately, we must be satisfied that the benefits from a broader use of road pricing would exceed the costs.

This is a reform journey that started many years ago and given its complexity, we're not going to reach the destination tomorrow.

However, we will get there as long as we work together, collectively realize communication is crucial and bring the community with us.

On to what we are doing to attract greater private sector investment.

Earlier this year, Infrastructure Australia released its 15-year Australian Infrastructure Plan.

This plan sets out a priority List of 93 potential projects around the country at different stages of development—and offers an extensive set of recommendations about reforms to improve the delivery of infrastructure nation-wide.

It is a key tool to inform decisions by the Commonwealth Government and state and territory governments about which projects to progress, and over time which ones will be funded.

At the same time, we released our Principles for Innovative Financing. These principles make it very clear our priority is to fund projects that are capable of delivering on national priorities, and maximising the benefits to the Australian economy and communities.

These principles also set out our commitment to drive greater use of innovative funding and financing mechanisms to assist in delivering our infrastructure agenda, including how value capture can fairly provide an alternative funding stream.

We also announced the establishment of an Infrastructure Financing Unit to work closely with the private sector to develop funding and financing solutions.

On this basis, there is a distinct preference for proposals which have looked into, and where appropriate, applied innovative funding and financing solutions beyond capital grants.

The concessional loan for WestConnex, the equity injection for the Moorebank Intermodal Terminal, and the Asset Recycling initiative are all good examples of alternative funding arrangements currently in use.

But the core message remains—robust project selection, rather than selection of the financing mechanism is the most important factor in ensuring that governments make high quality, economically beneficial investment decisions.

To conclude—infrastructure has a long life. It'll be there for our kids and grandkids and we want them to know we had the foresight to think and plan not just for today, but for future generations.

But what we are doing today—in terms of safety, growth and delivery—is how we will get to that future.