Australian Automobile Association Policy Forum—Infrastructure Solutions for the 21st century

Speech

JBS005/2014

25 March 2014

Parliament House Senate Alcove

Introduction

Thank you for your kind introduction, Andrew (McKellar, AAA Chief Executive).

Thank you also for the opportunity to speak at the Australian Automobile Association's Infrastructure Solutions for the 21st Century forum.

It has now been over six months since I was asked by the Prime Minister to serve in this portfolio so vital to our economic future.

Since that time it has become abundantly clear that the infrastructure challenges facing Australia are significant—we have an infrastructure backlog, congestion in our cities that is costing the economy $15 billion annually and our productivity performance that is going backwards with growth slowing to 1.4%, compared with 2.1% in the 1990s.

This challenge is significant, but not insurmountable, and to face it we must have an honest discussion and commitment from all levels of government and the private sector to effect the changes needed to ensure all Australians continue to enjoy the quality of life we value so much.

It is why the Australian Government is so focussed on delivering the infrastructure of the 21st century.

Look no further than yesterday's announcement by the Prime Minister that he will chair the newly established National Infrastructure Committee of Federal Cabinet, of which I will be a member along with the Deputy Prime Minister, the Treasurer and the Parliamentary Secretary to the Prime Minister.

This Committee will be charged with driving and assessing the progress of major projects and will ensure the highest level of oversight and accountability for Commonwealth infrastructure delivery to ensure we build the infrastructure of the 21st century more quickly and for less.

It is another step in achieving our bold goal of a stronger Australia.

Infrastructure System is Broken

Earlier this month the Productivity Commission released a draft report from its detailed inquiry into public infrastructure in Australia. Sadly the report shows that the system left by the previous Labor government is broken and in desperate need of reform.

In fact, the Productivity Commission conservatively estimates that we can save at least $1 billion a year in project costs by getting the policy settings right and eliminating the current flaws in the system. That is a saving of at least $4 billion over the forward estimates —or to give it context—the Australian Government's full contribution to three major capital city road projects (Westconnex, East-West Link and Gateway North) or our annual national infrastructure spend between 2008-14.

Unfortunately, the desperate situation we currently face is a system where:-

  • Infrastructure Australia lacks independence and has a broken relationship with the states who question its capacity to provide transparent quality advice and project selection free from political interference;
  • the infrastructure budget over the last six years has been used as a political plaything with Labor shuffling billions from commonwealth to state accounts in a desperate attempt to create the illusion of greater infrastructure spending and responsible budget management;
  • projects have been costing too much and taking too long to deliver arising from poor project selection, inadequate planning and a lack of economic analysis—Labor's flawed National Broadband Network is identified as the most significant example;
  • and our economy is saddled with Labor's legacy of gross debt projected to rise to $667 billion, $123 billion in cumulative deficits and 200,000 more Australians unemployed.

We are faced with all of this at a time when public finances are finite and our infrastructure stock desperately needs investment. This investment is critical to our future prosperity to ensure:-

  1. We improve our languishing productivity performance and drive growth in our domestic economy; and
  2. Improve the quality of life in our cities so commuters spend less time stuck in traffic and more time being productive at work or at home with their families.

So my friends, that brings me to the question of  how are we going to fix this mess and get the settings right to ensure our economic growth and prosperity is once again the envy of the rest of the world?

Investment Programme

First and foremost, the Australian Government has a very significant platform of projects to get underway to ensure we boost our productive capacity at a time when one of the great drivers of our economy—the mining industry—transitions from an investment growth phase into primary production. 

Over the next six years, through our Infrastructure Investment Programme, we have committed $36 billion to invest heavily in productivity enhancing road and freight rail projects to help drive economic growth, give all businesses the opportunity to flourish and create thousands of jobs.

We are also seeking more private sector investment in infrastructure and are providing the states incentives to privatise government assets and reinvest sale proceeds in transport infrastructure, including public transport options.

Major projects like Westconnex, NorthConnex, East-West Link, Gateway Motorway, Swan Valley Bypass and the North-South Corridor will deliver better connectivity and travel times in our major cities for commuters, whilst increasing the freight capacity of our transport network.

Many of these projects will also drive urban regeneration, leading to new industry hubs that focus on innovation and creativity, and will bust the congestion in our major cities.

Apart from creating thousands of jobs during the construction period, all of these projects will expand and strengthen our transport infrastructure, develop our cities and regions and make Australia more competitive on global markets—creating more jobs and ensuring sustained economic prosperity in the long term.

By prioritising our investment in road and freight rail infrastructure we are also providing the States with greater capacity to continue to invest further in urban public transport—The Queensland Government's $5 billion commitment to the BaT Tunnel underground bus and train project is a clear example of how State and Commonwealth infrastructure investment priorities can align to deliver real results for motorists.

Reform Agenda—Infrastructure Australia

While investing heavily in our infrastructure network is critical, implementing the necessary reforms to improve project selection, planning, financing, time and cost is what we ultimately need to do to ensure Australia's sustained economic growth and prosperity.

The Productivity Commission's draft report identifies poor project selection and inadequate planning as major constraints on building infrastructure in Australia—resulting in projects riddled with cost blow-outs in the billions, significant time delays and occupational health and safety issues.

It is for this reason why the Australian Government is reforming Infrastructure Australia into a more independent advisory agency with a CEO who will report directly to a Board, rather than as a personal political appointment of the Minister.

Under the current legislation the Minister has the power to directly influence the scope of IA's project evaluations and provision of advice.

We want to remove this power so IA can select and prioritise projects with greater transparency and rigour whilst providing advice free from political interference.

We have also asked Infrastructure Australia to undertake a full audit of our infrastructure asset base, in collaboration with the states and territories, and develop a 15 year pipeline of major infrastructure projects, which will be revised every five years.

These reforms have been welcomed by the private sector and state governments alike and will ensure projects are planned and selected with rigour and transparency—delivering greater investor certainty and participation, particularly giving international competitors the confidence to invest resources in the Australian market, which will help increase competition and drive down costs.

I hope the Labor Party will put the community's interests ahead of its own narrow political agenda and allow the legislation that will reform Infrastructure Australia to pass through the Senate.

Reform Agenda—Money Shuffle

The Australian Government is also looking at getting the right incentives in place to free up public funding for projects and to ensure that funds flow quickly to construction activities, rather than being shuffled around and parked into government accounts—a practice often adopted to hide the former Labor government's financial mismanagement.

This can be done by giving the states greater incentives to compete for federal funding for projects that deliver strong community and economic benefits.

Historically, federal funding for infrastructure projects has been paid up-front to state governments too often without comprehensive planning or clear understanding of project timelines. This has compounded the long time frames for completing infrastructure projects and ballooning costs.

A classic example of this is in my home state where the previous Labor government provided $70 million to the South Australian Government to complete a comprehensive planning study for upgrading South Road for which we never received a plan. In fact, in December 2013 we provided a further $8.5 million to the state government to develop a planning study and business case for this project with initial outcomes to be delivered in February this year. We are still yet to receive anything.  

Since 2009, the Commonwealth made around $3 billion in pre-payments to states at the end of financial year to balance its books and reduce deficits despite the states not seeking this funding.

This accounting practice was designed to create the twin illusion of greater infrastructure spending and so-called responsible budget management which despite these deceptions never delivered a surplus.

This represents a massive abuse of taxpayer dollars, with money lying around in state government accounts collecting interest, scandalously underutilised at a time of scarce public funds.

We are determined to put an end to this sham practice which is why we are already working with state governments to develop agreements whereby commonwealth funding will be paid upon projects being built or key milestones being achieved.

The Treasurer has also indicated states will need to use funding or lose specific allocations in the future as well as an audit of state government infrastructure spending.

In addition, the Australian Government is looking at measures such as incentives for state governments to sell state assets to fund future infrastructure needs as alternative revenue streams for infrastructure.

These reforms will bring transparency to the funding practices between the states and the commonwealth—ensuring taxpayers are actually getting roads, not just announcements.

Reform Agenda—One Stop Shop

The Australian Government also recognises that the vast collection of approvals required to build major projects in Australia are often cumbersome and unnecessary.

This is only exacerbated by the duplicate state and federal approvals regimes that infrastructure providers must navigate in order to attain them, which are cost and time prohibitive and often kill projects before they've begun, particularly from a private sector perspective. 

It is for this reason why we are committed to streamlining planning processes and removing inefficiencies in the system by working bilaterally with state governments through COAG to implement ‘one-stop-shops’ for environmental approvals. This will speed up approvals, eliminate unnecessary regulatory duplication and give industry greater capacity to expedite projects where market demand is high.  

The Australian Government's first legislative "repeal day" during this parliamentary sitting week to slash red and green tape by over $1 billion a year is also part of our agenda to make Australia easier to do business and ensure we are getting value for taxpayers' money.

In addition, our re-introduction of the Australian Building and Construction Commission is also an important step to ensure greater efficiencies on the ground by eliminating unlawful behaviour plaguing far too many of Australia's building sites.

Although it was not included in the terms of reference developed by the Australian Government, the Productivity Commission's draft report devotes an entire chapter to identifying problematic industrial relations settings and unlawfulness on building sites that are driving up the costs and time taken to build infrastructure in Australia.

Attracting Private Investment

Another important focus of the Productivity Commission's draft report is alternative financing and the growing demand to attract private sector participation in Australia's overall infrastructure spend—something which I know the AAA has focussed on in the report released today.

It is clear that the fiscal challenges currently facing all governments means the traditional public investment model in infrastructure has to be redeveloped.

Increasing and growing social welfare expenditure, at the same time as we grow older and live longer, will mean that the ability for governments to invest more in infrastructure will increasingly become more difficult.

Simply put, major infrastructure projects have gone beyond the capacity for governments to deliver on their own—and we need more private sector investment to cover the shortfall.

This is an area where the public and private sectors must work together.

In my discussions with the business community, the strong message I am receiving is that there is huge potential to tap into billions of dollars of potential new private sector investments looking for the stable returns of the Australian infrastructure market through policy settings that reduce risk, cut red tape, lead to better long term planning and fast track projects that are urgently needed.

It's therefore critically important that we get the settings right and  structure projects to deliver greater certainty to attract investment—in particular taking on reforms that reduce the construction and patronage risk involved with these projects.

However, the Commission also says that private financing is not the ‘magic pudding’ solution for all infrastructure projects and that ultimately taxpayers or users will need to pay for infrastructure.

Of course many projects will still need to be driven by government and quite often this will involve public financing. Nevertheless, the report says that, if executed well and for the right projects, private sector involvement can deliver vital new efficiency gains for the Australian market.

The concept of road user charging and building efficiencies in revenue collection is also canvassed by the Productivity Commission, and I encourage the AAA and other industry groups to work with governments and the private sector to participate in a broader discussion on what reforms can drive scarce public funds further through innovative financing.

Westconnex & Northconnex

I am glad to say that we are already starting to see great examples of how major infrastructure projects should look into the future with projects like WestConnex and the recently announced NorthConnex in Sydney being driven by new ground-breaking finance mechanisms and robust economic analysis.

WestConnex has both levels of Government working cooperatively with the private sector to deliver the best outcome, with the Australian and NSW Governments exploring models where government funding, invested in the initial stage of the project can be recycled to ensure delivery of later stages.  Funding from the sale of state port infrastructure is also being recycled into this project as part of the State Government funding contribution.

NorthConnex is an example of governments making targeted payments to reduce the overall cost of the project so that it can be substantially financed by the private sector. It is an innovative solution and a good example of governments working in partnership with the private sector to deliver key infrastructure at a significantly reduced cost to government. 

Just the weekend before last the Prime Minister and I, along with road builder and operator Transurban announced the selection of tenderers to build this ‘missing-link’ project connecting the M1 and M2 motorways.

The Australian Government is contributing $1.5 billion and $405 million to each of these projects respectively as they will deliver genuine productivity uplifts to the Australian economy by cutting congestion, increasing the freight capacity of Sydney's road network and growing jobs.

We want to see more projects like this in the years ahead.

Better Infrastructure Equals Safer Roads

I've spoken at length about how we can achieve greater cost efficiencies in our infrastructure system through targeted reforms, but let me assure you improved safety on our roads is always a key priority in developing our infrastructure investment profile.

Provisional road fatality statistics for 2013 show a 7.9 per cent decrease in total road deaths, compared with the previous year.

In human terms this equates to a reduction of 102 deaths. Despite this improvement, nearly 1,200 people still lost their lives in road crashes last year which will have substantial social and economic impacts for years to come.

I am committed to ensuring these figures continue on a downward trend.

As a start, I want to mention a particularly good news story from late last year that will contribute to this trend, not just in Australia but globally.

For the first time, and as a result of the quality work of my Department, Australia has led the development of an international vehicle regulation — the Global Technical Regulation on Pole Side Impact, or the GTR.

This international regulation will improve protection for occupants in all side impacts which account for 20 per cent of all Australian road deaths.

Over a 30 year period this standard is expected to save nearly 700 lives and avert approximately 800 brain injuries.

However, there is still a lot more work to be done—which is why we have committed another $300 million from 2014-15 to extend the Australian Government's Black Spot Programme for a further five years, which is estimated to prevent over 4,000 accidents and save more than 30 lives each year.

We are also proud to be contributing a further $10 million towards the Keys2drive programme started by the AAA and its constituent clubs to support new drivers being safer on our roads.

A few weeks ago I announced that this important programme had reached a significant milestone, delivering 250,000 lessons to learner drivers.

Over the past five years, the number of young adults killed in road crashes has been reduced by 39%. This is a better result than in any other age group, and the focus on young drivers with stronger and differentiated licensing systems, are part of this success story.

Turning our attention to the safety of very young children, sadly, research by the Bureau of Infrastructure Transport and Regional Economics (BITRE) shows that on average, seven children are killed each year and around 60 more are seriously injured by vehicles at home.

Last month my Department released a report summarising the results of public consultation on home design guidelines to improve driveway safety.

The feedback from the community and key stakeholders, including the AAA and member organisations, supported the idea of voluntary guidelines that could help to reduce the risk to children in home driveways.

The process also found broad support for a proposed framework of design principles and measures that could be incorporated into community education initiatives on driveway safety awareness and child injury prevention.

I am hoping this will be taken forward by those organisations already doing good work in the area, including state and local governments and Kidsafe.

Conclusion

In conclusion, the Australian Government is committed to reforming our nation's infrastructure system and, in reality, we have little choice as we cope with the twin pressures of our growing population and increasingly scarce public finances.

A key message from the Productivity Commission's draft report is that it's not necessarily the size of the investment, but rather how you spend it—and it's clear that the inefficiencies in our current infrastructure system are costing taxpayers billions.

We are already investing significant amounts in productivity enhancing infrastructure through our $36 billion infrastructure investment programme and we will be looking at more opportunities in the months and years ahead.

However, we want to make sure that we get the settings right by removing the flaws identified by the Productivity Commission to ensure we attract greater private sector participation, plan projects better and ultimately build more for less more quickly.

The Productivity Commission's final report including its recommendations is due to be provided to the Australian Government in May 2014. I look forward to using it as a valuable tool to ensure we deliver on our election commitments to build the roads of the 21st century, create jobs and grow the economy.

As the Prime Minister so emphatically stated on the night of the Coalition's election victory, “Australia is now open for business”, and to keep that business competitive and growing these are the reforms we must pursue.

Thank you again for the opportunity to take part in this forum and congratulations to AAA on your 90th anniversary.

Thank you.