Civil Contractors Federation Industry Breakfast Briefing
06 June 2014
Adelaide Convention Centre, Adelaide
Well, thank you, Gerard, so much for the invite and Phil Sutherland, who admirably leads your organisation, CCF, and is constantly lobbying on your members' behalf, constantly, whether it be here in Adelaide or even in Canberra. He finds his way onto the plane from time to time and pops up in Parliament House to lobby on your behalf. To my good friend Tim Whetstone, the state Member for Chaffey in the Riverland, good to see you here this week, and it is great to be with everyone this morning. Thank you for being here.
It is an exciting time to be involved in infrastructure in Australia. There is a renewed interest. I'm sure many of you would think, interest over time probably, well past its time, in ensuring that we're building infrastructure for the 21st century and that we've got a pipeline of projects to support a growing economy. In the Budget what we are seeking to do is ensure that we have got not only a one-off spending binge on infrastructure, but a sustainable focus on ensuring we're building infrastructure, not just for today but for tomorrow, to increase our productivity, to create jobs and grow our economy stronger.
I might start briefly by touching on the Budget, because you can't really talk about the infrastructure element in the Budget without talking about the context of what we sought to do in the Budget, which has been talked about a little bit in the last few weeks since Joe Hockey released the Budget on 13 May. The situation we found when we came into government back in September was that the Budget was not only unsustainable, and we knew that before the election, but it was worse than what we'd imagined it would be when we got to government.
It was worse because the previous government had, in effect, put, as Joe Hockey says, spiders in all the cupboards in Canberra. Every time we opened a cupboard there was another spider there. And what we mean by that was what they'd done is put on the books in the out years, so beyond the Budget forward estimates, unsustainable spending which, when we looked at the Budget, we couldn't possibly, in all conscience, with our commitment at the election to fix the Budget, continue on with. The growth in spending for Australia was, compared to our IMF comparative economies, the highest growth in spending across the globe.
The Labor Party used the opportunity with the GFC to increase spending and they didn't stop. They went back to their natural way, their natural place in the political environment, and they continued to rack up unsustainable promises and commitments well beyond the four year Budget period.
What Joe faced in a fiscal sense when he got to power or when he became Treasurer was the fourth year of the Budget cycle—we do four year Budgets federally—was the first year of the year that Labor had started to put some of these promises, whether they be the so-called Gonski school reforms or promises of increased spending to state governments—they were unsustainable.
So we had to, firstly, address the unsustainable nature of the Budget. We cannot continue to live beyond our means, we cannot continue to borrow from our children's future, because every time we borrow today to hand out money we are making a choice for our kids, we are reducing their opportunities to make choices for themselves, and we said before the election we would fix that situation, we would make sure Australia was living within its means, and that's what this Budget seeks to do.
But what was worse, post-the election, from the Treasurer's perspective, was the economic outlook. The economic outlook was extremely patchy, and when we talk about what we faced with our Budget was actually worse than what Peter Costello faced in 1996. In 1996 Peter Costello faced a high proportion of GDP in debt, he certainly did. He had a $96 billion debt to deal with, which was 17 per cent of GDP. Our debt is approaching, if we didn't change the setting, $667 billion, which gets out to about 12 per cent of GDP.
But what Peter Costello also had was an economy which had been reformed in the late '80s and early '90s, and were starting to see the uplift in productivity, starting to see the benefits of the changes that had been made by successive governments to ensure that we did have a stronger economy and it was growing faster and we were able to take advantage of the unique situation in the early 2000's with the growth in China.
What we're facing is the opposite situation. We've got, after sustained period of increased activity in the mining sector across our country, with the construction phase of the mining sector, we are now facing a period where we moved into the production phase of the mining sector. Which is very good for exports, and we saw that with the national account figures this week. Of course, it's not so good for jobs, not so good for activity, not so good for you and your workers, your businesses and your workers.
So in the next two years particularly, 15–16, 16–17, we're likely to see quite a significant downturn in construction activity without us taking action. Our productivity rate is not right enough, as you would know, and we were going to see a situation of unemployment where it would grow very quickly. So we needed to do something to ensure that we've got—that we are addressing that challenge, that economic challenge, but we're also trying to build the productive capacity of our economy.
And so we're been focused since the election—and Phil can recount this to you—since the election, we've been very much focused on what we needed to do to ensure that we were building infrastructure across the country. Infrastructure which wasn't just a GFC-style pink batts programme or a school halls programme, but it was a programme which was about building productive infrastructure, which would help our economy be more productive and be able to grow quicker, and also address that drop-off in construction activity in the mining sector across our nation. So that's why we wanted an infrastructure growth package which touched every state, which made sure we had projects across the country which would rebuild the capacity of our economy.
We equally wanted to put in place infrastructure reforms to see that we've got a pipeline for the future so there is some certainty about the approach that the government's taking, that we are getting projects done for less and we're getting them done more quickly.
One of the things I've noticed the most since entering into this portfolio in September—I was just saying to Gerard at the table—I was told by my Department or by state governments that projects were shovel ready. Shovel ready seems to be 18 months, consistently 18 months, and so we want to make shovel ready actually seem genuinely shovel ready and get bulldozers on the roads, and I'm sure you do too.
So the announcements we made—the $50 billion of spending in the next seven years by the Federal Government on infrastructure alone—$126 billion over the next decade when you bring in the state and private sector involvement—is we want it to be delivered. We don't just want a budget announcement up in lights. We want delivery, we want your businesses, your workers on the ground, ensuring that the announcements we've made are actually taking place that the projects are being delivered. So that is our absolute focus now, ensuring that we are getting projects delivered.
In South Australia, we are particularly conscious that not only do we face the circumstances that I talked about earlier, but also there are some structural changes to the economy which have been taking place for some time, but now reaching the end of those changes. And we, of course, we know with the end of manufacturing of vehicles in Australia. South Australia is affected quite severely by that, particularly in the sense of the job market. The northern suburbs of Adelaide have already got a depressed job market and the decision by General Motors Holden to end its Australian operations will impact on that further.
So we wanted to make sure that South Australia got particular attention, and that's why we've announced from the Federal Government's perspective $2 billion over the next four years on infrastructure spending in South Australia. And obviously the major focus of that spending is on the North-South Road Corridor where there was, of course, a political dispute in the lead up to the last election between us and our political opponents about which project we should get on with first, the Darlington project or the Torrens to Torrens project.
The Prime Minister said publicly in October and said very clearly privately to me that he wanted both projects to be completed. He wanted both projects to get underway as quickly as possible and with a state election it wasn't the perfect time to negotiate with state governments or state oppositions, so after the state election and when the result was as clear as we got, we sat down with the state government and we came to an arrangement.
The arrangement is that we'll get on with the Torrens to Torrens project on a 50-50 basis, which is the usual split for a major urban road in Australia. 50 per cent funded by the Federal Government, 50 per cent funded by the State Government. But what we've done with Darlington is we've said we'll fund 80 per cent of that project.
In December last year, I announced that my Department would pay for the planning work on Darlington to be done, because there'd been some dispute about the cost of Darlington, they'd been five different cost estimates in the public sphere. One $1.8 billion at one stage, but when we actually did the work we're going to get that project for $620 million and you're going to deliver it for us and we want you to start delivering it later this year.
We want both projects started this year. We've said that to the state government. We understand that major construction will start next year, but there should be no reason why we can't get on and start both of those projects. So we're spending nearly a billion dollars in the next four years on South Road from the Federal Government perspective. It's a $1.5 billion spend from both levels of government, but it's really important now that we actually get on with both of those projects.
And we're also continuing to pay for the planning—and we want this done by November—the planning for the rest of the corridor. So we've got a comprehensive plan to deal with the remaining elements of the corridor, which frankly will be probably the most challenging bits, thus they've been left to last. Most challenging and probably the most expensive bits, I would imagine, but we want that plan by November. So we're getting not only the two projects that we've announced—the Torrens project and the Darlington project—underway and delivered by 2018, but we want to plan for what we then do next to deal with the remaining sections so we've got a genuine North-South corridor in Adelaide.
We're also contributing to the Bald Hills Road interchange up in Mount Barker. A very important project, certainly for the local member, but also for the state, because it's not just a new interchange, but as many of you would know, there's been in recent years decisions by the state government to open up additional land for development around Mount Barker. It hasn't always been popular or well-handled but that's been the decision. What this interchange will do is open up what has been declared to be developed by the state government, open up the possibility for those additional new housing states to get underway and again that will have a positive flow-on effect for your businesses with the housing market relatively flat. Opening up the additional land around Mount Barker will create, I think, more interest for property developers.
We've increased enormously over the next two years the Roads to Recovery money for local governments. As you know, they're tie grants but they're largely in the hands of local governments to make decisions. They're usually smaller projects in local areas. We've increased that funding by $350 million over the next two years. And the black spots programme we're adding $200 million over the next two years. So usually it's a $60 million programme nationally for the black spots programme. The next two years it'll be $160 million per annum on black spots, which again will target smaller projects but local projects and create work right across Australia.
But I think what we need also to do is think of the future, and in the Budget and the announcements we made in the Budget there was real innovations in the financing models that we've entered into in some of the states. In Sydney, you may have noticed, the decision that the Federal Government came to on a location for the Western Sydney Airport at Badgerys Creek. What we've done at Badgerys Creek, importantly I think, and unusual in Australia, is put in place a plan to build the infrastructure before the airport actually begins operations, so we're spending $3.5 billion in the next decade with the New South Wales Government to build infrastructure around Badgerys Creek in Western Sydney to link Western Sydney and allow for that growth when the airport takes off. Pardon the pun.
We are also investing in the WestConnex project. WestConnex Stage 1 we made a commitment before election and what we've done in the Budget is bring forward the second stage of the WestConnex project—for those of you who are familiar with Sydney, the M5 side of the project—by giving New South Wales access to a concessional loan, a Federal Government concessional loan of $2 billion, up to $2 billion, which will mean that the project begins 18 months quicker than what it would've otherwise. Bringing construction of that project forward to the same time table in effect as Stage 1 which we think will bring not just whole additional amount of jobs to New South Wales but also will bring some innovation in a model that the private sector will come up with in designing that project, bring some cost efficiencies and deliver quicker.
In Perth, we're introducing the private sector into roads for the first time. There'll be, for the first time in Perth, a PPP for what we're described as the Perth Freight Link. It's a new section of road which will connect existing freight highways, the Roe Highway to the port more effectively. And it will be tolled for trucks, and that will allow that project to go ahead.
It's the first time that Western Australia will have tolling. It'll be for heavy vehicles. It'll take heavy vehicles off local roads, but it'll also create a designated corridor to bring material from the regional part of Western Australia directly through to the port. It is, I think, a fantastic project, but its innovation in the way we're financing. And I think we need to think about that here in South Australia as well.The Government can't, at both levels; governments haven't got the capacity to deliver all the infrastructure that we need to continue to grow our economy for the future. We must involve the private sector. And we've involved the private sector in Victoria, we've involved the private sector in New South Wales and in Queensland, and we're now doing that in Western Australia. I think South Australia has to be next. And the obvious, I think, target for that involvement in South Australia should be the Northern Connector, which would be just like the Perth Freight Link, would create a freight link for South Australia which would allow products, South Australia being a commodity based economy, from getting it from where they are to where we want them to be through the port.
There is, at this stage, I can't see the capacity of government to be able to fund the Northern Connector, certainly with the South Australian Budget in the state that it is. I think the South Australian Government should consider, and we'd be very happy to talk to them about this, having the private sector involved, certainly for the freight industry to be involved, in a contribution to ensure that the Northern Connector can actually happen. And I think that would add to what we're doing on South Road with the North-South Corridor. If you created the Northern Connector in the northern part, linking the Northern Expressway to the port, that would make a lot of sense. Infrastructure Australia has looked at the Northern Connector in the past and it's given it a very strong rating, and I think it is an obvious target in South Australia to introduce the private sector to be involved in road financing.
There is also a new initiative that the Treasurer announced and the Prime Minister with the state premiers at COAG, and you would have heard about it, the Asset Recycling Initiative, which encourages states to use their assets they've got on their books to recycle that capital into infrastructure and we'll pay a 15 per cent incentive payment for them to do so. And I think, again, in South Australia I would urge the premier and the government to look at using that initiative for a project like the Northern Connector. It would make much sense, it would help grow our economy, it would link our state far better, it would get our products to market far quicker and more efficiently, and at the very least, I think we should at least have a discussion, a mature discussion.
Too often in South Australia the discussion about tolls and about private sector involvement in projects has not been a mature discussion. If you want the infrastructure which can help grow our economy quicker, we have to look at the way we finance these projects, and I think now is the right time, just past the state election. There is plenty of opportunity for us to consider the financing of these projects, which would deliver additional projects to South Australia for you and your members. For you and your employees, I should say, as well with a sustainable pipeline which would help grow our economy.
South Australia will always be a commodities based economy. We always have been, we always will be, and we should play to our strengths and with the growth in the middle class in our region, in Asia, we have got a great opportunity to play to that strength. We just need to put in place the framework. And to get that framework in place, I think we need to be more innovative in the way that we deal in delivering infrastructure.
As I said earlier, it is one thing to announce it, it is one thing to have the Prime Minister and premiers standing there and announcing big projects, but it's another thing to actually deliver. And that's what we are now utterly focused on getting delivered. So we are driving the state governments very hard to give us timetables to ensure that we're meeting the expected time of delivery of these projects. That we're hitting milestones, that we're only making payments to states when they actually deliver the milestones, that they're not getting money in their bank account prior to milestones being delivered, because we want taxpayers to have accountability for what they're getting, but we also want projects on the ground and not being held up, unfortunately, or deliberately, for that matter.
We've set up in each state a ministerial oversight of these projects that I'll sit on and the relevant state minister. Â Here, obviously, with Stephen Mulligan, to ensure that we are meeting timetables, that there is political accountability for these projects as well as the bureaucratic arrangements that are in place. The Prime Minister's established an infrastructure subcommittee of Cabinet, which is meeting regularly, and at that meeting the number one standing agenda item is the timetables for delivery of all these major growth package projects.
We're reforming Infrastructure Australia to get better operations out of Infrastructure Australia. Unfortunately, Infrastructure Australia, which is a good idea was set up by the previous government but we acknowledge it's a good idea. It had been, in the last few years particularly, a failure because the Infrastructure Australia, particularly the former infrastructure coordinator, had fallen out with a vast majority of the states, particularly the Eastern Seaboard states, and the trust had been lost between the organisation and the states. And Infrastructure Australia is utterly useless unless the states are cooperating.
So we want Infrastructure Australia to be more independent, we want it to have a role in ensuring every project over $100 million has the BCR test. The business case assessment done on it so taxpayers can have the assurance that they're getting value for money, they're not just getting projects for the sake of it. So we're putting those reforms in place.
We've also asked the Productivity Commission to do a report on how we can get projects for less and more quickly and how we can look at the financing of projects and they've delivered that report to us. There was a draft in March, you may remember, and there was the final reports now being delivered to Government last week, and we're looking at that report and considering the recommendations that it makes.
We are very focused on ensuring that we get the value out of the money that we allocated in the Budget. $50 billion. It's a record amount ever from a Federal Government on infrastructure. It is a difficult Budget, but it's a Budget where we ask everybody to make a contribution to fix the unsustainable nature of the Budget into the future. Importantly, at the heart of the Budget is a focus on growing our economy quicker, creating more jobs, and ensuring that we're more prosperous tomorrow than we are today. Because the situation we found ourselves, the situation we had to deal with was not only were we going to force an unsustainable fiscal situation on our children, we're also going to have an economy which wasn't growing anywhere near as quickly as it ought to. We would, therefore, have lower living standards than what we should unless we addressed it. And the infrastructure growth package is very much at the heart of it.
But that's for me to say to you. You are the ones we need to deliver it. And I say, Phil, it'd be good next time we have this breakfast, maybe in 12 months or 18 months time, that we haven't got suits in the room, but we've got fluoro in the room.
Because the more fluoro on, there's more work happening, and I think that’s exactly what we're focused on delivering. So thank you for the opportunity to address you this morning and I hope very much in the coming months and years you see the rewards of the plan that we've put in place on 13 May. Thank you very much.