ANZSOG Institute for Governance and Policy Analysis and Inside Canberra Infrastructure Forum



15 July 2014

House of Representatives Alcove
Parliament House

Thank you, Mark, and thank you to all of you for being here. Look, it's great to be here today and it's great that you could be here on a sitting day. It's always an active day, sitting days, and certainly at the moment. So, look, thank you for the opportunity to speak to you today about infrastructure.

It is a very important part of this Government's agenda and it has been since we were elected last year. If you remember back last year, we were elected really for four major reasons. The four major tasks that we put to the Australian people we said we would achieve if we were elected in September, and that was that we would stop the boats from arriving, we would get rid of unnecessary taxes, we would build the roads in the 21st century, and we would fix the Budget. They were the four major tasks that Tony Abbott was elected as Prime Minister and the Government was elected to do.

On the last two, which I will touch upon today, we are getting on with the job. The fixing and building the roads has been something we've focused on since the beginning, and I will talk more about that. But fixing the budget is obviously an important part of why were elected, if not the most important part, and it relates very much to a strategy when it comes to infrastructure as well.

Mark mentioned on his introduction, he used the word austerity in relation to the Budget. Well, it's far from an austerity budget. In fact, the actual very point of what we're trying to achieve in this Budget is to prevent the need in the future from having to put in place measures which hurt those who can least afford to be hurt in our society. We want government to be able to provide services to those who need it, and do no more. That's what we want government to do.

And the reality was what we found in September last year was a Budget that had unsustainable spending way out into the future, right as the same time as you had the international economy still buffeted by several events. We still have a high Australian dollar. But, worse still, we've got an ageing population which makes it more difficult as we move into the years ahead for the sustainability of the Budget to be managed.

So the task in fixing the Budget was difficult, but not yet impossible. And if we keep putting off the major decisions, as we keep baulking hard calls in ensuring the sustainability of the Budget, there will be austerity budgets in the future. That is the reality.

And that's why we're fighting so hard, and that's why we believe so much in the path that we've put in place. The decisions we've made in this Budget don't have sharp effects that you've seen in places like the UK and in Europe on the population. They don't at all. They are measures which into the medium and longer term start to address the sustainability. But unless we start, unless we make these decisions now, it will be the next generation who has to put in place similar budget decisions as you've seen in the UK and what we've seen in Europe. And that's why we put this budget in place in the first place.

But the second part of the Budget which we are very committed to and very proud of is the growth strategy in the Budget, because we want Australia to grow faster. We want Australians’ real incomes to grow quicker. We want the economic miracle, if you like, that we've achieved in the last 30 years to continue. And to do that we need to put in place productivity-lifting infrastructure. And that's why the Budget - there was a $50 billion commitment, a down payment investment if you like, in the public infrastructure that Australians need, we believe, to grow our productivity faster.

And we didn't just invest in roads without any economic reform attached. We didn't just hand over blank cheques to state governments and say: go and build whatever you like. We put in place an infrastructure investment program which very specifically targets those roads and targets the infrastructure across the country which we believe will help drive economic growth.

What we're facing in Australia, after the last 10 or 15 years of a heavy construction phase in the mining industry, is a down-turn in that phase. Or a movement, I should say, to a production phase in the mining sector which means far less contribution to our GDP from the private sector infrastructure investment over the last decade leaving, in effect, a hole in our GDP in the coming years.

It's an issue which, of course, was always likely to hit us.

You don't continue to build a mining industry forever and there is a point where it comes off and moves into its production phase, but it's coming off sharper than what we had hoped and so the Government needs to step in.

It needs to step in and help fill some of that hole in the GDP in the next couple of years. So our growth strategy is about helping fill that GDP gap, creating jobs over the next two or three years but also not just throwing good money after bad projects like Pink Batts and projects that we don't have a longer term productivity uplift.

Actually looking at what evidence-based policy we can put in place, if I can steal that term from a fellow speaker today - to ensure we are investing in infrastructure that it does get our productivity up, our growth rate up and the amount of Australians in work up as well. So that's what we've been focused on as part of our growth strategy.

We've been focused on driving the private sector involvement. Our $50 billion investment will leverage, we believe, with State Governments, over the next decade, $126 billion worth of investment in infrastructure. In the budget, we didn't just hand over money. We did so with some reform attached.

For instance, in Sydney with the WestConnex Project.

The first stage of the WestConnex was a project that we committed to in the election campaign with one and a half billion dollar grant. The second stage we brought forward by 18 months with a concessional loan, the first time that form of alternative finance has been used by the Federal Government in our history for a road project.

In Perth, we introduced pricing on Perth roads for the first time with the establishment of the Perth Freight Link, which will be a project which will see a dedicated freight corridor where the freight industry pays a price to get their products to market quicker and more effectively. Again, economic reform is part of our investment strategy.

And, finally, we introduced the Asset Recycling Initiative where we're encouraging State Governments to use their assets that they own more effectively by recycling the capital from state-owned assets into new productivity lifting infrastructure. And you've already seen it in New South Wales with the sale of the Newcastle Port, for instance.

It remained directly linked into new infrastructure investments and you've seen it across the country. You've seen interest basically from every State Government since we announced it. Even my good friend, the South Australian Labor Treasurer, Tom Koutsantonis, who has said publicly he wasn't so interested; but interestingly in their Budget recently, they announced the sale of a state asset to try and access the asset recycling fund, I should say.

So again, the Budget is not just a $50 billion commitment; but a commitment with economic reform, a commitment trying to leverage the private sector's involvement in infrastructure. When we came to Government last year, an element of the infrastructure agenda was something that we had to fix. The selection, the cost and the timeliness of projects was far from good enough. It was far from good enough.

If I can give one bit of credit to the former government, the establishment of Infrastructure Australia was a good decision. It was a good development in getting better evidence-based decisions made on which projects governments should be funding across the country.

But the problem with Infrastructure Australia was it was doomed to fail in the way it was established by the former government, and I mean that it lacked independence.

It was a body that had an Infrastructure coordinator appointed directly by the Minister and in that appointment process, for one reason or another, the states completely lost faith in the Infrastructure coordinator and therefore Infrastructure Australia. And so what you saw at least for the last two years was the major states, Queensland, Victoria, New South Wales, refusing to cooperate with Infrastructure Australia which makes it a useless body because ultimately, the states deliver these projects.

The Federal Government doesn't build infrastructure projects. The states do. And so the first task of our government was to reform Infrastructure Australia and we did that through the parliament just a few weeks ago. We've established a more independent body where you've got an independent board appointed by Government. A board who makes decisions on the CEO and who appoints the CEO themselves.

We've asked Infrastructure Australia to do an audit of Australia's infrastructure needs and to build a priority list for the next 15 years to work with the states, to build publicly available and known priority lists with business, cost ratios and benefits highlighted so the private sector can look at that list just as they did with the NorthConnex project, and Transurban in New South Wales and so that it might be willing to invest in that project with some government assistance, driving more productivity investment in our country.

So Infrastructure Australia needed to be reformed, it needed to changed and we've done that.

But one of the other issues that we decided that we needed to look at in a more comprehensive way was the broader selection of, and choices in respect of, infrastructure, how much it was costing and how long it was taking to deliver projects. And that's why in November last year, we asked the Productivity Commission to do a report into public infrastructure, the cost, the timeliness and financing options to see whether there was more that we could do to reduce the time it was taking to reduce the cost to taxpayers; and to see whether we can leverage private sector investment more often into public infrastructure.

And today, after Question Time, the Treasurer will table the final report from the Productivity Commission into Public Infrastructure. It's a report which we believe, from an independent source, will give, or is giving some very serious advice and some serious advice that we will take and work with the states to implement reform over the coming months.

We believe that there was a need for an independent, informed view of what governments can do, and can do better in delivering infrastructure and it was long overdue.

Given the scale of our infrastructure task and the macroeconomic challenges ahead of us, the Government believed it was important that we had this comprehensive review to make sure we are getting the best value for taxpayers’ dollars. That we are saying to taxpayers: we're investing your money wisely in the infrastructure that Australia needs not just for today, but for tomorrow.

We asked the Commission to analyse and report on how infrastructure is funded and financed in Australia, the rationale, role, objectives of alternative funding and financing and to provide advice in ways to improve the decision making and implementation process.

What it found was, firstly, that there was enormous community and industry interest. There were over 200 submissions which is a substantial amount for the Productivity Commission.

The submissions delivered an overwhelming and consistent message, that there was a desperate need for a comprehensive overhaul of the practices currently used in the development and assessment of public infrastructure projects. In fact, the findings of this inquiry show the system that we inherited last September is broken and in desperate need of reform.

The Commission has found that a do nothing approach, in other words more of the same, will, and I quote: simply increase the cost to users, taxpayers, and the community generally and lead to more wasteful infrastructure.

The final report which we are tabling today highlights numerous examples of infrastructure projects that were poor value for money arising from inadequate project planning and selection.

The report particularly singles out the National Broadband Network as the most significant example of a project that was poor value for money and proceeded without a thorough cost benefit analysis or proper consideration of the best outcomes for taxpayers. The focus of the project was how to implement government policy without considering the merits of other options.

In the end, the cost of the NBN announced by the Rudd Government seven years ago has almost doubled to $70 billion. Yet to highlight the partisan nature of Infrastructure Australia under the previous government, the project was made a priority even without a cost benefit analysis being required. It's worth remembering this point when our political opponents made exaggerated claims about our infrastructure agenda.

The Commission also identified consistent drivers as shaping the need for change, including concerns about infrastructure deficiencies holding back productivity growth, concerns about the rising cost of delivering new infrastructure, and potential for efficiency gains or savings. Concerns about debt and long-term budgetary pressures that will hold back the delivery of vital infrastructure, and the need to bring forward infrastructure projects to offset decreasing investment and the employment in other sectors, particularly mining.

The Commission's findings show that no single reform will address the infrastructure challenges facing Australia, but rather comprehensive reforms, projects, finance, selection, governance and planning will be required.

The Commission has made a number of recommendations relating to better institutional and governance arrangements.

These include the need for consideration of various public and private financing models as alternatives to traditional models of taxpayer funding. Road specific, institutional and funding reforms; improving planning and tendering arrangements; addressing some of the factors influencing cost; achieving better labour markets, particularly on construction sites; better data collection that has the potential to revolutionise the planning and cost of infrastructure.

The PC has identified savings of at least $1 billion per year from undertaking these reforms.

The majority of the reforms recommended by the Productivity Commission directly relate to state and territory governments who are responsible for the delivery of public infrastructure, particularly in respect of roads. In the coming months, I will be leading our discussions with the state and territory governments about the implementations of the Commission's recommendations.

They will be critical to achieving real outcomes for the Australian Government, and for the Australian people and we will respond after those consultations with a final set of actions later this year.

While the findings will drive new important infrastructure reforms for the future, the Commission has identified reforms that could be implemented immediately, including some that we are already actioning, including improving project selections, including subjecting election commitments to rigorous project assessment.

The Australian Government election commitments are all subject to Infrastructure Australia's assessment if they're over $100 million in value.

Pricing reform: Transport Ministers have agreed, and are working to implement, initial heavy vehicle investment and access reform measures (and encourage) privatisation, where it improves investment and operation efficiency. Already the state assets are being reinvested into critical infrastructure projects.

The PC recommends having a clear idea about pitfalls and lessons from different models; and in that respect, Infrastructure Australia has already been asked to look at and audit our infrastructure base across the country. Using alternatives to finance infrastructure such as traffic flow management, intelligent use traffic lights, peak hour road closures, ramp metering - and the states are certainly already doing this.

Finally, the reintroduction of the Australian Building and Construction Commission to bring back law on building sites across Australia.

The Australian Government has already begun the job of repairing the broken system we inherited from the former government.

Our vision for infrastructure is one that will deliver jobs, economic growth and set Australia up as a powerhouse in the region. We've embarked on the biggest infrastructure spend in our history, as I said earlier, which we believe will generate with state governments some $126 billion in investment in public infrastructure over the next decade.

We want to drive productivity; we want to drive jobs growth; we want to drive economic growth. That's why we're investing in the East West project in Melbourne; that's why we're investing in the North-South Corridor in Adelaide; that's why we're investing in the WestConnex project, both stages, in Sydney.

That's why, for the first time in 40 years, that our Government made a decision about a second Sydney airport in the western part of Sydney and we announced with that a three and a half billion dollar investment in the road infrastructure supporting that decision. And that's why we announced the Perth Freight Link in the Budget in Perth to drive the economic growth in Western Australia with better infrastructure.

We're putting money into regional areas as well, particularly through our Black Spots Programme, and Roads to Recovery and a national highways upgrade. Again, we want value for money for taxpayers by selecting projects appropriately based on evidence.

We are dedicated as a Government to ensuring we leave a legacy for the next generation of a better system of infrastructure; that we leave a stronger economy, because we've invested in the right projects at the time right.

Of course, as it gets more difficult, as projects get more expensive, it is more important than ever that we engage with the private sector to be part of the infrastructure investment strategy across Australia.

The private sector is willing if we can get the circumstances right, and we've seen that in the budget where the government contributes, the private sector is involved, and we're getting better infrastructure and we will have better infrastructure across Australia.

The Productivity Commission report that we will table today will be another step in the direction that the Government is taking to not only invest heavily, but get the best value for taxpayers while delivering that new infrastructure that we so need to drive our economic growth.

It is a very important task, as Mark said at the beginning, of our agenda. The Prime Minister is very focused on delivering on all of our election commitments, but particularly in respect of delivering the infrastructure for the 21st century that we need for a stronger economy.

It's terrific you're focusing on this subject today. It's a very important subject. It's part of the G20 agenda in November. There's a B20 meeting this Saturday in Sydney where it's also part of that agenda. It's an issue which the globe is dealing with, but, in particular, in Australia, we are dealing with it right now in a very proactive way and it's great to be here today to talk to you about the Productivity Commission report.

The next step in the reforms, we believe, will ensure that we can build and much stronger Australia.

Thank you so much.