The Smart Infrastructure Facility 2nd Annual Business and Policy Dialogue: Australia's Infrastructure Imperative: Getting More Value for Taxpayer Dollars

Speech

JBS016/2014

13 August 2014

SMART
University of Wollonging
E&OE

It is a great pleasure to be here. Gary, thank you so much for inviting me, to all the special guests, ladies and gentlemen.

This is an important conference, and it's an important group who contributes enormously to the debate at the right time, I think. And certainly since I became the Minister, without a huge background in the area to be honest before, Gary was one of the first people through the door with Nick and Ken Henry talking about the need to deliver infrastructure more efficiently and effectively, and to reduce the cost. And they continue to play a very important role in this conference as part of that for sure.

Nick, on the agenda you've had some great speakers already. You've had international speakers talking about the experience overseas, which is great for us to learn from—particularly the UK—which is seen as one of the better models. You've had Henry Ergas, and I'm always afraid when Henry's in the room when I'm speaking that I'm going to get a report card in the Weekend Australian about how I'm not delivering as soundly as I should be, but we do try and please; it's great to see you as well.

If I can start with the reason why we are so eager to be seen as an infrastructure Government. We are at a time when we've moved from—or are moving very rapidly from—very heavy investment by the private sector in construction and infrastructure over the last decade as we built the capacity to service the growth in our region in our resources sector. To a time when that drops off very quickly as we move into a production phase. More quickly than we probably hoped, but not historically different, if I can put it that way.

Nicholas Moore from Macquarie puts it very well when he says that Australia does two things in infrastructure: we build mines, and when that runs out we build cities. And we've moved to a period where we're now, again, having to build cities, or we need to build cities, to strengthen our economy.

And in the Budget we did two major things. The first of course which is the most public element of the Budget discussion—and some are surprised but those that have been involved in economics for a while are not—we are having a difficult conversation with people about the path forward for the fiscal situation.

We need to ensure that the decisions we make today leave a budget tomorrow that is sustainable. And that's the discussion we're trying to have with the Australian people and that will take some time, and it will take some effort, and it won't be popular, but it's important. Because if we don't make these decisions today, we'll have to make them tomorrow and they'll be harder if we make them tomorrow. That's the reality. And so we'll consistently argue that we need to ensure the Budget is sustainable.

On the second side of the Budget, we are conscious that, as I said, we are reaching a period where growth will be harder, our productivity is lower than it ought to be, and employment is becoming more challenging. And that is in large part because we've moved to a point where the contribution by the private sector to construction is coming off very quickly, leaving a big gap in our GDP. And so we want to encourage more infrastructure investment because it's good for our productivity for the future, it's good for jobs in the short term, and it means that our cities work.

There's three points to what we're trying to do, three major focuses of the Government.

The first is to develop a strong infrastructure pipeline. In the Budget we did that, we had the biggest ever contribution by a Federal Government to infrastructure across the country. $50 billion worth of projects that we're contributing to, which will leverage about $125 billion worth of investment over the next six years when you take into account the state government and, importantly, the private sector contribution to that infrastructure.

We very much in the Budget put a heavy emphasis on a short-term decision to get projects moving; to put in place projects which are based on good economic analysis, that the states are eager to get moving. There are about $11.5 billion worth of those projects which we describe as our growth package. In each city across the country—here in Sydney the WestConnex Stage 2 was part of that—projects across the country to have that effect in the economy of creating more jobs, but building projects which will lift productivity into the future.

But in that contribution we moved very deliberately to involve the private sector where appropriate, but more often, to get that investment. The reality is much of the major infrastructure needs across the country are beyond the capacity of federal and state governments to deliver alone. And we need the private sector to be involved.

If you think of the WestConnex project, all up it is something like $13 billion worth of investment. Now that is just beyond the capacity of the federal and state government to do without the private sector. Putting aside the innovation that the private sector brings into projects, and the efficiency that it brings, it's necessary for the capital to ensure that we're actually delivering.

If you look at two examples of where we very deliberately had announcements in the Budget which, with the states, ensured we were driving private sector involvement: The first is the second stage of WestConnex here in Sydney, where we gave the WestConnex Authority access to a up to $2 billion concessional loan. Which is the first time the Federal Government has ever used a concessional loan for an infrastructure project. But it will bring forward the second stage of the WestConnex project by about 18 months, meaning that Stage 1 and Stage 2, in effect, are delivered pretty much at the same time. This will bring efficiencies in itself but will get the benefits of that project happening much quicker.

The second innovation that we moved in the Budget when it came to our investment program was in Perth, where we put in place a project called the Roe 8, or we're calling it the Perth Freight Link. For those of you who know Perth at all, there's a gap in the Roe Highway which takes you to the Fremantle Port, which has been much discussed for about 50 years. Nearly as long, Nick, as the second Sydney airport, which we're also getting on with. And we said we want to do that project.

The West Australian Government came to us and said they wanted to do the project. But again, it's a very expensive project. It's a $1.6 billion project to deliver that upgrade to the port. So we're involving the private sector for the first time in Western Australia with a freight charge. That'll mean a freight motorway, which will be the preferred freight route, taking product from regional Western Australia all the way through the city to the port much more efficiently and effectively. The freight industry will pay a toll and will happily pay a toll, because it will deliver a much more effective and efficient route for them to get their product to market.

We're not just in the Budget announcing projects. We're also announcing reform along the way of how we're delivering projects. I think the most exciting, and certainly the most popular at the B20—at which I hosted a round table last month of international investors, and the week after I was in New York talking to investment houses—is the Asset Recycling Initiative.

It is, and to give Mike Baird credit as he's put it in practice—tackling the challenge which is that the private sector was reluctant to involve themselves in greenfield projects. Investors are reluctant to expose themselves to greenfield risk. And taking that risk away by encouraging the brownfield investment, using lazy state assets, if you like, to put that money into new greenfield projects, which deliver an economic outcome, a productivity boost, investment, and jobs.

It does seem that it is nearly universally popular, this initiative, but for a few people. You would have seen press in the recent weeks about the Bill that enables the Asset Recycling Initiative being blocked in the Senate. And I might just make a couple of remarks about that today. The reason, ostensibly, that the Opposition is blocking the Asset Recycling Initiative is because they claim that we are forcing the states without transparency to sell assets they wouldn't otherwise sell. That they are selling off necessary public assets because we're incentivising them, by adding the 15 per cent bonus if they use the proceeds of the sale on new productive infrastructure.

What the Opposition has done is attach an amendment which says that the Senate can disallow the spending of the Federal Government's money, the 15 per cent bonus, if they don't like the privatisation which has occurred. If the Senate doesn't like the privatisation that the state government has decided to put in place. So in other words, they want to disallow the instrument which says that even if a state government has gone ahead and sold their asset, used that money for new, productive infrastructure, they're going to stop the Federal Government from helping the states to build new infrastructure.

That's in effect what the Senate amendment that the Labor Party so proudly stands behind under this cloak of transparency. It is absurd. It is absurd. And it is just another example, frankly, the smart aleck political tactic that's been used for six years when they were in government and the diabolical results are what we inherit today. I'm not going to stand by and support what is realistically political skulduggery for the sake of it.

We will continue to argue that this is an initiative which is universally supported. It will deliver new, productive infrastructure.

And I point to in Melbourne, the Melbourne Rail Link. The Melbourne Rail Link will be built with the proceeds of the sale of the Melbourne Port. If indeed the Victorian Government is re-elected and they go down that path, which they have indicated, they will get access to the 15 per cent initiative if the Senate supports the Bill. That will deliver public transport, which we hear lectures from the other side of Parliament regularly that the Federal Government's not involving itself often enough in public transport.

Well, here you go. Here's an opportunity for new public transport infrastructure to be built. The reality is most of you in this room know that if we increasingly are going down the path of making judgments on infrastructure, on the basis of economics, public transport will very rarely be able to be supported because it has broader community needs but it doesn't ever stack up as a business case. So here you go. Here's an opportunity for the Federal Government to involve itself more often in public transport, on the table that the Labor Party thinks is a smart idea to oppose it.

Another is the second Sydney Harbour crossing.

If the New South Wales Government goes to the election next year, as Mike Baird has indicated, and gets the support of the community to sell the electricity assets, they will use that to build new infrastructure, including, as I understand, another harbour crossing. This is where this disallowable instrument is so absurd. Mike Baird will go to an election, to the people, propose to sell an asset to use for new productive infrastructure, but somehow the Labor Party thinks the Senate should then have a judgment. Not the New South Wales people; the Senate should have a judgment on whether the Federal Government puts that money in.

This is the ridiculous nature of what the Labor Party is doing, and it will stop a new wave of investment; it will stop a new wave of jobs. It is, as I say, just a political tactic, using fake transparency as a cover.

The second element of what the Federal Government is doing is reforming institutions.

To give the former government some credit, the introduction of Infrastructure Australia was a good move, but it was flawed, and we've tried to fix it. We've just moved legislation through the Parliament to give the board of Infrastructure Australia much more independence, and to redefine its role about planning with the states over the next 15 years for a pipeline which is obvious, considered and has good hard economic basis behind it, to send a signal to the system that Australia is open for business.

If we want more international competition in Australia—and this morning I saw reference to comments Ziggy made about having more international competitors in building infrastructure in Australia—we need to have a well-understood pipeline that means there's a reason to establish a business in our country for the longer term. I think that the reforms we've made to Infrastructure Australia, and I note John Fitzgerald's here today, putting in place not only the testing of the money that we're allocating of projects over $100 million, but importantly, the planning of the pipeline for the future.

And the third element, and I think most relevant to the overall thrust of this conference, is the Australian Government's reforms to the infrastructure system.

I brought the green paper along, Gary, to make sure that everyone remembers that it is a very important contribution to the debate and we take it quite seriously. And I thought the opening paragraph of the executive summary sums up, very much, the consistency between what the green paper found and what the Productivity Commission, in its recent report handed down, and I'll quote it:

“Australia has a good track record of getting on with the job of building infrastructure; however the time has come to better combine our national can-do spirit with greater smarts and the capabilities required by governments to meet the future challenges.”

That's exactly what the challenge is in reforming the system.

I think the best example and certainly the example the Productivity Commission points to as the greatest failure in recent years of an implementation of an infrastructure project is no doubt the NBN, which was based on the politics of a project, not the best way to roll out an infrastructure project.

If we can avoid those mistakes in the future, we will save taxpayers money and we'll be able to deliver more.

Gary puts a figure on it of $4 billion extra in the system, which means more infrastructure in the future. And that's exactly where we want to get to.

That's why we asked the Productivity Commission to conduct that report and to give us a strong set of recommendations and we believe they have. They're now public. I'm now working with the state governments during this month to work through the recommendations that we can put in place together; because obviously the states are the most important players, when it comes to implementing infrastructure projects, because they are ultimately responsible for a vast bulk of them. And so far we've had very good discussions, and I think the states are more open to change than people give them credit for. In fact, I think they have improved their systems in recent years. They are getting better at it, and we can learn more from each other to have a better system of infrastructure into the future.

Some of the areas we're looking at, particularly with the states are: implementing better selection for projects; the manner in which we plan projects; the transparency involved; how we can better procure projects, for instance, the cost of procurement is an issue which is consistently raised certainly at the B20 and internationally; better use and collection of data to guide selection and execution of contracts.

It strikes me as odd that we don't do post-project evaluations, and I certainly see a role with Infrastructure Australia there and my department is already doing work to better use the data we get and collect from projects to better refine the model of why are we selecting projects, one over another.

We are working heavily with the states. I've met with most state governments now, and at the end of this month we are having a special meeting of state ministers with the Deputy Prime Minister and myself. Our ministerial council will meet out of session in a couple of weeks time to seek agreement on a path forward to putting in place the recommendations of the Productivity Commission.

We've said from the very beginning we didn't want the Productivity Commission to just be another report to sit on the government book shelf, we wanted an action plan on how we can deliver projects more cost effectively, quicker and get better outcomes for the Australian people.

That is ultimately what delivering public infrastructure is about.

We want a stronger economy for the future, we want the capacity to be able to grow faster in the future than what we are today, that's why we invest public money, heavily at the moment, in building stronger infrastructure.

It's good for our economy, it means that we can get our products to market quicker and more effectively and efficiently.

It means that people can travel around our cities faster; they can get home to their families quicker. They can get to that extra job. If you're a plumber, an independent contractor who works out of his or her van, and travel around our cities, if you've got a better road network, you will be able to get to more jobs each day, if you're not stuck in congestion.

That is what productivity is.

It means getting more; it means getting more, more effectively and efficiently. It's not just some esoteric debate held at the University of Wollongong about what the meaning of the economy, it's the real effect that people in our suburbs, in our country towns and our regional areas genuinely feel.

One of the great achievements of the Government, I think, has been the work that Andrew Robb has done in building the trade arrangements with Japan and Korea, with the free trade arrangements and hopefully, fingers crossed, with China. If we can improve the infrastructure within our cities, that means that our farmers, our commodity producers can get their products to market quicker and more effectively, and it'll mean they'll get a better price for it.

That's what we're trying to achieve. This is very much at the centre of our Economic Action Strategy.

We need to fix the Budget, as I said at the beginning, but we need to grow Australia faster. We need to create more jobs and have better economic infrastructure for the future.

This forum plays a very important role in helping us guide policy; help us inform the decisions that we make to ensure we've got a better system into the future.

We can do better.

There is no doubt that we spend more than we ought to at the moment, and get less than we should, and it takes longer than it should. With forums like this, the work the Productivity Commission's done, the contribution you all make to the debate, I'm sure that we will get not just the $50 billion we've announced, and the $125 billion over the next six years implemented; but implemented more effectively and efficiently for a stronger Australia.