Keynote Address at the Future of Infrastructure Conference: Infrastructure under a new Australian Government



19 August 2014

Hilton on the Park, Melbourne

Thank you to Antony, and thank you to everyone for being here to start what is two days of quite interesting speakers and very interesting issues. I would say the most interesting portfolio in the Federal Government for sure. The most important portfolio definitely, and one which the Government is very focused on and we've talked a lot about, obviously, in our first twelve months. We are rapidly coming up to the end of our first year in just a couple of weeks' time; twelve months since I was given the enormous privilege of serving in this area.

I think if you look at what the Government has tried to do with infrastructure since we were elected; there are three major thrusts, if you like. If I can begin with the context.

The context we found in coming to government last September was that we had an economy which was, for the last decade or so, driven very heavily by private sector investment in the resources industry largely, which drove a very substantial part of our GDP and our employment growth. That is coming to a very rapid end, probably more rapid than what we would have hoped, but not unusual in Australia's history. And as Nicholas Moore from Macquarie Bank puts it, Australian's do two things in infrastructure: we build mines, and when we're done with that, we build cities.

We've moved back into a period where we need to invest heavily in building infrastructure across the country, not just in our cities, but in our regional areas as well. So the Budget did two main things.

Firstly, it addressed what we believe is a very challenging fiscal circumstance by trying to put sustainability back in the Budget, and that is obviously an issue which we will continue to debate for some time publicly.

But the second element of the Budget, the element where I'm heavily involved and really this discussion is about, was about driving economic growth, driving employment growth, driving productivity, by investing in infrastructure. And we did that in the Budget in a very heavy way with a $50 billion plan. Working with the states and the private sector, in the next six years Treasury estimates that will see about $125 billion worth of spending on infrastructure across the country.

There is a pipeline there like never before. In the Budget, there's a couple of projects which are worth pointing to as the attitude we've got, not just spending money when it comes to infrastructure, but trying to get economic reform as part of that spending, and driving more private sector involvement. Because the reality is that the infrastructure needs across the country are no longer able to be met by state and federal governments alone. There is an increasing need for the private sector to be involved in that conversation and in that investment. And as you said in the introduction, Antony, there is a great desire from the private sector to invest; it's just the circumstances in which they need to invest.

What we tried to do in the Budget is not just announce money being given to the states to build projects, although in some places we certainly did that, we also used different and new innovations in the way that Federal Government would be involved in projects.

The first example of that I would point to is the concessional loan for the second stage of WestConnex where we've given the WestConnex authority access from mid-next year to 2018 up to $2 billion through a concessional loan from the Federal Government to bring that project forward in effect by about 18 months. This brings it in alignment with the first stage of WestConnex, which we provided $1.5 billion towards. Both stages will be delivered in very similar timings. And that obviously brings some synergy, we believe, and hopefully will bring some innovation in the tendering process that delivers, therefore, the entire solution much quicker than the 10 years that was originally planned.

The second example that is worth considering out of what is our $11.6 billion growth package, is the money we provided, the $925 million, we provided to the Western Australian Government for what we are describing as the Perth Freight Link. In Western Australia, there's been a reluctance to involve the private sector in projects, but in this project there will be involvement by the private sector. There will be a heavy vehicle toll, and it will mean that you have in effect a direct route down the Roe Highway from past the airport, and possibly even further as we work through the planning, to Fremantle Port and it'll be a dedicated freight route.

The freight industry in Western Australian have said that they're very interested in this and they want to see the final numbers. We're working that through now and working through the detail with WA Government. I think it's fair to say—and I'll certainly been picked up by my friends in the freight industry if I misrepresent them—but they are happy to pay if it means they get infrastructure which delivers a more efficient outcome and more productivity. It means that they're spending less on maintenance, travel time and they're getting their product to market quicker. They are very happy to come to the party and deliver new infrastructure which does that.

I think with the example of the Perth Freight Link, we're showing that when you use the private sector you can have innovation. I think we'll see, as we build that project, as we build the model for that project with the Western Australian Government—who are doing an excellent job; I met with them last week—we are going to see real innovation in the way that we price that road and the outcome, not just for the freight industry getting its product to market, but for commuters.

Because if you can have dedicated freight routes, it means you're freeing up the freeways around for commuters to have access to a road which is not therefore competing with B-doubles travelling down from the Pilbara. Therefore it is a real safety outcome for commuters as well which, of course, has productivity benefits in themselves.

And the final point, I think, out of the Budget which is worth considering is, and I think certainly the most interesting and exciting part of what we've done, is the Asset Recycling Initiative. I hosted a round table at the B20 a month ago; that was by far the most popular announcement that the Government made. There's a lot of interest from overseas investors in it. As Antony rightly identified, the challenge is getting private sector money into infrastructure. The reality is and, as investors in New York may claim, as New Yorkers tend to, the chances of investors investing purely in regional infrastructure are around zero, if not less.

So, what we are trying to do is unlock capital to invest in new infrastructure by using existing assets on state government balance sheets, and we will pay a 15 per cent reward, if you like, to the state government if they use the money from a sale for new productive infrastructure.

The purpose of it is to bring to the state government, if you like, an incentive to consider how they're using their balance sheets more efficiently. Now, obviously in Victoria and South Australia, there's not as much availability to do that but there is some in Victoria with the port, and I think there is some in South Australia, but I've not yet fully convinced my South Australian colleagues of that. Although I note that they are indeed considering using the sale of the Motor Accident Commission out of the Budget to access the Asset Recycling Initiative.

In Victoria, the Victorian Government has flagged the sale of the port to use the initiative to build a public transport railway line from the city to the airport. That will be something which is very expensive but will be made possible because of the sale of the port and the recycling of the capital. You've seen it very successfully used in New South Wales and Newcastle with Port Botany. In fact, WestConnex is funded, in part, out of the sale of Port Botany so you're getting new infrastructure, new greenfield infrastructure delivered through the use of existing assets.

I think it is a really important initiative to drive the pipeline, the next pipeline of investments and to get more capital into greenfield infrastructure from existing infrastructure, where there is a lot of interest in investment, a lot of interest in investment. It is a good time for state governments to be thinking about being in the market.

The second issue that the Government is focused on, the second thrust, if you like, is reforming institutions.

Infrastructure Australia was a good decision of the former government. But we very much believe and certain state governments believed, when we came to government that it had been established with some flaws.

One: The body—the infrastructure coordinator position was a direct appointment of a minister, rather than the board which raised questions about the political nature of the appointment. That meant that there was a less than optimal working relationship between the states and Infrastructure Australia, and the reality is, unless the states are willing to work with Infrastructure Australia, the organisation is next to useless because the Federal Government doesn't build many roads. We provide a lot of money to the states and we hope we get a good outcome; we work closely with them, but, in the end, the state's plan, build, and deliver projects. You need Infrastructure Australia to be working hand in glove with the states for it to be successful.

Secondly, we thought, and state governments and industry said to us, that you need to define Infrastructure Australia and its role more appropriately to what we're trying to get out of the role. We think Infrastructure Australia has got a real opportunity to provide leadership in bringing together an audit, which it is conducting at the moment, about our needs for the future. Then working with the states on a 15 year plan about the types of infrastructure that will be required and where.

Not necessarily listing project A or B but having aims, for instance, of another harbour crossing in Sydney or, dare I say, duplicated road between Adelaide and Melbourne. Those sorts of long-term aims that will have productivity benefits and will really signal to the state and federal government about the sort of projects that should be funded in the future and give some sort of guide, working with the state government plans about what we should be focusing on. And that will provide more certainty to the private sector that there is a longer term pipeline.

The issue, of course, becomes it's all very well to have names of projects or a list of likely projects, but then it gets to the reliability of funding, which is another issue that we need to give some signals in the marketplace that we're not just going through the usual boom and bust in infrastructure funding in Australia but we've got a longer term plan to build what we need for productivity in the future.

And the third issue, something we're focused very heavily on at the moment is reforming the system.

We asked the Productivity Commission in November last year to conduct a review into public infrastructure. The cost—the most common complaint, certainly when I was first elected, I would get across the country was that it costs more in Australia than it should to build infrastructure. That it takes longer than it should to deliver, and that these issues were holding us back as far as delivering new and productive infrastructure. So, we asked the Productivity Commission to have a look at that along with possible models of funding, additional models of funding from the private sector or involvement from the Government to help facilitate private sector investment.

The Productivity Commission received an enormous amount of submissions. It had a draft report and then we tabled the final report, just a month or so ago and I'm in the midst, at the moment, of talking with all my state government counterparts and I've got a couple to go. I'm seeing the Victorian Treasurer and Transport Minister today, Queensland ministers on Thursday and then, next week, we've got a special ministerial council the Deputy Prime Minister and I will host in Canberra to try and work with states to get an outcome to deliver a better system.

I think the system we've got has some major flaws, quite obviously, and Productivity Commission points to the NBN as the example of a project which was flawed from the beginning because it wasn't built with an infrastructure plan in mind; it was built with a political plan in mind. Planning is certainly one of the major issues which the PC focuses on, getting a better system of project selection in the first place, and there are I think several areas we can work with the states to do that. Infrastructure Australia obviously plays an important role in that.

The manner in which we plan projects, one of the issues with the timeliness of projects seems to be that in the old days, I guess, in the old days state governments would have a lot of resources or resources dedicated in departments for planning of future projects, but they now wait largely until projects have got money allocated to them, until they start to plan a project, which of course delays the project quite a bit. Whether there is a way for us to pre-plan some of these projects to miss a step. In South Australia at the moment, we are providing funding for a longer term plan for South Road, which provided some significant funding with the state government to do two projects on South Road that are additional projects to finish that corridor. So we've given the state government money and they're working on that plan as we speak.

The issue about procurement. For instance, the cost of bidding is a consistent issue that's raised by the private sector throughout these discussions. I've had a couple of round tables with the private sector in the last few weeks and the cost of bidding seems to be a big issue.

For instance, with each of the big projects, often what happens is the tenderers will put in quite a bit of work, legal work, if you like, to meet obligations they would have to meet no matter who won the tender, which seems to be, frankly, a waste of time. No matter which consortium gets the tender, they're going to have to meet OHS requirements, they're going to have to meet certain state government legal requirements, so why are they spending money in a tender process proving how they will do that?

One of the issues we can work through with the states is building a better system of pre-approvals. The people that are preapproved before they bid on these projects across the country which, in other words, they say we will meet our obligations under certain laws which, no matter who wins the tender, they will have to anyway; we think may solve some of the cost issues. For instance, on one of the major projects across the country at the moment is well in excess of $20 million, which is very substantial, and in the end it's passed onto the taxpayer.

Finally, I think particularly the better use of data, collection of data and better use of what we get out of projects. Post-project evaluation, I think is something which strikes me as something we should be doing more often. We think we can get some improvements in project selection by using information from the completion of projects to find out did we get what we said we were going to get at the beginning of the project? When we invested $800 million in a road, did we get the outcome that we told the taxpayer we were likely to get in the first place? If we can be more transparent with that information; I think we will start to drive down costs.

The use of benchmarking, for instance, is another way in which we're talking to state governments.

Can we find an appropriate set of benchmarks? The NAPLAN for infrastructure, if you like. We can judge each of the states on their performance in that respect. And it's not about bashing up states. It's about learning from each other about how we best implement these projects, to get better value for taxpayers. The states have concerns often about releasing information, and you'll see at the moment a debate about the amount of information that's being released about major public infrastructure investments because of often commercial in confidence. Because also it's fair to say because they're concerned that the single focus on a BCR number which, in the end, is a data-in data-out type number.

One of the areas where we can certainly improve, out of the PC process, is to have a broader evaluation of the benefits of projects to give a better picture to the taxpayers about why these decisions are being made.

For instance, if you were judging purely projects on the basis of the BCR, you would never invest in a public transport project. That's the reality because public transport projects very often don't stack up on an economic case. They obviously make a lot of sense as far as the social infrastructure needs and how your city works and they have a broader set of benefits to major cities. So there is a case for a broader set of issues to be considered when you're making judgements about how you're investing, why governments are investing in certain projects.

We are very eager out of the Productivity Commission to get results, to get improvements to the system to refine the way that Infrastructure Australia works with the states and the signing on projects in the first place. The amount of transparency we can give taxpayers for the amount of money that they're spending on these major projects.

We are nearly 12 months into government, and I think we are making real progress of each of the states in getting major projects off the ground. If you look across all the cities, Sydney with WestConnex, we're very close to starting that project early next year. That project will be underway in Victoria. East West is about to have the tenders announced and I think next month there'll be major steps forward on that project in getting work underway. In Adelaide, I met with the Minister last week; we're making very quick steps to get both the Torrens to Torrens project and the Darlington project underway early next year.

They are heavy investments across the country and important investments and we're trying to do what we can. We are trying to get the processes refinements so they are much faster, much more certainty for business investing in these projects where in particular it's PPP models so we can get more infrastructure delivered more cheaply and then we have more again as far as our pipeline.

The states have been excellent to work with in the last few months. They have the same pressures as what we do in effect. We've got an economy which is in need of investment. We're not as productive as we should be. We need to find ways to ensure our cities are moving better than what they are, not only to get product demand, but to ensure people can move around efficiently, they're not stuck in traffic, their time's not wasted sitting waiting to get home to see their family every day.

That's really a very heavy focus of the Government, to ensure that we are not only putting money into infrastructure but we're getting the reforms to ensure the delivered more efficiently.

We're getting better value for taxpayers and we are driving a stronger economy.

Thank you so much for listening to me this morning.