Keynote at the Australian Financial Review's National Infrastructure Summit
11 June 2015
The Swissotel, 68 Market Street, Sydney
Well, following Mike Baird is like following Ricky Ponting to the crease, isn't it?
Mike Baird, the most popular man in Australia, thank you for coming along and thank you for your contribution, Premier.
To the Lord Mayor Perth, it's great to see you here.
The Chairman—as he is well known—Mark Birrell of Infrastructure Australia who is continuing to do a terrific job as the chairman of that organisation.
Of course, to Stutch, thank you for putting this little show on. I think it is a great opportunity and it is an important topic.
Mike Baird said ‘it's the new world’. I think infrastructure is the new black.
Everyone wants to be the infrastructure Prime Minister, Treasurer, Premier—some of us actually have to be the infrastructure ministers.
It's the perfect place to have this conference because this is the epicentre of the infrastructure story at the moment.
Mike Baird—he's now left so I'm not just sucking up to him—is driving the agenda.
His innovation with the way he is funding infrastructure, the energy he brings to it is really important.
We have a study going on within the Liberal Party about how we clone Mike Baird across the states because that is what you need to deliver infrastructure.
One of the frustrations as a federal infrastructure minister is you actually don't deliver any infrastructure. We have a large chequebook which we use to dole out increasingly large amounts of dollars.
A decade ago the federal government's contribution to infrastructure was about $800 million, this year we'll spend about $7 billon.
It is increasingly a role that the national government is finding itself involved in because it is such an important part of the national economy.
But you need it to be delivered effectively, to do that, ultimately, you need political leadership at a state level. Mike Baird brings that political leadership.
It is a very important part of our economic plan to grow the economy.
The rapid growth in Asia represents enormous opportunities for our country—we all know that. But just because we are close to Asia does not mean we will automatically reap the benefits.
The recent Free Trade Agreements that Andrew Robb has signed on behalf of the Australian Government will certainly turbo charge our chances of success.
But we need to make sure that Australia is ready to take full advantage of what lies ahead of us. And the key to this is infrastructure.
We cannot grow the economy without the right infrastructure to support it.
We desperately need to improve our infrastructure so we can deliver our goods across the country and to the rest of the world more efficiently—otherwise congestion will continue to act as a handbrake on our growth.
Government's infrastructure investment programme
The Abbott Government was elected to deliver the infrastructure we need to grow our economy.
We were elected to deliver infrastructure faster so that we can be more prosperous.
But we also recognised that the ad hoc funding approach employed in the past wasn't going to suffice in the future.
In the last Budget, we outlined the biggest infrastructure investment programme in Australian history—a fifty billion dollar programme that would generate over one hundred and twenty five billion dollars of infrastructure investment.
It was more than simply handing over more government grants or taxpayers money.
In several project there was genuine investment from the private sector and the use of alternative finance.
This investment is now hitting the ground.
WestConnex project stage one and two, NorthConnex, and the Western Sydney Infrastructure Plan are all under construction here in New South Wales.
After forty years of inaction, we have made a decision on an airport for Western Sydney at Badgerys Creek and construction will start next year.
And we are on track to duplicate the Pacific Highway by the end of the decade.
In Queensland, early works are underway on the Gateway Motorway North project with major construction to start later this year.
In Western Australia, the Gateway WA project is almost complete and planning for the Perth Freight Link and North Link projects are well underway and construction will start next year.
In South Australia, early works on the North South Corridor are underway and major construction is about to start.
In Tasmania, we have announced a 10 year action plan to upgrade the Midland Highway and work is now underway.
We are getting on with upgrading infrastructure in Victoria despite the disappointment of the cancellation of the East West Link.
Recently we committed one hundred and fifty million dollars jointly with the Victorian Government to complete the M80 upgrade between the Western Highway and Sydney Road.
We have also welcomed the Western Distributor proposal put forward by Transurban.
We have asked the Victorian Government to supply the current project and financial business plan details to Infrastructure Australia for evaluation.
And we have made it clear that there must be a financial contribution from the state for that project.
We are also concerned that the project may cost motorists in the east to build a road in the west and we would not support such a proposal without significant benefits to the entire network.
I am very confident we can resolve these issues, but the first step is for the Victorian Government to provide the current proposal to Infrastructure Australia as soon as possible.
The sooner this happens the sooner we can get on with delivering more infrastructure in Victoria.
Australia's infrastructure challenge—Infrastructure Australia Audit
These major projects will reduce congestion and improve Australia's productivity.
But we are not going to call it a day and say the job is done.
What we have announced so far is just the start.
It is only the start because our infrastructure challenge cannot be fixed with one infrastructure programme. We are well behind.
Under our predecessors, Australia's infrastructure backlog exploded.
Between the years 2008 and 2013, the Global Competitiveness Index marked Australia down 10 places to 35th in the world when it comes to overall quality of infrastructure.
When we were elected, we needed to get a detailed understanding of the size of the challenge we were facing.
The recent Infrastructure Australia audit of national infrastructure provides us with this detailed understanding.
It gives the nation, for the very first time, Australia-wide information on the adequacy, capacity and condition of nationally significant infrastructure.
If someone wasn't convinced about our infrastructure challenge before, I am sure they are now following the audit's release last month.
This audit is robust, evidence-based and importantly, independent.
Above everything else, the audit reveals the costs of inaction.
For example, road congestion in Australia is currently costing some thirteen point seven billion dollars per year.
If we don't take action, the cost will be fifty three billion dollars a year by 2031.
That is almost four times higher than it is today.
The audit shows that much of our future growth will be in the major cities, which presents challenges for infrastructure and housing accessibility and affordability—particularly for first home buyers in Sydney and Melbourne.
We only have these challenges because our economy is growing.
That is why we shouldn't fall into the trap of thinking that these are bad challenges.
They are good challenges to have.
Economic growth and rising house prices are good things.
However, this needs to be matched with an economy that is creating more jobs and higher real wages.
This is what our economic plan is all about.
Clearly we have to address the challenges around our growth. Better planning is obviously the key.
Currently much planning work is left to local councils. But asking local councils to bear the brunt of development challenges is largely beyond the capacity of most, but certainly beyond the capacity for them to withstand the local campaigns that they can face.
It often leads to a disjointed approach without a clear and coherent direction.
That is why we really need to start holding the state governments to account about addressing the supply issues—whether it be urban infill, whether it's developing greater access to apartment-style living in our major cities, or releasing some land.
As the Federal Government, we are not responsible for planning our regions or our cities.
But we have become much more involved in infrastructure because of its importance to the national economy and the failure of the local and state governments to keep up.
In this respect, the Australian Government is simply not going be a passive player with a big cheque book. But rather be an active participant in ensuring we get a much better outcome for the Australian economy.
The supply of infrastructure is already rated amongst the top problematic factors for doing business in Australia. We cannot let it get even worse.
Our investment in nationally significant infrastructure can help deliver more liveable and affordable cities.
Need for alternate investments
A real example of this is our investment along with Mike Baird in Western Sydney—a plan that builds before the growth.
Governments will always play a major role in funding infrastructure.
But the size of our infrastructure challenge makes it absolutely crystal clear that direct Government investment alone will not be enough.
Since coming to Government in September 2013, we have vigorously pursued alternate sources of funding.
We have encouraged asset recycling as a way to stimulate state government balance sheets.
It makes no sense for governments to continue to own mature assets simply because of yearning for the past. Indeed this only ties up scarce government capital.
We can deliver more value out of the taxpayers' money by moving tied up funds out of existing assets into new infrastructure.
This is why we established the Asset Recycling fund in last year's budget.
We have already signed agreements with the ACT and New South Wales worth around $2 billion. And we expect to make more announcements soon.
Clearly the benefits of asset recycling were on display last week.
A second harbour rail crossing is now a reality because of the Baird Government's decision to lease the poles and wires and the Australian Government's Asset Recycling fund contribution.
In fact, we expect that about 60 per cent of our funding from the Asset Recycling fund will go towards the public transport projects.
This would arguably be the largest Australian Government investment in public transport in our history.
Given this it is staggering to think that the Australian Labor Party is still opposed to this initiative and presumably the projects it is associated with, even though many are proposed by Labor state governments.
The Australian Government is also delivering a two billion dollar concessional loan to New South Wales for WestConnex Stage 2.
This is the first ever concessional loan for a major road project in Australia.
Importantly the loan will mean that WestConnex Stage 2 will be delivered eighteen months ahead of schedule.
Stage 2 will get underway within weeks with the beginning of the upgrade of the King Georges Road interchange.
And we expect to do more with New South Wales on WestConnex Stage 3 and possibly 4 in the weeks and months ahead.
And, of course, NorthConnex—the first major infrastructure project in New South Wales to be delivered under the new unsolicited bids process—is now under construction.
The recent success for infrastructure in New South Wales is a reminder of the lost opportunity in Queensland.
It is easy to talk about what we need. But it means nothing if you don't know how to pay for it.
The Baird Government has a plan to fund the infrastructure New South Wales needs—the Queensland Government doesn't.
This is a State of Origin contest that New South Wales is clearing winning.
Western Australia is also taking advantage of our Asset Recycling initiative and looking to sell the Fremantle Port—possibly unlocking $1.5 billion for new infrastructure.
If the proceeds of the sale are reinvested into new infrastructure, WA will also be eligible for additional funding under the Asset Recycling Fund.
We congratulate the WA Government on this decision—it will mean that Western Australia has a bigger infrastructure spend than it currently has.
I'm sure Treasurer Nahan will have more to say about Western Australia's plans tomorrow morning.
Across the country, we also need to improve the way we deliver and plan for infrastructure if we are to encourage private sector interest.
The work Infrastructure Australia is undertaking will provide a greater understanding and opportunity of where to invest.
The Infrastructure Australia audit will help develop Australia's first comprehensive 15-year plan on infrastructure priorities, which Infrastructure Australia expects to finalise in the second half of 2015.
We also need to ensure that tendering processes are not cost prohibitive.
This is an area that has been consistently raised with me.
It also featured strongly in the findings of the Productivity Commission report in public infrastructure which was released last year.
We are working with the states and territories to streamline procurement policies to minimise the administrative burden on governments and the private sector.
And we are willing to consider the use of flexible tendering arrangements, including consideration of semi-financed bids on a case by case basis.
Greater private sector involvement
The Australian Government is continuing to look at innovative ways to deliver, fund and build infrastructure.
We must—the latest budget estimates show that total government expenditure is outstripping revenue by about $2 billion in respect of infrastructure.
This will only get worse with the fuel excise under pressure as a revenue source with increasingly fuel efficient vehicles.
As the Productivity Commission report on public infrastructure, which the Government commissioned in late 2013, stated:
Well-designed user charges should be used to the fullest extent that can be economically justified. (P2).
And the Harper Competition Policy Review report made similar recommendations:
Governments should introduce cost-reflective road pricing with the aid of new technologies…. Indirect charges and taxes on road users should be reduced as direct pricing is introduced. (P38)
The Infrastructure Australia audit likewise highlights why we have to reform the system and why there needs to be a greater involvement by the private sector for alternate sources of funding.
All these reports are saying the same thing—Australia needs to embrace more innovative ways to fund infrastructure and consider more efficient road pricing mechanisms, otherwise we will not deliver the infrastructure we need for our future.
Other countries are already embracing new road user charging initiatives.
In Singapore, there are plans to implement a pricing system based on satellite position tracking by 2020.
This will mean that road users will be charged based on distance, location, time and type of vehicle.
In Oregon in the United States, the Department of Transport is testing a pilot scheme that would replace the state's fuel tax with a mileage based tax as a source of funding for their main roads.
Unfortunately in Australia, road infrastructure has traditionally lagged behind other infrastructure sectors in adopting cost recovery from users and consumer involvement in investment decision-making.
In fact, road transport is one of the last major areas of our economy that remains unreconstructed, with institutional arrangements around funding and provision remaining much the same as they were a generation ago.
In today's world, we generally accept that you pay for the service you receive.
Road pricing remains the exception.
We currently pay for infrastructure through a range of measures like the fuel excise, vehicle registration fees, licence fees, tolls, and general taxation.
But these taxes and charges do not adequately link the cost users place on infrastructure.
As I said before, last year we expended about $22 billion across the country on infrastructure and the revenue sources for it raised about $19 billion.
We need to change the way we think about the provision of road funding.
I understand some may be wary about new types of road pricing.
But it has to be on the table if we are serious about funding the infrastructure we need to build our future.
This is not about raising taxes and charges. It is about making the system more efficient, better targeted and better designed to deliver better outcomes.
And while this remains a difficult and contentious area of reform, I can report that small steps are being taken in the right direction.
For example, on the other side of the country, we are introducing road pricing in Western Australia by establishing a heavy vehicle freight charge to support the Perth Freight Link.
The freight charge will be collected through a GPS-based per kilometre system—a first in Australia.
This vital piece of infrastructure has been talked about for years. But it is only now being delivered because of alternate financing arrangements.
The Australian Government is also leading discussions with the State Transport Ministers and the Local Government Association on options for trialling heavy vehicle distance and location charging through telematics.
Transport Ministers have agreed and are working to implement initial heavy vehicle investment and access reform measures.
And we welcome the Paslasczuk Government's support for reforming heavy vehicle charging in its response to the Harper Competition Policy Review, saying that:
Motoring clubs and industry bodies have taken the lead on consulting with the community about potential future models.
I also welcome the work Transurban is doing in Melbourne to test various road-pricing models and derive data to help progress options for a sustainable funding model.
Various user-pays models will be trialled as part of the work, including a distance-based kilometre charge, annual fixed costs per kilometre based on expected usage, and a price per trip or charge to access the road network.
The Australian Government considers this work to be an opportunity to put theoretical policy into practical application.
As such, I have instructed my department to work with Transurban on this study.
Transurban and the Federal Department of Infrastructure and Regional Development have already discussed terms of reference and are looking at other ways that the Department can be involved to ensure we both derive the best information from this study to assist us in delivering the infrastructure of the future.
This is encouraging work by the private sector and the Australian Government looks forward to participating and seeing the results of Transurban's work.
To unlock private sector funding, we must continue to look at road pricing, freight charges, asset recycling and other forms of funding like concessional loans.
But to encourage the private sector to invest we must start improving the way we deliver infrastructure in Australia and create a stronger pipeline of projects.
There is a huge opportunity to deliver a new wave of infrastructure across the country—infrastructure that will unclog our cities, deliver safer roads and let us make the most of new trade opportunities.
But as I have said before, relying on government funding alone is a false dream.
And talking about what we need is pointless unless we have a plan on how to fund it.
We are currently delivering and financing infrastructure much like we did a generation ago.
Rational project selection and more efficient pricing can only make for better outcomes for better infrastructure and a more prosperous Australia.