Transcript of Speech: Keynote Address and Luncheon with the Australian British Chamber of Commerce

Speech

JBS014/2015

09 July 2015

DLA Piper, Eagle Street, Brisbane
E&OE

Thank you so much. Forgive me, I've flown back in from Canada overnight so if I'm a bit slow today—slower than normal—then I apologise. But I did fly in to hear two bits of surprising news. Although, I've found out a bit about what happened at the cricket last night from Jim and it does seem that the poms are now trying to cheat their way into…I was a little surprised by that. But I don't think it will change the overall result of the innings. But the other surprising news, of course, is the State of Origin last night. 52 to 6, I think, was the score. What a remarkable result. I'm sure we've got a lot of happy Queenslanders in the room. I've got to bring you some bad news, your actually losing the real State of Origin. The real State of Origin, from my perspective, is the spend on infrastructure. And Mike Baird has got you completely there. In fact, he's rolled up in his blue outfit to the park and the Queenslanders haven't turned up. And it's a real problem, I think, for this state. I think it's going to be a real problem for the state, but also for our country, because we need Queensland to be successful.

Queensland is a burgeoning state, it's an important state. It's got the resources that are needed to fulfil the growth in the region. In the Asian region, the OECD tells us that there are some 500-odd million people in the middle class today, but by 2030 there'll be 3.2 billion. It's a staggering number. It's a staggering amount of growth, and our government is very focused on signing free trade agreements as part of that growth, removing red tape from the economy so that our businesses can be part of that growth. Cutting tax for small business, so small business can grow and people can use their own talents to create their own opportunities.

But also by building infrastructure so we can service that growth. And we have done that through a large amount of spending on infrastructure through just purely government allocation of money. In fact, Queensland gets more than any other state per capita out of that normal programme, including the biggest government funded road project the Bruce Highway project. In fact, last week we made another announcement in respect of the more southern part of the Bruce into the metropolitan area with a study to see what we can do to start to ease the congestion.

What the Infrastructure Australia audit shows is that we shouldn't really look at Brisbane as a city, it's actually a south-east corner of Queensland as the big metropolitan area of Queensland. In that respect, there is going to be an enormous need for infrastructure investment to service that growth. The question is, how are we going to pay for it? We saw a new model develop at the leadership of Mike Baird when he was Treasurer of New South Wales and he used the sale of two ports and the proceeds from those ports went into new infrastructure. Of course, in the 1990s when we used asset recycling, we used it very much to pay off debt. In South Australia, my home state, the then Liberal Government leased for 99 years the electricity assets and used all of that money to pay off debt.

Of course, as a Liberal I support that approach, and it's sound fiscal policy. But the problem is, when you then lose that government to people who aren't as committed to sound fiscal policy, we now find that the debt in South Australia is bigger than when the state bank went broke, and we've not got the assets to show for it. So, people don't see a benefit from that sale, while there's all sorts of benefits, I think, from having the private sector run what are regulated assets. We lost the community because they didn't see the benefit, the ongoing benefit of that process. So, this time, I think, what Premier Baird did as Treasurer, initially, is create a new model that really sees the money be taken from a mature asset into a new greenfield asset. Of course, it is always challenging to find finance to fund greenfield assets.

So, we took that model, and the Treasurer Joe Hockey really took that model. Immediately after the election when I was first appointed—by the way, I am allocated to kind of mind Joe in Canberra. I lived with Joe in Canberra, basically it's a community service to make sure that he keeps himself out of trouble. We were talking at home after the appointment, and he was telling me about his idea about the Asset Recycling Initiative. It really is about moving that money from mature assets into that new greenfield asset, and incentivising the states to do it with a 15 per cent bonus if they do that on the sale price. So, you get more infrastructure out of that. New South Wales, of course, has now just got a free run at that bucket of money. The ACT is getting a little bit out of it for their light rail project, Western Australia is now engaged in it, because they've got big capital requirements, they're got similar issues to Brisbane, in fact they're probably worse.

Perth is growing very fast, the state budget is very tight and they've realized that there is limited availability of money. So, we've got big commitments already with the states, a $50 billion commitment with the states. Big commitments here in Queensland with the Bruce Highway, the Gateway North Project and the Toowoomba Second Range. But the next phase of that infrastructure pipeline, I pose the question to the Queensland Government—how are you going to fund it? How are we going to fund this next phase? We know how we're going to fund it in New South Wales and there are $30 billion worth of projects either underway or about to get underway in New South Wales. They will go through a boom and hopefully their boom will be enough to help kick-start our economy. Six per cent unemployment, the figure just out before I came here today, is okay, but not great. When John Howard left Government it was 3.9 per cent unemployment in 2007. We want to get back to an unemployment level much lower than six per cent and infrastructure's a big part of that story.

So, the Queensland Government I think, unfortunately, is acting in a really ideological manner. Rather than think about how are we going to meet these needs, the Infrastructure Audit says congestion by 2031 will cost Australia $53 billion. In Queensland alone, the cost for the Brisbane-Gold Coast-Sunshine Coast corridor will grow from $2 billion in 2011 to some $9 billion by 2031. And you all know that, because you all drive that corridor regularly.

The Queensland Government needs to have a look and reconsider their approach to this. If they want to call it another name, call it another name, we don't mind. You can call it whatever you like. But we want to fund these projects. We want to find a way to fund these projects. Queensland Government Minister Trad continues to tell me every time I see her how much she wants to build a metro rail system in Brisbane, that's terrific. We're not against that at all, we'd be for that. But tell me how you're going to fund it. At the moment, I have no idea how Queensland is going to fund these commitments. So, it's a big problem for the Australian economy if the Queensland Government maintains this irrational objection to using what are mature assets, using the money from it for greenfield project. There is a lot of money in the world looking for a home, for good projects, but that greenfield element will mean governments still need to be involved. And we need to work out how we can provide money to meet those needs. We want to build more infrastructure across our country, so we've got that opportunity to take advantage of the growth in our region.

But it's not all about just building the new infrastructure. We will increasingly have to have a discussion in the community about how we maintain the infrastructure, the existing stock of infrastructure. Because the current model that we use is really under pressure. In Australia, we traditionally fund infrastructure out of just general revenue at the federal and state level, and local government level, and we use grant systems between each level of government. And the revenue arguably collected for infrastructure is collected mainly through fuel excise, through registration charges and license charges, and in some cases tolls for other infrastructure. And that traditionally has collected more revenue than has been spent on infrastructure across Australia.

But that changed a couple of years ago and the lines crossed. This year, the numbers are around $22 billion being spent on infrastructure by all three levels of government and the private sector and only $19 billion being collected in revenue from those charges. Largely it's because cars are becoming much more efficient, so the fuel excise is starting to plateau and in fact it will fall. When I was in Los Angeles late last week, we had lunch at the Consul-General's on Thursday with a couple of guys from Silicon Valley who were working on electric cars, working with Google on the driverless vehicle. This technology is developing, it's happening quickly. We're going to see increasing investments in electric car infrastructure. Tesla is intending to build its own infrastructure in Australia for charging stations to address that issue of being able to charge the cars.

So, fuel excise will have less and less capacity to fund the need for our infrastructure growth or maintenance of the stock that we've got. Because we can get much more out of the existing infrastructure, we don't always have to build the new infrastructure—in some cases it's difficult because it's in corridors where you haven't got the capacity to expand. So, using smart technology, using the existing infrastructure more efficiently, actually has quite significant productivity benefits as well.

So, there is, I think, in that respect, a discussion that we need to start to have. I note yesterday the South Australian Premier said that he would be willing to look at having a heavy vehicle charge across the state of South Australia, and that's a discussion we are absolutely open to having with any state, we'll start that discussion with South Australia.

Last week, I went to Oregon on Wednesday when they launched their new road pricing model, which is a per-kilometre charge with a transponder in the car. They're introducing with 5,000 vehicles to begin with, so you volunteer to be part of it. You get a tax rebate or bill at the end of the month, depending on how many kilometres you drive, compared to the excise regime. Now, they're slightly more advanced to the extent that their excise is already hypothecated, so they're able to more directly show the link. But it's a very interesting use of technology. Ultimately, I think it's a fairer way for people to be able to pay for the use of the roads to make sure that they continue to be maintained. A lot of people don't think they pay to use the roads, but they do because every time you fill your car up you're paying a tax related to the use of your road. It's becoming increasingly unfair. If you own an older car, it's not as fuel efficient as a new Prius or a new electric car, you'll pay a lot more to use the network than what those people are. So, I think this sort of technology and this sort of discussion is a discussion that our community will increasingly need to have to ensure that we've got the best system of—this is not about more tax, it's about collecting the tax efficiently, or the most effective way to collect the tax, and use it directly to ensure the network is as well maintained as we need it to be so we can continue that growth.

I think this will be the sorts of discussion that Andy will have with the delegations to London later this year, which I think is a terrific idea, to share ideas and discuss different approaches across the globe, how we can learn from what they do in the UK. The UK is a very well advanced infrastructure market, and we think that there is plenty of opportunity with this delegation and Andy's put together a great group to go over to the UK in late September. It will be a privilege to be part of it, and I look forward to the discussions that we can have on pricing, on accessing capital, using the opportunities that we've got with our growth to improve our infrastructure, whether it be road, rail, or freight movement.

This is an area where there's a lot of attention. The Prime Minister wants to be remembered, as you all know, as the infrastructure Prime Minister. The Treasurer calls himself an infrastructure Treasurer. Some of us have actually got to do the job and deliver on that aim. So, it is an interesting area, it's an important subject for our economy. If we don't get it right we won't make the most of the enormous opportunities we've got in this time.

The thing, I think, we've always got to remember is that the growth in our region provides unbelievable opportunity for us. But it also provides extraordinary competition and challenge. People who are moving from poverty to the middle class in China or India, or Southeast Asia, are not going to be content with just their lifestyle being what it was. They will compete, they will compete heavily. We've got more competition than we've ever had before. If we don't continue to reform, if we don't continue to ensure that our economic structures are as well placed as they need to be, we will fall behind, very quickly. The world moves quicker today than it has ever has before and governments have got to move quickly with it; the private sector's got to move quickly with it. We do infrastructure very well in Australia but people will catch up and they will take over, and we will fall behind if we're not careful.

So, there are lots of opportunities, we're involved right across the globe in infrastructure; we're part of the Asian Infrastructure Investment Bank that the Treasurer signed up to a few weeks ago, and that will provide opportunities for Australian companies to get into the burgeoning markets. We've got the Global Infrastructure Hub in Sydney out of the G20. Again, we think opportunity to use the Global Infrastructure Hub to get Australian companies to export their skills, export what they do so well with infrastructure. But we must ensure that we've got the best system here as well. In that respect, here in Queensland, I think the pressure's got to come back onto the Queensland Government about how are you going to fund the infrastructure you need to make sure that Brisbane, or the south-east corner of Queensland particularly, can continue to grow and keep up, and at least be competitive in the State of Origin battle against a buoyant Premier Baird.

It is a great opportunity to be here today. I thank very much the British Chamber of Commerce for asking me to be here to speak. I hope my jetlagged words weren't too bad for you. Thank you so much.