Speech to the National Roads and Transport Congress Australian Local Government Association

Speech

PFS002/2015

19 November 2015

Ballarat, Victoria

I am very pleased to join you for this important conference to discuss local roads and transport issues.

Under the dynamic leadership of Troy Pickard, the Australian Local Government Association is very much a thought leader in engaging with important public policy questions about how best we deliver road transport services to Australians—and the role of all three levels of government in doing that.

Today I want to discuss three related issues: the importance of road transport to our national economic performance; how to achieve better value for the money we invest in roads; and finally, how the various government, private sector and community stakeholders engaged in road transport can collectively secure better outcomes.

Importance of Roads for national economic performance

Let me turn first, then, to argue that the state of our road network, and in turn the quality of road transport services, is critical to our national economic performance.

As we all know, Australia has a productivity problem.  For many years we enjoyed consistent annual growth in productivity.

According to a 2011 paper by well known economist Saul Eslake, in the 1980s Australia‘s ‘multifactor productivity’ grew by 0.7 per cent each year. Then in the nineties it jumped dramatically—to 1.6 per cent each year. But in the first decade of this century Australia's annual productivity growth has been essentially flat. [1]

Treasurer Scott Morrison speaks regularly about the importance of improving our productivity growth.  In a speech earlier this month he highlighted the link between infrastructure and productivity, citing a 2005 Productivity Commission finding that 2.5 per cent of growth in our GDP—or $20 billion—had come from improvements in key infrastructure sectors in the 1990s.[2]

There are plenty of examples, in Australia and globally, of the link between road infrastructure and productivity growth.  The US interstate highway system is a well studied example.  Construction started in the fifties, ostensibly for defence reasons.

One study found that it generated 31 per cent of the annual increase in US productivity in the 1950s—at a time when the US was enjoying remarkably productivity growth of 6 per cent per annum. 

By reducing shipping costs, and helping to create a single US national market, the interstate highway system delivered substantial economic benefits.

It allowed more efficient companies to better serve the national market. It delivered sharp cost reductions in all but three of 35 industries as transport became cheaper and more efficient.[3]

Australia's road freight sector has shown considerable increased productivity improvement over time.

Between 1971 and 2007 total domestic road freight grew six-fold from around 27 billion tonne km to 180 billion tonne km.

Over that time, the average productivity of all road freight vehicles more than doubled. Consequently, the 2007 road freight task required half as many vehicles as would have been needed without productivity growth.[4]

A good current example of the productivity benefits from road infrastructure is the upgrading of the Pacific Highway. 

This has been underway for a number of years, and about 60 per cent of the distance from Hexham to the Queensland border is now a four-lane highway.  This has delivered time savings of 90 minutes on a typical trip.

When the four-lane highway is completed in 2020 it will save 2.5 hours on a typical trip from Hexham to the border.

It is not hard to see the productivity benefits of this.

If a trip takes less time, then a given truck can do more trips per week, per month or per year.  This means all the fixed costs—like the capital cost of the truck, and the driver's pay—are spread across the greater amount of freight carried, and the cost per unit of freight correspondingly drops.  That is a benefit which cascades through the economy; that is productivity improvement in action.

Because the Pacific Highway is of such importance to the nation, the Turnbull Government is contributing 80 per cent of the construction cost of the last remaining 155 km between Woolgoolga and Ballina, with the NSW Government paying the balance.

In total, the Turnbull Government has committed $5.6 billion to complete the duplication of the Pacific Highway by the end of the decade.

It is not just in long distance travel where there are productivity benefits from road infrastructure.

Within cities and urban areas, wise investment can help address the growing problem of congestion.

Congestion in the eight Australian capital cities is estimated to cost $16.5 billion (in 2010 dollars) a year.  Unless we take corrective action, these costs are projected to rise to around $30 billion by 2030.[5]

Congestion is a problem because it makes cities less pleasant places to live.

But it is also an economic problem.

The Turnbull Government has a strong cities agenda.  Cities are key drivers of prosperity—and more so than ever in a knowledge economy.  

According to the Infrastructure Australia audit released earlier this year, Australia's capital cities contributed $854 billion to the economy in 2011—a very substantial proportion of our GDP.[6]

So there are strong microeconomic reasons to be investing in road infrastructure.

But there are also macroeconomic reasons—because government investment in this area can take up the slack from reducing private sector investment, with the investment phase of the resources boom now behind us.

According to the Reserve Bank, mining investment peaked in 2012 and has been trending down since then.[7]

Of course, this also means that it is a good time for governments to be in the marketplace letting contracts to build infrastructure.  Around the country, we are seeing some very sharp pricing—which means better value for the taxpayer dollar.

As my friend Duncan Gay, the NSW Minister for Roads, keeps telling me, this is a great time to be working in this portfolio—because we are in a period where governments are spending unprecedentedly high amounts on infrastructure.

Certainly the Turnbull Government has a very extensive program of infrastructure investment.  Our total spending commitment on transport infrastructure out to 2019–20 is $50 billion, with the expectation that this will leverage total spending of around $125 billion.

As you heard from the Deputy Prime Minister two days ago this investment includes a number of elements which are particularly relevant to local government.

We have committed a record $3.2 billion to the Roads to Recovery program.

We will spend up to $100 million under Round Two of the Government's new $300 million Bridges Renewal Program.

Under Round One of the National Stronger Regions Fund, 97.5 per cent of the funding, $207 million out of $212 million, went to local government.  Round Two is expected to be announced shortly. There is $500 million under the black spots program; and an extension of $200 million in funding for the Heavy Vehicle Safety and Productivity Program.

In fact I can announce today that Round Five of the Heavy Vehicle Safety and Productivity Programme will be open for proposals from Monday 2 December, until the 10 February next year.

State, Territory and Local governments can apply, and there is up to $107 million available for eligible projects.

As in previous rounds, these eligible projects include heavy vehicle rest areas; parking and decoupling bays; new technology trials; road enhancements; and demonstration projects.

I note that ALGA has done some focused work on regional roads funds, following the Productivity Commission's recommendation to form regional Road Funds for networks of local roads.

The majority of the Commonwealth's local roads funding—through the programmes I have mentioned today—is available to local councils. There are opportunities for councils to work collaboratively with their regional counterparts, along with your state and territory governments and industry to focus on strategic road in your regions.

I would welcome any proposals on how current allocations can be considered in a strategic regional context.

Getting better value from road investments

I want to turn next to the question of how we can get better value from the public money we spend on road infrastructure.

Governments of course have finite budgets. So it is very important that we work hard to get as much we can out of the money we spend.  Three policy directions I think are important here.

The first is working to benchmark what we are getting for the taxpayer's dollar across the many different road construction projects.

At the recent meeting of the Transport and Infrastructure Council in Adelaide, Ministers reviewed work which has been done recently to benchmark the cost of procurement across the various states and territories.

There were some fascinating findings about the wide divergence in prices paid.  For a class 6 urban road—that is, a controlled access urban highway, otherwise known as a motorway—the average project cost per lane per kilometre varied from around two million dollars to nearly ten million dollars.  There was one outlier at nearly twenty five million dollars.[8]

Equally interesting was the divergence between different states and territories.   The report observed that “two jurisdictions exhibit above-average pavement costs while three jurisdictions exhibit below-average pavement construction costs.” [9]

There is a gloomy view we could take of these findings, which is that on at least some projects taxpayers are not getting good value for money.  But the more optimistic view is that there is scope to make significant savings if we can lift the performance across all projects to match the best that is presently being achieved.

Certainly this benchmarking study is a very important piece of work, as the communique from the Council Meeting noted:

The project procurement and cost benchmarking in particular, will provide for better standards which will drive down costs for both governments and industry.[10]

At the Transport and Infrastructure Council, Ministers agreed to publish the study on the Council's website—so I encourage you to go and have a look at it.

The Council also agreed to update and review both the procurement and road construction cost benchmarks on a two-year rolling basis.

These are important first steps towards a national system for infrastructure procurement benchmarking that provides objective and transparent information to inform efficient project delivery.

It also sends an important signal to the infrastructure construction market that governments are serious about procurement reform and ensuring value for money.

The second important policy direction, when it comes to getting better value, is better project selection—as part of a more thorough and comprehensive approach to infrastructure planning.

The work of Infrastructure Australia is critical here—particularly in developing the Australian Infrastructure Plan, which is expected to be provided to government, and released publicly, in early 2016.

The Australian Infrastructure Plan will be a key focus for the Australian Government in 2016. Given that it will be a major determinant of infrastructure investment over the next decade it will of course have implications for all levels of government and their communities.

As we select projects for the Australian Government to support in the future, alignment with the Australian Infrastructure Plan will be a key consideration.

The Australian Government has strengthened its project selection criteria over the past two years. Our project selection processes also anticipate the introduction of the Australian Infrastructure Plan.

We will give preference to projects which, among other things, demonstrate strong economic productivity benefits.

Private sector involvement in projects—while not a necessary condition—is also something we will look favourably on.

A third factor which can contribute to better value for money is to look for opportunities to leverage physical infrastructure through the use of technology.

If there is a motorway which is at capacity, the traditional approach is to build more lanes.  But it may be that investing in information technology—sensors which capture data about traffic volumes and management systems which phase the entry of traffic onto the motorway or vary the speed limit dynamically—allows an increase in the amount of traffic which can be carried, for much less than the cost of building new lanes.

That is why smart infrastructure is now funded routinely as part of our mainstream Infrastructure Investment Programme.

In addition, standalone Intelligent Transport Systems (ITS) projects are eligible for Australian Government funding through the Infrastructure Investment Programme. 

For instance, we are providing funding for a Managed Motorways project on the South Eastern Freeway in South Australia.  This project introduces hard shoulder running for the first time in that State, at a significantly lower cost than through traditional road widening.

I think there is considerable scope for even greater use of information technology in delivering better transport and other services to citizens.

This is an area where local government is doing some impressive work.

For example, I recently met with the Council of Mayors for South-East Queensland, where I learned about the intelligent region work underway with global IT company Cisco. 

A report from Cisco, issued in August this year, highlights the potential of South East Queensland as a smart region.  The report discusses many possible applications, such as gathering data from a network of sensors embedded in roads, which can be sent to road users over their smart phone—so that before you head off on your morning commute you have real time information about how well traffic on the motorway is flowing.[11]

There are many other fascinating examples for the smart management of infrastructure, such as street lights, parking spaces and public transport.

The potential for government to use technology in these areas to deliver better and more cost-effective services is very high—and a direction the Turnbull Government is very interested to support. 

Of course we have a major program of work underway through the Digital Transformation Office, to leverage the use of technology to deliver Commonwealth services to citizens more conveniently and efficiently.  But we are also very interested to work with other levels of government on these issues.

How stakeholders can work together better

That is a good point to turn to the third issue I want to raise today—how all of the many stakeholders can work together better when it comes to our investment in road infrastructure.

After all, our national task in building and maintaining the road infrastructure we need in Australia is a large and complex one.

I hardly need to tell an audience of local government professionals that it brings many challenges.

For most councils building and maintaining local roads is the single largest expenditure item.

It is a task of both local and national importance.  Local roads account up to 73 per cent of Australia's total road length.[12]

But at all levels of government the amount we are spending on this task is growing strongly.

Total spending on roads, aggregated across all three levels of government, has increased from around $15 billion in 2004–05 to around $25 billion in 2013–14.

Each level of government has increased spending on roads: federal government spending over this period was up 110 per cent; state and territory spending was up 67 per cent; and local government spending was up 44 per cent.

The fact that three levels of government are involved in the overall national task is one driver of complexity—but obviously governments are not the only stakeholders.

Road users are the next obvious group of stakeholders—and they are extremely varied.  There are of course different types of vehicles, from heavy trucks through to bicycles and everything in between.

There are different purposes for which people use the roads: short versus long distance travel, business versus leisure and so on.

There is a finite amount of road capacity and competition between the different classes of users—commercial, commuter and leisure users.

Virtually every projection agrees that this competition will grow more intense.  That means the public policy importance of good coordination and management is only going to increase.

A third very important group of stakeholders, of course, is the private sector—construction companies, financiers, and many others with an interest in road infrastructure and a capacity to contribute towards better outcomes.

How then can we best coordinate across all of these stakeholders?

Of course we do have well established structures to coordinate transport policies, particularly through the Transport Infrastructure Council which sees all three levels of government come together.

But I think there are some other coordinating mechanisms we can use across the multiple groups of stakeholders in our national road construction and maintenance task. 

The first mechanism, as I have already alluded to, is a greater focus on long term planning of infrastructure projects.  This is something that Infrastructure Australia is charged with.  It is pleasing to see a growing number of states are establishing similar bodies at state level.

A second important mechanism is capturing and using better data to determine where new expenditure is needed—to build, upgrade or maintain roads.  Again, modern technology offers exciting possibilities.  We no longer need to set up special equipment to monitor traffic levels—and do that only for a short, specific period of time.

Today, by tracking data from mobile phones, from sensors embedded in roads or from telematics devices in vehicles, we can capture rich data on traffic flows—and how they vary day by day and even minute by minute.  Better data allows better planning—and better targeting of expenditure to deliver the best outcomes for the available funds.

A third, very important mechanism to achieve better results and coordination across all of the many stakeholders is through open, market based processes designed to attract private sector participants on the best possible terms.

The Turnbull Government has an appetite to integrate the private sector much more closely into the road construction and management space.  As one example, we called earlier this month for expressions of interest from the private sector to participate in the $600 million Northern Australian Roads Programme.

Later this month we will release a discussion paper on how the private sector can put forward ideas on innovative funding and delivery models that can maximise the benefits of investment in transport infrastructure in the north.

We want to test the appetite for a public-private partnership approach to the delivery of new and upgraded road infrastructure in Northern Australia—and find out whether there is any interest from infrastructure and construction companies, or from major road users in industries such as agriculture, resources and tourism.

We are looking for ideas that will help leverage the investment by the Commonwealth and states and territories in northern Australia infrastructure.

For example, if an upgraded road can deliver faster or more reliable transport times, commercial users of that road may be interested in contributing to the cost of the upgrade—through an upfront co-contribution to the capital cost of the upgrade or through paying a user charge or in some other way.

There may or may not be commercially viable models—but the best way to find out is to call for expressions of interest.

The time frame for a response to the paper will be reasonably tight—as we have said we aim to be choosing projects in early 2016.

But we will allow enough time for ideas to be put forward—and if a compelling idea for public-private partnership project emerges we will be open to extending the time frame if that is necessary to turn the idea into reality.

In my view, there can be real benefits from carefully designing open, competitive processes designed to leverage Commonwealth funding with contributions from other levels of government and the private sector.

Before coming into this portfolio I was responsible, in the Communications portfolio, for the government's $100 million mobile black spots programme. 

Thanks to working co-operatively with state and local governments as well as Telstra Corp, Vodafone Australia and local businesses and community groups, the total investment in the program reached $385 million—with 499 new or upgraded mobile base stations to be built around the country.

We carefully designed a process which had clear rules but which maximised the incentives for competition, flexibility and creativity within those rules.

We did not know if local private sector businesses would contribute money to new mobile base stations—but we thought it was worth designing the rules to give them the opportunity if they wished.

In the end, we got some remarkable outcomes.  Jemalong Irrigation Ltd, which operates west of Forbes, NSW, put in a total of $220,000 and will secure two new base stations as a result.

Of course, I am acutely aware that the roads sector is very different to the telecommunications sector. Nevertheless, I am interested to see if there is scope for similar thinking when it comes to funding road infrastructure.

Conclusion

Let me conclude, then, with the observation that Australia's road infrastructure is extremely important.

The responsibility to provide it is shared across all three levels of government—and increasingly there is private sector involvement too.

I have argued today that we need to get the best possible value for the public money which is spent on road infrastructure—and I have highlighted several promising directions.

With three levels of government—and many other stakeholders—achieving effective coordination and cooperation is critical. 

The Turnbull Government values its constructive partnership with local government, in road infrastructure and in many other areas—and we look forward to working with you to deliver better outcomes for all Australians.

[1] Eslake, S, ‘Productivity: The Lost Decade', Paper at RBA Conference, The Australian Economy in the 2000s, August 2011, http://www.rba.gov.au/publications/confs/2011

[2] http://sjm.ministers.treasury.gov.au/speech/002-2015/downloaded 18/11/15

[3] Cited in P Fletcher, Wired Brown Land: Telstra's Battle for Broadband, p. 168.

[4] BITRE (2011) Truck productivity: sources, trends and future prospects, Report 123.

[5] BITRE, Traffic and congestion cost trends for Australian capital cities, Information Sheet No. 74, p.1.

[6] Australian Infrastructure Audit, Executive Summary, p 2, http://infrastructureaustralia.gov.au/policy-publications/publications/files/Australian-Infrastructure-Audit-Executive-Summary.pdf

[7] http://www.rba.gov.au/speeches/2014/sp-ag-160914.html

[8] Road Infrastructure Cost Benchmarking, Report to Infrastructure Working Group, 2015, p 4, presented to Transport & Infrastructure Council, Adelaide, 5–6 November 2015

[9] Road Infrastructure Cost Benchmarking, Report to Infrastructure Working Group, 2015, p 1, presented to Transport & Infrastructure Council, Adelaide, 5–6 November 2015

[10] Communique, Transport & Infrastructure Council, Adelaide, 5–6 November 2015, http://transportinfrastructurecouncil.gov.au/communique/files/Council_4th_Communique_6_November_2015.pdf

[11] South East Queensland: A Smart Region, Cisco, Aug 2015

[12] Unpublished data from BITRE Yearbook 2015.