Release of the Australian Infrastructure Plan
17 February 2016
Pullman Hotel Brisbane
It is a pleasure to be here in Brisbane at this important Infrastructure Partnerships Australia lunch—marking the issue of the 15 Year Australian Infrastructure Plan.
At the outset, can I congratulate Infrastructure Australia—its chairman Mark Birrell, other board members, CEO Phil Davies and the entire team—for a very substantive document reflecting a huge amount of work over the past twelve months or more.
There is no area of public policy where it is more important to plan for the future than in delivering the infrastructure that Australia needs. Lead times on major infrastructure projects are long; the capital sums involved are huge; and the stakes are very high.
Infrastructure is key to so many other outcomes which governments seek—economic productivity and efficiency; the liveability and economic capacity of our cities; and of course the safety of our citizens.
Infrastructure Australia therefore has a critical role—in driving long term thinking about Australia's infrastructure needs and how they are to be met.
This 15 year plan is arguably the most important single piece of work carried out by Infrastructure Australia in its relatively short life.
It sets out an 'Infrastructure Priority List' of 93 potential projects around the country at different stages of development—and offers an extensive set of recommendations about reforms to improve the delivery of infrastructure nation-wide.
The Infrastructure Priority List is based on extensive consultation by Infrastructure Australia with governments and other stakeholders, and draws on the Infrastructure Audit conducted by IA last year.
It will be a key tool to inform decisions by the Commonwealth Government and State and Territory Governments about which projects to progress, and over time which ones will be funded. Of course it will be updated regularly as some projects drop off and others are added.
But just as important are IA's recommendations about our policy settings for infrastructure.
I have no doubt the Plan will spark vigorous debate about these policy settings —including how we get the best from our existing infrastructure, and how to make wise decisions about potential new infrastructure.
The Turnbull Government will consider the recommendations—and listen to the public debate—before announcing our response to them in due course.
In my remarks today I want first to draw attention to the case the report makes for reform in the way we invest in, deliver and use our nation's infrastructure.
Next I want to turn to the current state of play on major infrastructure projects; and finally I want to discuss the challenge of how we come up with the money for the infrastructure projects we need. This is an area where IA has some clear recommendations which the government will consider carefully.
The case for reform
Let me turn firstly then to the case which IA makes for reform in how Australia plans, develops and manages infrastructure.
This case is driven by factors such as our population, our economy and our global operating environment.
The Plan emphasises that across most infrastructure sectors—such as energy, water and communications—there is are markets for the provision of services, in many cases with the providers being privately owned.
This follows a reform process which commenced in the nineties—and is continuing, for example as the Baird Government shifts ownership and management of key electricity assets in New South Wales to the private sector.
Similarly in telecommunications a new economic regulatory framework was introduced with legislation in 1991 and 1997, and with the exception of the NBN industry participants are overwhelmingly privately owned.
By contrast, the majority of roads and railways remain government owned—and the regulatory framework has not been transformed in the same way as in energy or telecommunications.
We are however starting to see some policy progress, particularly when it comes to heavy vehicles. Western Australia has committed to trialling the first distance-based toll for heavy vehicles in that state on the Perth Freight Link.
While the details are still to be settled, the Toowoomba Second Range Crossing here in Queensland will also involve a charge on all vehicles, including heavy vehicles for which it primarily caters, the first in regional Australia.
South Australia is embarking on a process for distanced-based heavy vehicle road user trials on projects like the Dukes Highway in an attempt to consider more sustainable sources of revenue for transport infrastructure going forward.
The Plan urges, across many of its recommendations, a partnership between state and territory governments and the Commonwealth Government to drive further reform in the way we provide transport infrastructure, including an increasing emphasis on charging for its use.
Another key theme in the Plan—as IA identified earlier last year in the Infrastructure Audit—is the need to supply infrastructure to respond to the growth expected particularly in Australia's largest cities.
According to ABS projections, around 75 per cent of the expected population growth will be generated in our four largest cities: Sydney, Melbourne, Brisbane and Perth.
Not surprisingly, these cities were prominent among the 20 'infrastructure hotspots'—where infrastructure demand will be particularly intense—identified in the Infrastructure Audit.
Australia's population growth will not proceed in isolation. It is likely to be accompanied by major structural changes in Australia's economy—particularly in our cities, but also in our regions. Our resource industries will remain vital—and they will generate their own intense demands for infrastructure.
But Australia's transition to a service and knowledge-intensive economy is likely to accelerate.
Australia's net services exports added 0.5 percentage points to Australia's GDP growth in the 12 months to March 2015—a greater contribution to GDP growth than that generated by the resources sector in this period.
Service industries tend to locate en masse in cities—and along with population growth this will be a further driver of demand for infrastructure.
As we continue to grow, it will be important to maintain and improve urban liveability and productivity—particularly if our cities are to remain some of the world's most attractive places to live and work. This will demand new approaches to infrastructure roll-out, for example in configuring infrastructure to best support digital and other knowledge-intensive industries.
But changes in our regions will also be significant. The services industry is also now the highest employer in our regions, with 54 per cent of regional employees being in services industries.
So we need a well-planned and balanced national approach to infrastructure development and reform as our economy adjusts.
The infrastructure Pipeline
A major part of this effort involves determining which infrastructure projects are priorities for Australia.
As we speak, the Australian Government is investing in over 1,000 infrastructure projects as part of our $50 billion worth of commitments. In 2016-17, the Commonwealth Government's infrastructure investments will total $9.8 billion—a record infrastructure investment in a single year.
We are reaping the benefits of the projects we committed to in the 2014-15 Budget, and those we accelerated as part of a response to economic pressures.
However, infrastructure demands constant renewal—and an important step towards future development is the Infrastructure Priority List.
This List is an important step towards better national coordination. Our collective challenge is to prioritise projects that improve productivity, stimulate growth and productive and liveable cities and regions. The Turnbull Government looks forward to working with state and territory governments, and the infrastructure and construction sectors, on our collective goal of building the right infrastructure at the right time.
A reality of infrastructure is the long lead time to bring significant infrastructure projects forward and the need for robust planning. Large projects clearly require lengthy planning and preparation to ensure they return the best outcomes.
One good example is the Western Sydney Airport—one of the most complex infrastructure projects Australia has seen in recent decades. The area around the airport site has been protected from incompatible development for nearly 30 years. We are planning for a Western Sydney Airport to be operational by the mid-2020s, with capacity for further growth.
Another good example is the Toowoomba Second Range Crossing here in Queensland, which has been under development for many years. The Australian Government has committed to fund 80 per cent of the construction costs, up to $1.137 billion with the Queensland Government providing the remaining 20 per cent.
The project will be delivered as a Public Private Partnership—and is the largest Australian Government commitment to a single regional road project in Queensland's history.
How we come up with the money we need
Let me turn to the critically important issue of how we most effectively fund and finance infrastructure.
Governments at all levels face a challenge in meeting infrastructure demand in the face of competing budget pressures.
That is one reason why the Turnbull Government has been open to new funding and financing models—such as our $5 billion concessional loan facility for Northern Australia and the $2 billion Concessional Loan for WestConnex in Sydney.
We also need to improve the way we assign priorities to particular infrastructure projects. Over the longer term, the most effective way to prioritise will be through establishing markets for the provision of infrastructure services—such as road services.
Principles for project selection
Before I touch on this longer term direction, let me first speak of some more immediate changes we intend to make, in the way that the Turnbull Government will consider which projects we are prepared to fund.
First, we will consider projects in the context of their strategic planning arrangements including corridor reservations. We will also require a greater level of disclosure from the States on the availability of revenue streams associated with particular projects.
The Australian and NSW Governments' Joint Study into Western Sydney's rail needs, offers a good example of how a cooperative State-Federal approach to planning will support the economic and sustainable development of what would be in its own right Australia's 'fourth-largest city'.
This study will consider both the Western Sydney Airport site and surrounding region as a whole, including Western Sydney's long-term rail future.
Secondly, we will emphasise robust project selection, and here the Infrastructure Plan Priority List released today will be important in guiding the Commonwealth's decisions.
We will move to a more consistent evaluation of wider economic benefits and a more rigorous and detailed assessment framework, and will propose a new National Governance Framework to COAG to improve the quality and transparency of infrastructure decision-making.
Our third change concerns funding and financing arrangements, and the potential implementation of instruments such as value capture.
Today we are issuing a set of funding and financing principles that will illuminate our approach to innovative financing arrangements.
These are designed to:
- support high priority, high quality transport investments that represent value for money, improve productivity, sustainability and quality of life and secure urban planning and cities policy outcomes;
- share the costs of transport projects fairly between those who benefit most from them and the broader community with a focus on value sharing and moving towards cost-reflective pricing; and
- optimise the impact of public investment in transport infrastructure through private sector partnerships and innovative financing by leveraging major projects to secure urban planning and cities policy outcomes.
The Turnbull Government will work through COAG to secure the adoption of these goals and principles.
The funding and financing principles will also help encourage a focus on areas requiring reform and in particular help drive greater use of value capture by states and local government.
Value capture is based on the fact that a rail or road project will typically deliver substantial value uplift to properties along the route, or properties which now have an improved transport connection. It makes sense to look to tap some of that value uplift to contribute towards the capital cost of the project.
In the right circumstances, value capture can generate an additional revenue stream for projects, such as urban public transport, which do not recover their costs from tolls or the fare box.
Of course while the theory is straightforward to articulate, putting value capture into practice involves many complex issues—such as how best to design the mechanism to capture the value uplift.
Is it through an increase in rates charged to property owners? Is it through government acquiring land along the route, and either selling that land at a profit or developing it and generating a profit—in each case using the profit to contribute towards the cost of the project? Is it through allocating to developers, at a price, the right to develop substantially higher buildings than would normally be permitted?
In projects around the world which make use of value capture—such as CrossRail in London —typically it contributes only a portion of the total capital cost of the project. There are other reasons though to use value capture, for example to improve the transparency of the benefits and costs of infrastructure to the general public; and to help leverage planning reform and urban regeneration.
Let me turn then to the longer term policy reform direction which the Plan discusses. Australia has benefited greatly from competitive reforms in the water, telecommunications and energy infrastructure markets.
In the Plan IA recommends that a similar reform direction be pursued in land transport. IA argues that the funding of the transport sector, particularly land transport, is a significant challenge for Australian governments.
The Turnbull Government has already announced that it will accelerate work with states and territories on heavy vehicle road reform and investigate the benefits, costs and potential next steps of options to introduce cost-reflective road pricing for all vehicles. This formed part of the government's response to the Harper Competition Policy Review late last year.
Our initial focus is on the transition to independent heavy vehicle price regulation by 2017-18, and to ensure a new framework is fairer, more transparent, and better overall.
Over the next few months I plan to engage with the states and industry to hear their views as the Commonwealth develops its strategy in this area.
Our approach will be shaped by the need to avoid imposing higher charges on road users, consistent with the Harper Review's recommendations.
We will also focus on ensuring that the net benefits of reform significantly exceed their costs.
Under this approach, the Australian and State governments have agreed to establish a joint working group to oversee a simulation charge trial in South Australia that will test the logic, fairness and structure of alternative road pricing.
This work is an important step towards a pricing system that will help ensure the necessary renewal of road infrastructure.
These complexities also underline the need to move to a competitive transport infrastructure market that incorporates elements of road pricing and value capture. If wisely used, the revenue generated under such a market structure could offer a long term funding stream for infrastructure.
The private sector is already a major contributor to infrastructure investment—accounting for 75 per cent of investment in engineering construction activity in the September 2015 quarter. But there is much more we can do to better engage the private sector in transport infrastructure—and this is inseparable from the move to a competitive market.
Above all else, we recognise that the ultimate test of infrastructure arrangements is how well they benefit communities and consumers.
The release of the Australian Infrastructure plan has given everyone directly engaged in infrastructure—essentially every Australian—a great deal to think about.
I expect that the Plan to lively debate about the longer term reform agenda—which I welcome. The Turnbull Government will pay close attention to this debate as we determine our response to it, and the recommendations we adopt.
We will develop our response in the context of other relevant developments—including the Harper Review of Competition Policy and taxation reform.
I thank Infrastructure Australia for a great effort and a very useful piece of work.
 Source: Analysis by the Department of Infrastructure and Regional Development. Compares with 9% in primary industries, and 37% in secondary industries. 'Services' comprises "services", healthcare, finance services, retail trade, transport, education and training.