Speech to the National Roads Summit—'Roads, Jobs and Growth'

Speech

PFS009/2016

19 May 2016

Earlier this week I had the privilege of participating in the opening event for the Frederickton to Eungai section of the Pacific Highway—26 kilometres of high quality dual carriageway with a speed limit of 110 kilometres.

This newly opened section replaces the two lane stretch of road which was the scene of the 1989 bus crash which killed 35 people just north of Kempsey. It was fitting that among those present at the event were people who came from their homes to assist at that scene of horror and devastation 27 years ago.

A number of people here today have been instrumental in this project and I congratulate all of you for what you have done.

This National Roads Summit is an opportunity for people in the roads sector to discuss the many complex policy issues concerning the design, provision, maintenance and funding of roads.

As memories of the Kempsey bus crash remind us, the work your sector does makes an enormous difference in the lives of Australians.

I am very pleased to have the opportunity to deliver this opening address today and I thank the President of Roads Australia, David Stuart-Watt, for the invitation. 

I want to start today by arguing that roads are of vital economic importance to Australia. Next I want to touch on some of the policy challenges facing all of us who work in the roads sector. Finally I want to highlight some aspects of the Turnbull Government's agenda—as we seek to engage with these challenges.

The economic importance of roads to Australia

Let me turn firstly then to the economic importance of our roads network.

Consider the massive $5.6 billion program to upgrade the Pacific Highway—of which this week's opening was just one component. This new stretch of highway takes to 66 per cent the proportion of the distance from Hexham to the Queensland border which is now a four-lane highway. 

The work already done has delivered time savings of 90 minutes on a typical trip; when the four-lane highway is completed in 2020 it will save a total of 2.5 hours.

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.

The productivity benefits of roads have been well documented. The US interstate highway system, started in the nineteen fifties, is a good example. 

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.[1]

The productivity impact of infrastructure networks including roads is well documented in Australia too. The Productivity Commission found that growth of 2.5 per cent to our GDP during the 1990s came from improvements in key infrastructure sectors[2]

In Australia today, the road network is the means by which around 35 per cent of our freight task is transported.[3]

Roads link our economic output to market across industries as diverse as forestry, manufacturing, food production, construction, as well as retail and wholesale trade.

The rise of e-commerce is creating new delivery patterns for freight vehicles, delivering goods and services directly to people's homes. Australians today spend around $19.3 billion a year online—nearly 7 per cent of the retail sector.[4] Online sales continue to experience double digit growth.

By 2030, Australia's road freight task is estimated to increase 1.8 times over 2010 levels. Critical factors in satisfying this demand include improving regional and inter-state freight routes and reducing congestion in our cities.

Roads projects that reduce congestion, and better link our products and services to their markets, will continue to drive productivity improvements and economic growth.

The benefits come within our cities as well as in long distance travel.

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

Roads are critical enablers of where businesses are able to locate—and in turn where employment can be created. Recently I found myself at the Beaconsfield interchange on the Monash Freeway, on the south-eastern outskirts of Melbourne. 

The mayors of Casey City Council and Cardinia Shire Council told me about the enterprise zoning they have established near the freeway. However to attract businesses—and the employment they bring—these councils want see extra capacity on the Monash Freeway to ensure that trucks can move goods efficiently to these locations.

The Turnbull Government has committed $500 million to provide an extra lane each way on the Monash Freeway, including extending southeast from Clyde Road to Cardinia Road, if the Victorian Government matches our commitment dollar for dollar.

Another good example of the economic importance of roads was provided by Will Dwyer, Head of Strategy at the large industrial property company Goodman, in a presentation he gave at the Turnbull Government's cities workshop recently. 

He spoke about land owned by Goodman at the Eastern Creek employment hub near the M7 in Western Sydney. To unlock 160 hectares of its land—and 250 hectares of land owned by others—Goodman funded a $23 million four lane industrial road. Without this there could be no construction on the land—and no employment generated.

There is plenty of evidence of the benefit delivered to particular cities or regions by wise road investment. 

Take the Sydney Orbital Network and Melbourne's freeway network—which are estimated to contribute about $2 billion a year to the economy.[7]Melbourne's CityLink freeway is estimated to have created land value improvements of nearly $30 billion.

Or consider the Perth Freight Link project, a new expressway presently being planned for the southern suburbs of Perth. Analysis by Matusik Property estimated that this project could boost property values by 20 per cent with above ground road improvements—and 50 per cent if the project pursues a tunnel option that diverts traffic away from residential streets.[8]

The evidence is clear. Roads are a vital economic asset—and a key tool in the armoury of policymakers seeking to drive economic growth and generate jobs.

Some policy challenges

Let me turn, then, to some of the challenges we face in road policy. I want to mention how we afford the roads we need; getting the best out of our installed base of road assets; dealing with changing technology; and congestion in our cities. I am pleased to see from your agenda that you are grappling with a number of these issues over the next couple of days.

How we afford the roads we need

The first challenge is how we afford the roads we need. Roads are very expensive. According to the Bureau of Infrastructure, Transport and Regional Economics, in 2013-14 road related expenditure by all three levels of government was around $25 billion.[9]

In the past 15 years, Commonwealth expenditure on roads has more than doubled. [10] 

As our population rises, our cities grow, and our export freight task increases, the challenge is only likely to increase. Let me mention particularly the ever increasing volume of road freight driven by our resources and agriculture sectors which continue to grow.

Now one very important factor here is procurement practices - so we get the best value for the taxpayers' dollar we are spending. At the recent meeting of the Transport and Infrastructure Council in Adelaide, Ministers reviewed work which has been done across various states and territories to benchmark the costs of procurement for road construction projects.

There were some fascinating findings and a wide divergence in prices paid across different projects. For example, the cost of motorway construction varied from around $2 million to nearly $10 million per lane per kilometre. There was an outlier of nearly $25 million.

Similarly, some jurisdictions construction costs were consistently above-average; others were consistently below average.

There is a gloomy view we could take from these findings, which is that on at least some projects taxpayers are not getting good value for money. But a more optimistic view is that there is scope to make significant savings if we can lift under-performing projects and jurisdictions to match the best that is currently being achieved.

Getting the best out of our installed base

Now the issue of road expenditure often gets framed in terms of new or upgraded roads which are needed.

But it is just as important that we get the best out of our installed base of existing roads. This is not always something which gets a lot of focus from politicians. We are very keen on road openings but it is harder to get us excited about maintenance!

Most of the roads that will form our road network in the future have already been built. As Roads Australia reports, the Australian road network comprises some 817,000 kilometres of local, state and federally funded roads with a value of around $280 billion.

An important question is therefore how we can get the most out of these assets. Certainly contemporary business practice is to focus on how best to leverage your asset base, to make it work as hard as possible. How can we apply that principle when it comes to roads?

Dealing with changing technology

The next issue is the very rapid rate at which technology is transforming the transport sector. I want to speak here particularly about driverless cars.

In January this year I visited Tesla and Google in California. It happened to be the week that Tesla issued a software update that gave its vehicles a new self-driving capability. For example, on private land you can "summon" your Tesla, so it will drive from where you parked it to where you are standing.

At the Google facility in Mountain View, California, I observed the test programme for their driverless cars, and rode in a modified Lexus SUV on a 20 minute trip around leafy suburban streets.

The evidence suggests that the trend to driverless vehicles is gathering pace. According to the US National Highway Traffic Safety Administration, there are four levels of vehicle automation, from level 1 (function specific automation, such as cruise control) to level 4 (full self-driving automation.)

Manufacturers are introducing an increasing range of self-driving features across the different levels, from sophisticated cruise control to cars which park themselves. Increasingly, parts of a typical car's journey are likely to involve self-driving, with other parts of the journey controlled by the human driver. In Australia, as in other countries, government needs to respond to these trends.

While we can identify broad trends, it is far from clear how these trends will play out — and over what time period.

Consider one recent example of rapid consumer uptake of new technology: between 1991 and 2001 the number of mobile phone services in Australia rose from 300,000 to 11.1 million.

Imagine if technology reaches the point — and prices drop sufficiently — that we see a similarly rapid uptake in driverless cars over a period in the near future. It would certainly bring dramatic improvements in road safety. But it will also be likely to trigger major changes in human behaviour.

Rather than seeing a car as an asset that we own, instead we may see car trips as a service we order up, on our smart phone, with the car moving on to serve someone else after our trip.

What will this mean for roads and for our capacity planning? If driverless vehicles are in use for twenty hours a day—compared to the typical vehicle used today for an hour or two—will that increase demand on the roads? Or will that be offset because there will be fewer vehicles in aggregate?

What will it mean for the design of roads? Will driverless vehicle software rely on particular lane markings and other features? Or will we be able over time to dispense with lane markings, speed and direction signs and other aids required by human drivers?

Congestion in our cities

Another big challenge concerns our response to congestion in our cities. As a politician representing a suburban electorate I am regularly approached by constituents expressing their frustration about traffic on key roads in our area.

Now much of the traffic on our roads reflects the economic geography of our cities. To give one example, 30 per cent of people in Western Sydney leave the area each day driving to other parts of Sydney for work.

So an objective of our cities policy is to encourage the provision of jobs closer to where people live. Western Sydney Airport is a very important example. By 2030 the airport will generate around 9,000 direct jobs, and a multiple of that from the businesses which are attracted to locate close to the airport. That means more jobs closer to the three million people who will live in Western Sydney by 2030.

Of course traffic levels on roads are not generated in isolation. A factor for road users is whether there is an alternative public transport option. That is why we are undertaking a rail scoping study, jointly with the NSW Government, on the rail needs of Western Sydney and Western Sydney Airport. 

The point I make is that roads policy sits within a broader policy framework, in which a city's design and layout, and the public transport system, are other key factors. 

That is why the Turnbull Government's $50 billion of expenditure on infrastructure between 2014-15 and 2019-20 includes very extensive expenditure on roads to relieve congestion—such as WestConnex and NorthConnex in Sydney, Gateway Upgrade in Brisbane and the Northern Connector in Adelaide—but also includes extensive investment in public transport.

The Turnbull Government's Agenda

I have mentioned quite a collection of challenges in road policy. So I want to turn finally to highlight some aspects of the Turnbull Government's agenda in road policy, as we respond to these challenges. The first is that technology presents new opportunities. The second is more innovative approaches to financing. The third is better and more considered planning. Finally, we are making very substantial investments all around the country in critical road projects.

Technology presents new opportunities

If I turn firstly to technology, I said earlier that new technology presents a challenge for roads policy. But it also presents a huge opportunity, particularly to increase road capacity in a very cost-effective way.

Ramp metering and variable speed limits—both automatically controlled by sensors that measure traffic flow—allow more traffic to be carried without the need to build additional lanes.

Smart infrastructure and Intelligent Transport Systems are now routinely funded as part of our Infrastructure Investment Programme.

For example, 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.

Ramp metering is already used on Melbourne's Monash Freeway and is proposed for Sydney's M4 motorway as part of a broader managed motorways project.

There is scope for even greater use of smart technology to get more efficient outcomes from our road infrastructure, particularly over the medium term, taking advantage of automated driving technology as I mentioned earlier. 

More innovative approaches to financing

Another priority for the Turnbull Government is a more innovative approach to the way that we finance road infrastructure. 

We have 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.

Earlier this year I issued a set of funding and financing principles that will illuminate the Commonwealth Government's 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
  • The Turnbull Government will work through COAG to secure the adoption of these goals and principles.

Better planning

A number of the issues I mentioned fit within the Turnbull Government's objective to improve the way that we plan our roads and particularly the major projects. Lead times on these projects are long; the capital sums involved are huge; and the stakes are very high.

The work of Infrastructure Australia is critical here—particularly in developing the Australian Infrastructure Plan, which was released in February this year. The Plan includes a Priority Infrastructure List of 93 projects identified through stakeholder consultation.

A transparent and predictable planning process, and clear guidance on the criteria governments will use to prioritise projects, will assist private sector involvement in building and financing infrastructure.

Once government identifies potential projects through a public planning process, it can stimulate the private sector to come forward with proposals for how that project can be realised.

This is what we saw on the NorthConnex project in Sydney. The route for this project was identified in 2007 and Transurban brought forward a proposal to build the project. At a total cost of $3 billion, NorthConnex is receiving $412 million from each of the Australian and New South Wales governments, with the remainder coming from the private sector.

Smarter procurement

I mentioned earlier the challenge we face in the growing cost of road projects. One response to that is a smarter approach to procurement.

Benchmarking procurement costs to provide objective and transparent information is an important first step.  This is part of the work that I mentioned earlier which was discussed at last year's Transport and Infrastructure Council.

The outcomes of this work will provide better standards which will drive down costs for both governments and industry. It also sends an important signal to the construction industry that governments are serious about procurement reform and ensuring value-for-money.

Another important aspect of procurement is addressing the impact of union corruption and criminality on the construction sector. This is of great importance when it comes to getting good value for money for taxpayers on road construction.

The Turnbull Government is committed to re-establishing the Australian Building and Construction Commission, to provide a specialist regulator for the industry.

The ABCC is about ensuring an efficient and law-abiding construction industry. It will improve productivity, reduce the number of days' work needlessly lost and protect the thousands of businesses that make up this sector of the economy.

Importantly for taxpayers, the ABCC will reduce costs and improve the chances of projects being delivered on-time and on-budget.

Substantial investment

The Turnbull Government is funding infrastructure at record levels all around Australia. We are investing over $50 billion for the period 2013-14 to 2019-20 onwards, in critical road and rail infrastructure. In 2016-17 we will spend over $9 billion on transport infrastructure, a record for any Commonwealth Government.

In the recent budget, we made further commitments to the Ipswich Motorway and Perth Freight Link. 

We announced a $1.5 billion Victorian Infrastructure Package, with funding conditional on the Victorian Government matching dollar for dollar, including $500 million to upgrade the Monash Freeway and $300 million for the M80 Western Ring Road.

Let me highlight just a few of the biggest roads projects around the country:

  • $5.6 billion for Pacific Highway duplication from Sydney to the Queensland border, with $1.37 billion to be provided in 2016–17. 
  • $1.5 billion plus a concessional loan of $2.0 billion for WestConnex in Sydney, with $300 million to be provided in 2016–17. 
  • Up to $6.7 billion to upgrade the Bruce Highway with $558.1 million to be provided in 2016–17. 
  • $1.2 billion for Perth Freight Link with $207.7 million to be provided in 2016–17
  • $788 million for the Northern Connector in Adelaide with $84 million to be provided in 2016–17. 
  • $600 million for the Northern Australia Roads Package with $100 million to be provided in 2016–17. 

Conclusion

Let me conclude then, by returning to the importance of Roads Australia and the conversations that will take place over the next two days.

Australia's road network is critical to our national productivity and our standard of living. The challenge of ensuring our road network is able to meet our needs now and into the future is one that will require cooperation between governments of all levels and industry.

I wish you well in your deliberations over the next two days.

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

[2] Productivity Commission 2005, Review of National Competition Policy Reforms p xvii

[3] BITRE, Freightline 1—Australian freight transport overview https://bitre.gov.au/publications/2014/freightline_01.aspx

[4] NAB Online Retail Sales Index March 2016

[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] Sydney Orbital network estimated economic contribution sourced from: Infrastructure Partnerships Australia 2010, 'Submission: M5 Corridor Upgrade', March 2010, (p. 5). Melbourne CityLink land value improvement estimate sourced from: SGS Economics & Planning 2012, 'Long run economic and land use impacts of major infrastructure projects' Final Report for Victorian Department of Transport, July 2012. See

[8] Matusik Property Insights, Perth Freight Link—Potential Urban Outcomes: Section Two Road Options, October 2015, p.2

[9] BITRE, Yearbook 2015, Table 1.2d

[10] 2015 Australian Infrastructure Statistics Yearbook, p41