6th Annual Australian & New Zealand Investment Conference
15 October 2014
Australian infrastructure: creating an investment of choice
Sheraton on the Park, Sydney, NSW
Thank you very much Stephen [Roberts, CEO, Citi Australia].
Thank you to the hardy conference observers who were here bright and early this morning.
I was pleased to hear Stephen is about to become a constituent in Wide Bay. We don't have weather like this in Wide Bay, so I am sure you will enjoy living in the Noosa district.
It's certainly a pleasure for me to be at this very significant conference. To be with leaders in the Australian financial industry, this is certainly a premier event, and I welcome people from other parts of the world who participate in it.
I am pleased to note there are a large number of major corporate leaders with us, and I'm told that more than 90 per cent of Australia's institutional investment community is represented at your conference.
So this is, indeed, a significant gathering and one that can contribute greatly to our understanding of many issues associated with your industry and canvass prospects for the years ahead.
In particular I'd also like to thank the many international investors who have flown in for the conference—we greatly appreciate your interest.
Increasingly infrastructure investment and infrastructure construction is becoming a global enterprise. Amazingly, we have many of the major construction companies from around the world engaged in some of our big projects here.
Bringing their own skills and expertise and adding to our capacity to deliver projects on time, on schedule and in a reasonable price range.
We recognise what we do in this country provides a degree of leadership and gives us the opportunity to tap into the best skill in the world and be able to undertake very large infrastructure projects.
Given my own portfolio responsibilities for infrastructure, I greatly appreciate the opportunity to be with you today.
Infrastructure development will provide some of the largest and most significant investment opportunities in Australia over coming years—and the Coalition Government is certainly doing our utmost to expand these opportunities.
We are determined that Australia remains an attractive investment destination for both international and domestic investors.
Developing Australia's infrastructure is, ultimately, all about the rejuvenation of the nation's productive and social capital.
This is a continuing and demanding task—and one where the Coalition Government looks forward to a much expanded role for the private sector.
This expansion is vital—because Australia is hungry for modern infrastructure, and has an equally strong appetite for infrastructure investment.
Australians want to lift the nation's economic performance, improve our freight and passenger networks, cut the economic and social cost of traffic gridlock, and make our cities and towns more liveable and safer.
If, however, we fail to invest in the productive infrastructure that builds economic growth, we are likely to fall short of achieving these goals.
This investment is especially critical in a century where Australia needs first-class infrastructure to fully engage in the rise of the Asia-Pacific and wider global economies.
The Government's Investments
The Coalition Government aims to achieve two major transport infrastructure legacies.
We aim to build infrastructure networks that imrprove significantly on those we inherited in September 2013.
And, equally importantly, we are working to revitalise the systems for delivering these networks.
Our first Budget reflected the need for urgent repair to Australia's finances—including through a shift from excessive recurrent expenditure to investment in productive assets.
That is why we are investing $50 billion in the critical transport infrastructure needed to secure Australia's future prosperity.
This is a record investment by a Federal Government—and it is projected to leverage additional investments of, at least, $75 billion from State governments and the private sector.
Our investment is being directed towards transforming infrastructure projects all around the country.
These include Sydney's Westconnex and NorthConnex; Melbourne's East-West Link; Brisbane's Gateway Upgrade North; Adelaide's South Road; Perth's Gateway and Port Freight Link, and Darwin's Tiger Brennan Drive.
It includes the new Toowoomba Range Crossing, Bruce Highway upgrade and Warrego Highway in Queensland, completion of the Pacific Highway duplication, the Great Northern Highway and North West Coastal Highway in WA, the Western and Princes Highways in Victoria, and the Midland Highway in Tasmania.
That's a lot of highways.
But we are also resurrecting the nations' biggest rail project, with the Inland Rail from Melbourne to Brisbane via regional south west Queensland, inland New South Wales and rural Victoria Inland Railway, back on track.
This investment will cut the economic and social costs of congestion in our towns and cities.
It will help make moving freight around the country and into the wider world safer and more productive.
And critically, this investment will better position the nation for the rise of the Asia-Pacific economies in our own neighbourhood.
Private Sector Engagement
I firmly believe that governments must continue to play a key role in delivering infrastructure.
So in addition to our own investments we are engaged in two critical efforts.
These involve leveraging greater private sector investment and engagement in infrastructure—in effect bringing the private sector to the infrastructure table in greater strength and numbers.
But they also involve ‘clearing the table’—removing the regulatory and other barriers that delay infrastructure delivery and increase its cost.
If we have systemic blockages that produce cost over-runs and delays, or if private investors lack confidence in the will of governments to follow-through on their plans, then infrastructure blue-prints will remain just blue-prints.
I believe, however, that we have made good progress over the past 13 months in these critical areas—which the business community and others identified as in urgent need of reform when we came into office.
We have made good progress in developing a clear and transparent investment pipeline—in an effort to leverage greater private sector investment in infrastructure—and in reforming the institutional and other arrangements for infrastructure delivery.
As is now well-understood, the constraints on public balance sheets mean that governments alone cannot meet all the nation's infrastructure needs.
However, the private sector engagement in developing Australian infrastructure is significant—in the June quarter this year, the sector accounted for about 44 per cent of the value of construction activity in Australian transport infrastructure.
The Government is very keen to pursue further opportunities for expanding the private sector's role.
As the Business Council of Australia stated last November, there is ample private capital available to help meet Australia's future infrastructure needs provided governments can get the regulatory and reform settings right.
In particular, there have been calls for several years to expand the investment of superannuation funds in infrastructure, and I am attracted to this concept.
But it must be acknowledged that the sector has not always been quick to take up opportunities that arise.
At the same time, I appreciate that the contribution of Australian superannuation funds to infrastructure investment is comparatively high in international terms.
And I also appreciate that the funds are rightly concerned to manage the security of their investments and the returns on them.
The Financial Services Council has said that ‘Under the right conditions, there is a tremendous opportunity for Australia’s superannuation industry to substantially increase its investment in infrastructure'.
I want to emphasise that the Government is committed to creating these ‘right conditions’ and exploring opportunities for further investment with both domestic and international funds.
I also want to emphasise that the Government's own infrastructure commitments, and our work to develop a transparent pipeline of investments—about which I will say more shortly—go a significant way towards addressing the issues giving rise to funds' investment concerns.
Alternate Funding and Financing
More generally, matching infrastructure supply to growing infrastructure demand increasingly depends on governments being innovative in how they encourage private investors to come to the table.
In April this year, the Government endorsed the use of alternative funding and financing mechanisms for infrastructure projects on a case-by-case basis. These mechanisms include:
- Value capture;
- The Wider use of user charging;
- Concessional government loans;
- Government guarantees;
- Phased grants / availability payments; and
- Targeted payments.
Our investments in WestConnex, the Toowoomba Range Crossing and the Perth Freight Link, reflect our commitment to innovate through alternative funding approaches.
The Freight Link is designed to achieve substantial economic and social benefits by separating commuter and freight traffic—and is projected to yield benefits of up to $5.20 for every dollar invested.
But, along with Western Australia, we are also seeking opportunities for private sector co-contribution to the Perth Freight Link—both in expertise and capital.
The significant private sector interest in participating in this project is very encouraging.
Here in Sydney we will provide a concessional loan of up to $2 billion to accelerate the M5 East section of WestConnex—the loan will be available from mid- 2015 to 2018 and bring forward the M5 East by about 18 months.
This is the first time a federal government has used the concessional loan mechanism to deliver a major road project in Australia.
We have introduced a further innovation to leverage the private sector's role: the Asset Recycling Initiative within the Infrastructure Growth Package.
This Initiative is an important part of developing the pipeline for national infrastructure renewal.
It aims to provide incentives to the states to invest in infrastructure renewal—and incentives to the private sector to expand its infrastructure role by purchasing established infrastructure assets.
The Initiative has attracted significant interest from state governments and the business community.
And as many of you would know, the Victorian Government has flagged the sale of the Port of Melbourne to use the Initiative to build a public transport railway line from the city to the airport.
This is a very good example of the new infrastructure that the Initiative is designed to leverage.
Productivity Commission Inquiry Report
We recognise that our infrastructure investments need to be aligned with reforms to how Australian infrastructure is developed and delivered.
In November last year, the Government tasked the Productivity Commission to undertake an Inquiry into Public Infrastructure.
This Inquiry sought to inform debate on the optimal role for the private and public sectors in infrastructure funding, financing and delivery.
The Inquiry represented one of the most significant objective examinations of these critical delivery issues in the nation's history.
The Commission's final Inquiry Report, which we tabled in Parliament in July, found that Australian infrastructure investment was strong by international standards.
However, the Report also suggested room for improvement -particularly around governance and project selection and setting project priorities.
We expect to release the Government's response to the Final Report before the end of this year.
In the meantime, the Government is getting on with the job of consulting the States and Territories on the Commission's findings.
We have focused on issues relating to infrastructure planning, procurement, and pre-approval processes—and we are very eager to use the Productivity Commission's Report as a platform for delivering system-wide improvements in these processes.
We are also keen to make better use of project data, including for assessing whether expensive infrastructure projects meet their objectives.
In this context, Margaret Thatcher once said that ‘you and I come by road or rail, but economists travel on infrastructure’.
To me, Mrs Thatcher's observation is a reminder that an essential part of all these systemic reforms is ensuring that infrastructure assets directly align with the needs of the people who will use it—and that they are feasible investments.
Reforming Infrastructure Australia
Our efforts to revitalise Infrastructure Australia through the Infrastructure Amendment Act are an important part of our reform efforts.
Infrastructure Australia is now much better-placed to provide expert advice on infrastructure issues, including through an audit of the nation's existing infrastructure asset base, which is now underway.
Infrastructure Australia will then collaborate with the states on a 15 year plan about the type of infrastructure that will be required and where.
We expect that this process will provide a truly strategic assessment of longer-term infrastructure objectives—which will clearly signal to all governments the sort of projects worthy of investment.
These strategic objectives will in turn provide more certainty to the private sector about the nature of the longer term infrastructure investment pipeline.
We recognise the need to provide the market with confidence that Australia will not be subject to a continuing boom and bust cycle in investment—and that the nation has a longer term plan to build what we need for future economic and social growth.
A clear and certain investment pipeline is an essential part of this task.
Reducing Regulatory Burdens
Last, but not least today, we are committed to reducing the burdens of excessive regulation by $1 billion per annum—and we are devoting two Parliamentary sitting days each year to this effort.
On the first of these days last March we removed more than 9,500 unnecessary or counter-productive regulations, and 1,000 redundant acts of Parliament—producing savings of more than $700 million annually from these efforts alone.
We look forward to another productive effort on the 29th of this month.
Our focus is not just on reducing the volume and duplication of regulation, but on a broader approach which creates a better and more efficient arrangement between regulators and the regulated.
This includes improving how we consult and engage with stakeholders before regulations are actually introduced.
It also includes making greater use of sunset clauses to ensure that a regulation does not remain on the books when its purpose is exhausted.
We are also intent on lifting the regulatory game in relation to requirements like the need for regulators to take proportionate actions, being accountable for those actions, and committing to genuine continuous improvement.
If much of this sounds like plain common-sense and fair play I would not be surprised.
But we think that the benefits of this approach will be felt across the entire economy.
I would like to close with an observation by a very shrewd and successful investor—Warren Buffet—that I think is very relevant to Australian infrastructure investment.
Buffet said that ‘Your premium brand had better be delivering something special—or it's not going to get the business’.
The Coalition Government sees infrastructure as a ‘premium brand’—we are determined to ensure that Australia makes it our business to invest capital, effort and ideas in the infrastructure that delivers the future.
We certainly believe that Australian infrastructure should be an investment portfolio of choice for Australian and international investors—and we are prepared to work with our investment partners to ensure that it is.
Thank you very much.