Committee for Economic Development of Australia

Speech

WTS026/2014

16 October 2014

‘Winning the future: the Australian Government's infrastructure vision’
Shangri-La Hotel Sydney, NSW

Thank you very much Patrick [Ibbotson, Partner, Maddocks (Lawyers)].

Good afternoon ladies and gentlemen, it is a pleasure to be with you.

As is always the case at CEDA events, it is good to see so many people here who enliven Australia's public-policy discussion—including of course CEDA's State President Angus Armour, and CEDA governors the Hon Nick Greiner and Peter Wills.

My thanks also to all of you for the opportunity to exchange ideas on two key items on the national agenda—determining Australia's infrastructure needs and how to address them.

Every Australian and every Australian enterprise has a great deal at stake in dealing with these imperatives.

All levels of government must play a leadership role in delivering infrastructure.

But they should no longer seek, or be expected, to fill the entire infrastructure space on their own—either as investors or as identifiers of infrastructure gaps.

It is increasingly clear that it makes good commercial sense for businesses to invest in infrastructure—and, equally, that organisations like CEDA continue to challenge governments and industry to innovate in infrastructure financing and delivery.

Coalition's Infrastructure Vision

The Coalition Government has been very clear in its belief that infrastructure investment is key to the economic prosperity of this nation.

This vision recognises the challenges of Australia's economy today.

Our first Budget reflects the need for urgent repair to Australia's financial house—and to transition away from Labor's budgetary approach of endless spending leading to out-of-control debt.

But we also recognise that a prosperous future for our nation will not be won by cutting expenditures alone.

Winning the future also requires investment in social and economic assets that grow the economy and make it more efficient—particularly through productive infrastructure.

Our vision coming into government and our first Budget is focussed on building new infrastructure and improving existing infrastructure across Australia to boost the economy.

Just last week the International Monetary Fund agreed with our strategy and vision.

The IMF argues that the economic growth delivered by building new roads, ports and railways may actually reduce overall debt levels.

Now more than ever, this is important. Today Australian taxpayers are paying $1 billion a month in net interest payments on a debt generated by our predecessors.

The IMF also said that in countries with infrastructure needs, the time is right for an infrastructure push.

We most certainly agree.

And that's why we have made an historic $50 billion-plus commitment to infrastructure in our first Budget and we are getting on with the job of building better infrastructure for all Australians.

Not only does better infrastructure reduce travel time and fuel costs for families but where it is well-targeted and efficient, it also boosts GDP.

The Australian Government's investments will leverage over $125 billion in new investments across our cities, regional centres and rural communities.

This investment includes 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.

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.

These investments will cut the economic and social costs of congestion in our towns and cities—and help transform the safety, efficiency and security with which we move people and freight around the country and internationally.

It will also better integrate Australia's regions into the national economy and social fabric—and better position the nation to contribute to, and benefit from, the rise of the Asia-Pacific economies.

This repositioning is critical. We need modern infrastructure for many reasons. And the need to sustain our international competitiveness is among the most urgent of them.

Western Sydney Airport

The economic and social benefits to be derived from infrastructure investment are exemplified by the proposed airport for Western Sydney.

As you know, the Coalition Government ended half-century of indecision and uncertainty by announcing Badgerys Creek as the site for a new airport.

The first important step toward delivery of a new airport in Western Sydney will be to meet our obligations under the 2002 Share Sale Agreement for Sydney Airport.

That agreement provides the owners of Sydney Airport with a right of first refusal to develop and operate a second major airport for Sydney. It also sets out provisions for consultation in developing plans for a new airport.

The Government issued a notice to consult to the Southern Cross Airports Corporation, the owners of Sydney Airport, on 18 August, and we commenced an expected nine month consultation phase on 1 October.

We expect a Western Sydney airport to be operational in the mid-2020s, and be a key economic driver for Western Sydney, NSW and the nation for generations to come.

An airport at Badgerys Creek has the potential to generate $24 billion in economic activity by 2060, creating thousands of jobs in construction, but tens of thousands of jobs once operational.

Our decision required vision—moving beyond the three-year election cycle to lock in the site and secure these critical gains.

The Coalition Government, in partnership with the NSW Government, will spend $3.6 billion on infrastructure in Western Sydney to support the future development of this fast growing area, through the Western Sydney Infrastructure Plan.

This includes the construction of a new four-lane motorway between the M7 Motorway and The Northern Road, together with $200 million to upgrade local roads.

This investment will transform Western Sydney's capacity to handle future traffic growth and improve accessibility to the M7 and M4 motorways.

It will significantly reduce travel times for the people of Western Sydney and provide them with an airport to meet their growing needs and provide a long overdue infrastructure bonus for the region.

Private and Public Engagement in Infrastructure

Our investment agenda seeks to transform the capacity and efficiency of Australia's infrastructure networks—and to reform how we build and finance them.

The constraints on public balance sheets mean that we cannot meet all infrastructure needs from the public purse alone.

Matching infrastructure supply to growing infrastructure demand, therefore, increasingly depends on expanding private investment in infrastructure—and on governments being innovative in their infrastructure approaches.

For example, our investment in the Perth Freight Link will develop both these levers.

The Freight Link is designed to achieve substantial economic and social benefits from separating commuter and freight traffic.

This is projected to yield benefits of up to $5.20 for every dollar invested. It will cut travel times by up to 16 minutes between the Reid Highway—north Perth's major east-west highway—and the Port of Fremantle.

But, together with the Western Australian Government, we are also seeking opportunities for private sector co-contribution to the Perth Freight Link—both in expertise and capital.

It is fair to say that there is considerable private sector interest in participating in this project, including in determining its final scope and design.

I would also note that significant sections of the freight industry have told us that they are happy to pay tolls for a freight link if it delivers a more efficient and more productive outcome.

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.

A third innovation in our approach to infrastructure leverage is the Asset Recycling Initiative.

The Asset Recycling Initiative aims to provide incentives to the States to invest in infrastructure renewal—and incentives to the private sector to expand their infrastructure role by purchasing established infrastructure assets.

There are, of course, several successful precedents in NSW for the Initiative—including the part funding of WestConnex from the sale of Port Botany and Port Kembla.

The Assets Recycling Initiative is building on this momentum, and is an important part of the pipeline for national infrastructure renewal. It is so important that the Senate clears the way for this to be instituted.

The Initiative has attracted significant interest from state governments and the business community. As 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 very expensive project will be made possible by the sale of the port and the release of capital.

Productivity Commission Inquiry

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 newly elected Coalition 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 Commission's final Report, which we tabled in Parliament in July, found that Australian infrastructure investment was strong by international standards.

However, the Report also found 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 has had extensive discussions with the states and territories on reform approaches.

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.

An essential part of all these improvements is ensuring that how we plan, fund and build infrastructure directly aligns with the needs of the people who will use it.

Reforming Infrastructure Australia

A second important part of our revival of infrastructure delivery is focused on institutional reform.

Like any other endeavour, the success of Australia's infrastructure efforts depends on the adequacy of the institutional arrangements in which they operate.

We came to office recognising that these arrangements needed marked improvement.

In particular, Infrastructure Australia was a good concept—but with serious operational flaws.

These flaws were evident in the politicisrural Victoriaation of its decisions, shortfalls in its governance arrangements, in the definition of its role, and in its less than optimum relations with the states.

We moved to reform these arrangements through the Infrastructure Amendment Act, which has now come into effect.

Infrastructure Australia is now much better-placed to provide expert advice on infrastructure issues, including through the audit of the nation's future needs which it is now conducting.

Infrastructure Australia is now collaborating with the states on a 15-year plan about the types of infrastructure that will be required to fill the gaps identified by the audit.

This will get IA positioned ahead of the political decision-making process—instead of catching up after decisions are made.

We expect that this will provide a truly strategic assessment of longer-term infrastructure objectives, which will clearly signal to all governments—and the market—the sort of projects that should be invested in.

These strategic objectives will provide more certainty to the private sector about the nature of the longer term infrastructure investment pipeline. It will also provide the opportunity for the private sector itself to generate unsolicited proposals to fill the gaps.

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.

Rather, we are moving to replace this ambiguity with a longer term plan people can have confidence in and, in doing so, build the foundations for the nation's future economic and social growth.

Conclusion

The Coalition's infrastructure vision and our efforts to bring it to fruition have much in common with ideas set out by CEDA's founder, Sir Douglas Berry Copland, midway through the last century.

As many of you would know, Copland warned in 1949 that Australia was in danger of degenerating into "a milk bar economy"—one that was over-focused on consumption and neglected investing in the capital assets that generate productivity gains.

Copland was, of course, unfair to milk bar operators, but I understand exactly what he meant by the need to shift expenditure towards investments that create a national economic future… one that is more productive and richer in every sense.

The fact that Copland and others identified the need for this shift 65 years ago may lead us to ponder why we need to refight battles over infrastructure investment and raising national productivity in 2014.

This particular debate should have been settled long ago.

Australia earns its living in what we politely call a tough global marketplace, so raising productivity must be a permanent fixture of how we do business. It must also be a permanent part of our national psyche.

Investing in infrastructure that raises our national productivity is an important practical move towards these transformations—and I am pleased to be part of a Government that is making these investments and encouraging more of them.

Thank you very much. I am happy to answer your questions.