Oct 7, 2008

Address to Australian Davos Connection Infrastructure Summit 21

Address to Australian Davos Connection Infrastructure Summit 21

Brisbane

October 7 2008

The Hon Anthony Albanese MP

Minister for Infrastructure, Transport,

Regional Development and Local Government,

Leader of the House,

Federal Member for Grayndler

INTRODUCTION

Thank you for the invitation to speak at your Infrastructure Summit.

This is the third opportunity I’ve had to speak to the Australian Davos Connection since becoming the Federal Infrastructure Minister.

The fact that you keep asking me back, which I’m grateful for, says two important things to me.

It shows that the ADC recognises the fundamental role modern and efficient infrastructure plays in driving our economy and increasing productivity.

It also proves ADC is serious about engaging with government, and exchanging views on Australia’s infrastructure challenges.

Right here in the sunshine state the challenge of delivering the infrastructure needed to sustain a growing population and booming economy is obvious.

The state’s population is growing at more than 2 percent, and is expected to reach five and a half million people by 2021.

Queensland also boasts an impressive economic growth rate of nearly 5 percent, well above the national average.

MISSED OPPORTUNITIES

While our exporters have increased investment and boosted production, their efforts to keep up with growing demand has been tempered by export infrastructure bottlenecks across the supply chain.

Indeed in the years immediately prior to the last election, the Reserve Bank of Australia warned on 20 separate occasions that capacity constraints were impeding the growth of our economy.

On one estimate, infrastructure shortfalls are costing us 0.8 per cent of GDP in lost production each year.

Australia has failed to take full advantage of the surge in global demand for raw materials.

Access Economics has recently reported that Australia’s resources sector had lost market share and billions of dollars in potential revenue in the five years to 2007.

Had we maintained our global market share between 2002 and 2007, Australia’s miners would have earned an additional $17 billion, the equivalent of 1.6 percent of nominal national income in 2007.

These figures highlight that the last decade has been one of missed opportunities.

Not just in the resources sector but in many industries that rely on modern and efficient infrastructure.

While some short term factors (such as the drought) have more recently played a role in our declining productivity growth, we know the decline has been around for a long time.

Productivity growth was 3.3 per cent over the five years to 1998/99.

In the following 5 years to 2004 it fell to 2.1 per cent and in the last 4 years it has averaged just 1.2 per cent.

One of the primary reasons for the decline in productivity has been inefficient, outdated or inadequate infrastructure.

Critical parts of Australia’s infrastructure networks have failed to cope with current demands and this has put substantial strain on our road and rail networks, our ports and our ability to use telecommunications effectively.

On 24 November last year, the Government was given a mandate to implement our infrastructure reform agenda and take steps to turn this situation around.

CURRENT ECONOMIC ENVIRONMENT – GLOBAL FINANCIAL CRISIS

At the time nobody could have foreseen the magnitude of the global financial crisis we are currently experiencing.

The events over the last few weeks in the United States have reverberated around the world.

Many of these global difficulties are out of Australia’s control, but we are well placed to weather the storm.

Central to this is strong financial management, maintaining a strong budget surplus, and investing in measures to boost future productivity, in particular our nation’s critical infrastructure.

The recently released International Monetary Fund report on our economy singled out praise for the fiscal position outlined in the Rudd Government’s first Budget.

The IMF said: “Directors welcomed the establishment of three new funds for longer term spending on health, education and infrastructure, with contributions to come from the 2007-08 and 2008 09 surpluses.”

“Saving some of the revenue from the commodity price boom in three new funds will take pressure off monetary policy in the near term and enable increased infrastructure investment over the medium term.”

The Government’s priority is also to make sure we have the right policy settings in place to encourage investment from the private sector.

That is why a body like Infrastructure Australia and the creation of a long term infrastructure investment fund like the $20 billion Building Australia Fund are so important.

In total we have allocated some $76 billion for future investment in infrastructure.

These initiatives represent real investment in the key drivers of economic growth and competitiveness – our infrastructure and our people.

The Government will be introducing legislation next month to establish these infrastructure funds and this legislation deserves the support of the Senate.

The Australian public and the business community will not look favourably on any attempt to thwart this legislation when it is debated in the Parliament.

It is an opportunity for all in the Parliament to put the national interest ahead of sectional interests.

COAG – THE NEED TO SPEED UP INFRASTRUCTURE DEVELOPMENT

So critical is nation building to productivity that last Thursday COAG asked Infrastructure Australia to deliver its interim report on Australia’s infrastructure priorities 3 months ahead of schedule.

The interim report will enable the Government, based on Infrastructure Australia’s advice, to make timely decisions on projects that will advance our nation building agenda.

Fast tracking the delivery of this advice will be important so investment in national infrastructure priorities can occur more quickly and necessary preparatory work can commence.

The timeframes are ambitious but necessary given the current global economic environment.

I know that the Commonwealth, all States and Territories, Local Government, and Infrastructure Australia are committed to the task.

INFRASTRUCTURE AUSTRALIA – PROGRESS TO DATE

The Government’s infrastructure agenda recognises the need for a comprehensive approach that goes beyond identification of specific projects.

A key issue is the development of a seamless national economy and one aspect of this is the development of nationally consistent Public Private Partnership Guidelines.

Just last Thursday at COAG the Prime Minister and Premiers endorsed an overview of the National PPP Guidelines which sets out elements of a best practice approach to the development of PPPs, based primarily on the guidelines which operate in New South Wales, Victoria and Queensland.

The aim of the new PPP Guidelines is to encourage greater private sector participation in infrastructure projects, and to attract new entrants into the infrastructure markets.

To have all levels of Government agree to the national guidelines is a significant step forward and represents a new era in Federal-State cooperation.

Infrastructure Australia is now undertaking public consultation with industry and governments to finalise a comprehensive PPP Guideline Package. It is anticipated this will include: a Practitioner’s Guide; a Public Sector Comparator Guide; the Discount Rate Methodology; and Risk Allocation and Commercial Principles for Social and Economic Infrastructure.

This comprehensive package will be submitted to COAG at their November meeting.

INFRASTRUCTURE AUSTRALIA’S PRIORITISATION METHODOLOGY

Infrastructure Australia has also developed its Prioritisation Methodology which the Prime Minister released earlier today.

This comprehensive document outlines the methodology that Infrastructure Australia will be applying to assess and prioritise infrastructure proposals.

It will assist Infrastructure Australia make recommendations to the Government about which projects are top priorities and which will need attention later on.

To ensure this is a truly transparent process we are publishing this document on the Infrastructure Australia website so that governments, the private sector and individuals can have complete certainty about how Infrastructure Australia will arrive at its conclusions.

Proponents can put their case to Infrastructure Australia knowing that the information contained in their submission will be fairly appraised, and the same rules will be applied to all proposals.

In developing the Prioritisation Methodology, Sir Rod Eddington and his team have drawn on national and international experience.

Importantly, the methodology takes a systematic, evidence-based approach based on three key stages: profiling, appraisal, and selection.

For example, the Prioritisation Methodology outlines that projects will be assessed against their ability to expand Australia’s productivity; build our global competitiveness; develop our cities and regions; reduce greenhouse gas emissions; and improve our quality of life.

By thoroughly analysing the problem, Infrastructure Australia can recommend targeted action.

We all know that throwing more money at a problem doesn’t always fix it.

Sometimes it is the regulatory environment that needs refining.

On other occasions we need measures to manage supply or demand.

And of course, sometimes we are simply not getting the most out of the infrastructure we’ve already got.

The objective analysis of proposals by Infrastructure Australia also means that proponents will not be able to overstate benefits and understate costs as has sometimes been the case in the past.

Earlier this year the Prime Minister and I asked Infrastructure Australia to apply a rigorous cost benefit analysis including an assessment of economic, environmental and social impact of all proposals.

In addition, Infrastructure Australia was specifically asked to have regard to the effects of climate change in respect of existing and new infrastructure.

With this document, one of several important pieces of work to be developed, Infrastructure Australia has done just that.

For the first time, the economic, environmental and social costs and benefits of each proposal will be given a monetary value.

And where allocation of a monetary value is not possible, these factors will be ranked to enable comparison of projects.

By taking the approach outlined in the Prioritisation Methodology, Infrastructure Australia ensures that the Infrastructure Priority List recommends action that can boost national productivity – a key priority of the Rudd Government.

And it ensures the Rudd Government can make informed decisions about infrastructure investment. As the Prime Minister said earlier: “Policy integrity is critical to good decision making. This is the analytical rigour of modern nation-building.”

This is the first time that such a comprehensive analysis of Australia’s infrastructure needs has been undertaken.

I join with the Prime Minister in congratulating Infrastructure Australia for the applying transparency, rigor and policy integrity to infrastructure evaluation and prioritisation that was sorely missed over the last decade.

CONCLUSION

I mentioned earlier that the last decade has been one of missed opportunity.

We must ensure that future generations do not say the same thing when they reflect back on the next ten years.

More than ever before, our long term prosperity relies on our ability to address capacity constraints in our economy. In a relatively short period of time, the Rudd Government has set in train the action required to address these capacity constraints and help Australia to meet its true potential.

One of the important features of our work is the desire to maintain a close collaboration with all levels of government and with the private sector.

This includes bodies such as the Australian Davos Connection, which I’m pleased to say is an active participant in the infrastructure debate.

This infrastructure summit proves that beyond any doubt.

Your mission – to share ideas, exchange views and create defined outcomes to improve Australia’s future – is exactly what the Rudd Government welcomes when it comes to meeting Australia’s future challenges. I look forward to your ongoing involvement and constructive contribution not just to the debate, but to working with us to find practical solutions to help us secure a brighter economic future for Australia.