Address to the Institute of Transportation Engineers Australia and New Zealand RMIT University, Melbourne
I want to firstly thank you for giving me this opportunity to address such a distinguished group of experts about an issue I am passionate about: nation building infrastructure that makes our economy stronger and improves the quality of life for this and future generations of Australians.
And the timing couldn’t be better given that infrastructure has in recent days again emerged as a central theme in the national political discourse. In particular, last week’s Federal Budget kicked off an intense debate over the role of the national government in the provision of infrastructure and how that infrastructure can best be paid for.
But let me start by saying: good government is about planning and building for the future.
That means that it is not secondary to other elements of a successful economic strategy.
It is central.
Indeed, in the highly competitive, globalised world of the 21st Century, the prices consumers pay, the profits businesses make and the export income Australia earns will more than ever depend on the quality and adequacy of our roads, railways, sea and air ports, electricity grids, and telecommunication networks.
Good infrastructure ensures that when we flick the switch the lights come on; when we turn the tap the water flows. It gets workers to their jobs and food to our shops.
It enables businesses to trade, and to grow.
But it’s not just about commerce. It’s also the networks that power our smartphones and enable us to stay connected with our family and friends. It allows us to travel and explore our nation and the world; to live our lives as we choose.
And it can allow us to live where we want to live.
As noted recently by the Governor of the Reserve Bank Phillip Lowe:
“Investment in transportation infrastructure can also play an important role in addressing housing affordability, which is an increasingly important issue.”
Put simply, infrastructure matters.
And yes, some of our infrastructure works well. But there are also significant areas of deficit.
And the truth is, infrastructure investment has been in decline in recent years, with Australian Bureau of Statistics figures confirming that for every one of the Coalition’s quarters in office, total public sector infrastructure investment has been lower than it was in every quarter under the former Labor Government.
This means we are falling behind our competitors internationally.
And it also means we are falling behind the great nation building tradition established by our predecessors – visionaries such as Prime Minister Andrew Fisher who gave us the transcontinental railway; Ben Chifley who turned the Snowy Hydro dream into a reality; and Sir Robert Risson who protected Melbourne’s trams from those who wanted the lines ripped up in the name of ‘progress’.
Here in Victoria, right now, Melbourne’s roads are increasingly gridlocked, with Infrastructure Australia forecasting that the cost of this traffic congestion will rise more than threefold to $9 billion a year by 2031 if nothing is done.
On top of that, the City’s trams are more crowded than ever and its passenger train network is near capacity.
Meanwhile, beyond Melbourne, the State’s regional rail network is inadequate and ageing.
And this is the situation even before we get to the challenges that lie ahead.
FUTURE CHALLENGES
Consider this: over the next several decades Australia’s population is expected to grow by some 400,000 people a year.
In the words of the former Treasury Secretary Ken Henry:
“In infrastructure terms, that’s like building a new city the size of Sydney every decade; or building a new city the size of Newcastle or Canberra every year.”
And where are all those people going to live?
Most likely, Sydney and Melbourne will become home to many of them.
Melbourne alone is growing by about 100,000 people a year – a trend that is expected to continue until at least mid-century. According to the Australian Bureau of Statistics, this population surge will see Melbourne overtake Sydney as the nation’s biggest city by 2056.
That will change the shape of this City in ways that are difficult to imagine today.
And Victoria’s cities and towns will change shape for other reasons too.
Chief among them being the ageing of the population, with the number of people aged 65 or older projected to increase by 77 per cent between 2012 and 2031 to 5.7 million.
This will have implications for housing design and urban planning.
And ensuring these millions of older Australians can remain mobile and stay connected with family and friends, as well as to the health and aged care services they will require, will place new demands on our transport systems.
Managing this population growth and demographic change will not be easy.
But one thing is certain: a failure to plan and build the infrastructure that will be needed will leave many people and communities socially isolated and economically disadvantaged. And that would inevitably harm the overall productivity and performance of Victoria – and Australia.
So we can see the challenges.
The question now is how to respond.
THE RESPONSE
There are three key ingredients to an effective and ultimately successful infrastructure policy.
They are proper, long term planning, financing, and political will.
Proper, long term planning
Infrastructure has to be got right if we are to maximise its social, economic and environmental dividends.
By that I mean the national government’s investment and policy decisions need
to be guided by a strategic, comprehensive and systemic vision, one based on an objective, evidence-based assessment of the nation’s immediate and long-term infrastructure needs.
That is why one of the first things Labor did when last in government was to restore national leadership via the appointment of Australia’s first ever Federal Infrastructure Minister and the creation of a Federal Infrastructure Department.
And we established Infrastructure Australia.
This independent body brought all levels government together with the private sector to overhaul and drive lasting improvements to the way our nation assesses, plans, finances, builds and uses the infrastructure that will drive growth and productivity in the 21st century.
And it quickly got on with job of doing precisely that.
Infrastructure Australia:
- Completed the first ever audit of the nation’s infrastructure;
- Put in place a National Priority List to guide investment into nationally significant projects offering the highest economic, social and environmental returns;
- Developed national Public Private Partnership (PPP) guidelines to make it easier and cheaper for private investors to partner with government to build new public infrastructure;
- Published the National Port Strategy and the National Freight Strategy: the first ever long term blueprints for a truly national, integrated and multimodal transport system capable of moving goods around as well as into and out of Australia quickly, reliably and efficiently.
But importantly, as well as identifying the new infrastructure Australia needed to build, Infrastructure Australia also did a lot of work on how we could use our existing infrastructure better. I know I don’t need to convince anyone in this room, but technology can help unlock significant efficiency gains.
That’s why, for example, we invested heavily in the Managed Motorways Program, which provided funding to install entry ramp signalling, variable speed limit signs, lane control, CCTVs, and digital message signs that provide live updates on traffic conditions and delays.
Here in Victoria we committed in our last Budget $9.9 million to upgrade the Intelligent Transport System along a 4.1 kilometre section of the Monash Freeway. While in the scheme of things that was a relatively small amount of funding, it would have, according to Infrastructure Australia, generated an extraordinary $10.50 of benefits for every $1 invested.
Of course, it was cancelled by the incoming Coalition Government at the same time that they withdrew funding for the Melbourne Metro and the M80 road project.
As well as restoring national leadership when it came to infrastructure planning and provision, the former Federal Labor Government ended the Commonwealth’s self-imposed exile from our cities and re-engaged with the states, territories and local government.
As one of the most urbanised nations on the planet, we understood that Australia’s continued prosperity would largely depend on how successful we are at making our cities work better.
Importantly, our approach to building more productive, sustainable and liveable cities involved investing in both their road AND rail infrastructure. That’s why we doubled the roads budget and committed more funding to urban public transport infrastructure than all our predecessors since Federation combined.
In addition, we:
- Created the Major Cities Unit;
- Established the National Planning Taskforce;
- Required state and territory governments to have strategic plans for their capital cities as a condition of future Federal infrastructure funding;
- Commissioned an annual State of the Cities report.
Above all, our decision to establish institutions such as Infrastructure Australia and the Major Cities Unit was driven by our determination to break the link between the three or four year electoral cycle and the investment cycle.
Financing
Everyone knows that building good infrastructure isn’t cheap.
And while it is of course the responsibility of government to set out an assessment of the Australia’s future infrastructure needs, it is also the case that rebuilding and modernising Australia’s infrastructure is ultimately a task too big for government alone.
So when it comes to the question of financing, we need to use the power of government to unlock the ingenuity of the market.
That’s why in government we explored new and innovative ways of attracting greater private investment into public infrastructure, particularly urban rail. These included value capture, Australia Government guarantees and ‘availability payments’, instruments that reduce risk for private sector investors by making it cheaper to raise capital and guaranteeing them with a fixed long-term rate of return.
In fact, as a result of the decisions we took, projects collectively worth over $25 billion were set to go to market, offering investors and superannuation funds a great opportunity to be involved in the financing of Australia’s long-term infrastructure needs.
But equally, it’s wrong to think that the job of funding Australia’s infrastructure challenge should fall mostly on the shoulders of the private sector. At the end of the day, governments – both state and federal – must be prepared to contribute where appropriate.
Over time, investment in good infrastructure will pay for itself.
Political will
But this talk of financing brings me to the last ingredient of a successful infrastructure policy: political will.
Being in government is all about setting priorities and making choices. And unfortunately, governments will always be tempted to choose short-term recurrent expenditure over long-term capital expenditure.
Or as former British Prime Minister David Cameron succinctly put it:
“In any political argument about the allocation of resources, the voice of the present can be louder than the voice of the future.”
Plus, the decision to build a new road, rail line or airport will at times be met with opposition from vested interests or local community resistance, particularly when you are attempting to retro-fit that type of infrastructure to our already built-up and busy cities.
But building for the future involves making difficult decisions.
It takes political will to put aside short term unpopularity and to look over the horizon and provide what the long-term national interest demands. But championing the national interest is what good governments do.
2017 FEDERAL BUDGET
So you may ask: did the 2017 Federal Budget contain the three ingredients of an effective, successful infrastructure policy?
In a word: no.
When it comes to proper, long-term planning, the Budget continued the Government’s efforts to sideline the independent Infrastructure Australia. In recent years they have…
…threatened to cut its funding by 25 per cent;
…committed billions of dollars to mega-road projects before it has had a chance to assess them;
…and now they have stripped it of its role of advising government on how projects can best be financed.
However, it must be said that Infrastructure Australia has fared better than the Major Cities Unit. Indeed, one of the first acts of the current Coalition Government was to abolish it and again retreat from our cities. On top of that they removed all funding for public transport projects not already under construction, including the Melbourne Metro.
In the eyes of the former Prime Minister Tony Abbott, the challenges confronting our cities were someone else’s problems to fix.
Regrettably, while the current Prime Minister’s rhetoric may differ from that of his predecessor, his Government nonetheless continues to ignore the planning needs of the four out of five Australians who live in our cities. The 2017 Federal Budget delivered no new policy initiatives and no new investment in our urban infrastructure, most notably public transport.
That brings me to infrastructure funding overall.
And here the numbers tell the story.
They expose the chasm between the Government’s rhetoric on infrastructure investment and its actual performance, namely their chronic inability to do the detailed planning that’s necessary to get projects from the drawing board to construction in a timely manner.
In the current financial year alone, they have cut funding for projects, big and small, by $1.6 billion. Specifically, at budget time last year – just twelve months ago – they promised to invest $9.2 billion in 2016-17. However, this year’s budget papers revealed that they will actually spend $7.6 billion.
Worse still, Federal infrastructure funding – the money that goes to the states, territories and local government to build things – will fall off a cliff over the next four years.
It will collapse from $7.6 billion this financial year to $4.2 billion in 2020-21.
In the assessment of the peak industry body Infrastructure Partnerships Australia:
“Foremost, the Budget confirms the cut to ‘real’ budgeted capital funding to its lowest level in more than a decade – using a mix of underspend, re-profiling and narrative to cover this substantial drop in real capital expenditure.”
Indeed, the only new on-Budget infrastructure investment over the next four years anywhere in the country is $13.8 million for the Far North Collector Road near the NSW town of Nowra in the marginal seat of Gilmore.
This is a project most people had never heard about until Budget night.
And in the case of Victoria, things are set to go from bad to worse.
Despite being home to 25 per cent of the Australian population, the state of Victoria currently receives a pathetic 7.7 per cent of the Federal infrastructure budget – and that figure is set to decline further, with funding to fall from around $800 million in 2017-18 to as little as $280 million in 2020-21.
They are cutting funding for major road and rail projects.
They are cutting funding for fixing dangerous blackspots on local roads.
And they are cutting funding for building new roadside facilities such as rest stops for truck drivers.
All up, Federal infrastructure investment per Victorian has more than halved from $201 under the former Federal Labor Government to $92 under the current Turnbull Government.
But don’t worry, the Government thinks it has found the “silver bullet” to make up for the cuts they are making to the traditional sources of Federal infrastructure funding – an Infrastructure Financing Unit which will be created within the Department of Prime Minister and Cabinet.
According to the Department’s website:
“The new agency will work with Commonwealth Agencies, the private sector, states and territories on funding and financing opportunities such as public private partnerships, concessional loans, equity injections and value capture.”
I hate to break it to the Prime Minister, but his Government is doing nothing more than attempting to reinvent the wheel. Firstly, as I said earlier, this function was already being performed by Infrastructure Australia.
Secondly, state governments have long been pioneers in the development and implementation of these types of “innovative” financing mechanisms – and so too was the former Federal Labor Government.
Just look at the long-talked about, much-needed Melbourne Metro project.
In our 2013 Budget we announced that together the Federal Government and Victorian Government had developed an innovative solution that would have allowed this rail project to be delivered in partnership with the private sector. It was to be funded through a combination of up-front and availability payments, with the Federal Government contributing 50 per cent of the cost of each.
It would also have had an element of value capture.
Yet this project was shelved by the current Government.
Let me give you another example, one that’s real, up and running right now – and is a success.
That project is the Gold Coast Light Rail, or as the locals affectionately call it: “the G”.
This transformative piece of infrastructure has helped change the way people get around the Coast. Costing $1.2 billion, upfront funding for the project was provided by the Federal and State governments as well as the local council, with a consortium awarded the contract to build and operate it for 18 years under a Public Private Partnership.
And since its commissioning in July 2014, the number of people using “the G” daily has been more than 25 per cent higher than what was expected in the original business case.
And this great outcome for the Gold Coast was achieved without the need for the Prime Minister’s Infrastructure Financing Unit. The fact is the expertise to utilise innovative funding arrangements like this already exists within government, particularly at a state level.
As I previously said: yes, the private sector has a role to play in closing the infrastructure funding gap. But governments cannot avoid the fact that they will have to stump up taxpayers’ dollars if they want projects, particularly urban public transport projects, to happen.
As Infrastructure Partnerships Australia has pointed out in recent days:
“Value capture and innovative finance have been talked about as a silver bullet for decades, but haven’t been widely implemented because they are a hard way to raise not very much money.”
In their view:
“Commonwealth Government funding support is needed for infrastructure – Commonwealth financing is not.
“If the budget seeks to materially increase the pace, quality and scale of national infrastructure investment we respectfully submit that Government policy needs to return to real options, which include grant funding…”
The bottom line is: the IFU is more a budget fiddle than a real solution.
CONCLUSION
In conclusion, we all know that the quality of our infrastructure impacts on the everyday lives of all Australians – and the challenge of getting it right is both urgent and complex.
It calls for collaboration between governments and with the private sector.
But above it requires bold thinking and long-term vision.
In short, Australia needs real leadership.
But be it the transcontinental railway, the Snowy Mountains Scheme, or the Sydney Harbour Bridge, history has proven that Australians do have the courage to dream big and build the physical infrastructure that’s necessary to realise our nation’s full potential.
And I am confident we can do that again.