Delivering The Infrastructure Australia Needs
The Hon Wayne Swan
Deputy Prime Minister
The Hon Anthony Albanese MP
Minister for Infrastructure & Transport
Leader of the House
Federal Member for Grayndler
May 10 2011
The Gillard Government will implement a reform package to strengthen Infrastructure Australia (IA) and drive lasting improvements to the way our nation plans, finances and builds the infrastructure it needs to compete in the 21st century.
The package improves the governance structure of IA, encourages private investment in infrastructure, and improves transparency in the national infrastructure market.
A stronger Infrastructure Australia:
• IA’s funding will be increased by nearly 40 per cent to $36 million over four years.
• This extra funding will allow IA to expand its work to include providing independent policy advice on national infrastructure reform such as the National Port and Freight Strategies, while working with governments and the private sector to develop a deeper ‘pipeline’ of priority infrastructure projects in the Australian market.
• A revamped governing council for IA will strike the balance between experience and renewal (Attachment A).
• The reform will give IA greater independence and financial autonomy.
• IA will produce an enhanced list of priority projects, focusing on those projects worth over $100 million or those of national significance and value.
• The Government’s Statement of Expectations provided to Infrastructure Australia is at Attachment B.
Reforms to promote private investment in infrastructure:
• The Government will remove impediments to private sector investment in infrastructure by establishing tax provisions for infrastructure projects designated to be of national significance (Attachment C).
• New infrastructure investment incentive measures will encourage private and superannuation sector investment up to a cap of $25 billion by removing impediments in the tax system to invest in projects listed on IA’s National Priority List.
• Losses generated by designated infrastructure projects will be exempt from the Continuity of Ownership Test and the Same Business Test, and uplifted at the government bond rate. Consultation will be undertaken regarding the implementation of this reform.
• IA will establish an Infrastructure Financing Group of private and public sector advisers to identify further areas for work around private financing of infrastructure.
• The Government will also continue to lengthen the Commonwealth Government Securities yield curve incrementally, when prudent to do so. This could help the financing of long term infrastructure projects.
Greater transparency and investor confidence:
• Information about IA’s assessments of projects will be published including cost-benefit analyses.
• A National Infrastructure Construction Schedule will be established to provide information on major infrastructure construction across all levels of government and help build the national pipeline.
• The Australian Government will work with States and Territories to improve approaches to managing forecasting and patronage risk for infrastructure projects such as toll roads.
Infrastructure Australia Achievements:
In just over three years, the Labor Government has reversed more than a decade of neglect and underinvestment in Australia’s infrastructure.
IA has achieved significant productivity reform outcomes, including:
• The first ever audit of the nation’s infrastructure and first national infrastructure priority list. The Labor Government has funded 8 of 10 ‘priority’ projects and 6 ‘pipeline’ projects on IA’s first priority list from the Building Australia Fund.
• The first national PPP policy, to make it easier and cheaper for the private sector to partner with governments.
• A national response to the review of barriers to competition and efficiency in PPP procurement.
• The first ever national ports strategy, with implementation arrangements being considered by COAG this year, and work underway on the first ever national freight strategy aimed at developing a truly national freight transport network.
Spending on the nation’s roads, railways, power stations and water storage facilities is now nearly 40 per cent higher in real terms than it was during the last full year of the Howard Government.
ATTACHMENT A: A RENEWED INFRASTRUCTURE AUSTRALIA COUNCIL
As part of its comprehensive package of investment and financing reforms the Government has taken steps to renew and strengthen the Infrastructure Australia Council.
I welcome Ms Elana Rubin, Cr Nicole Lockwood and Dr Martin Parkinson, the three new members of the Council.
New and reappointed Council members are:
1. Sir Rod Eddington – Sir Rod is the Chairman of Infrastructure Australia. Sir Rod is currently non-executive Chairman (Aust & NZ) of JPMorgan as well as Chairman of the Alfred Foundation, the Hackett Foundation, and the Victorian Major Events Company. Sir Rod also holds a number of non-executive directorships.
2. Mr Terry Moran, AO – Mr Terry Moran, AO currently holds the position of Secretary, Department of the Prime Minister and Cabinet. Mr Moran has previously been the head of Victoria’s Department of Premier and Cabinet and Chief Executive of the Victorian State Training Board.
3. Dr Martin Parkinson, PSM – Dr Parkinson is Secretary to the Treasury. He was previously Secretary of the Department of Climate Change and Energy Efficiency. He is a member of the Board of the Reserve Bank of Australia, Board of Taxation and the Council of Financial Regulators. Dr Parkinson is also the Chair of the Standard Business Reporting Board and the Advisory Board of the Australian Office of Financial Management.
4. The Hon Mark Birrell – The Hon Mark Birrell’s current position is Chairman of Infrastructure Partnerships Australia. The Hon Mark Birrell was previously National Leader of the Infrastructure Group at Minter Ellison Lawyers and served as a Cabinet Minister in Victoria, including as Minister for Major Projects.
5. Professor Peter Newman – Peter Newman is the Professor of Sustainability at the Sustainability Policy Institute, Curtin University. Professor Newman has previously been the Sustainability Commissioner in Sydney, advising the government on planning issues, and a Councillor in the City of Fremantle.
6. Ms Heather Ridout – Ms Heather Ridout is currently the Chief Executive of the Australian Industry Group. Ms Ridout was previously Chair of the Population Strategy Taskforce, and the NSW Industry Capability Network and is Director of the AustralianSuper Trustee Board.
7. Mr Phil Hennessy –Mr Hennessy is currently Queensland Chairman of KPMG. Mr Hennessy is also Chair of the Mater Hospital Foundation, and Seqwater. In his professional capacity, Mr Hennessy has been involved in providing advice in relation to infrastructure in Queensland.
8. Ms Elana Rubin – Ms Rubin is currently Chair of AustralianSuper and has expert knowledge in finance and investment. Ms Rubin is also the Chair of the Victorian WorkCover Authority (WorkSafe) and was previously Executive Director for Investments for the Australian Retirement Fund and a Board member of the Victorian Rail Track Corporation.
9. Cr Nicole Lockwood – Cr Lockwood is currently the President of the Shire of Roebourne in Western Australia. Cr Lockwood is also a Board Director on the Horizon Power Board, a Commission Member on the Pilbara Development Commission, and a Commission Member of the Western Australian Planning Commission
10. Mr Jim Hallion – Mr Hallion is currently the Chief Executive of the Department of Transport, Energy and Infrastructure, South Australia. Mr Hallion is a member of the Australian Logistics Council, the Australian Road Forum, the Standing Committee on Transport and the Transport Agencies Chief Executives Forum
11. Dr Kerry Schott – Dr Schott is currently Managing Director and Chief Executive Officer of Sydney Water. Dr Schott was previously the Deputy Secretary of NSW Treasury and a non-executive director of the Sydney Water Board as well as holding a number of senior corporate advisory positions.
12. Mr Anthony Kannis – Mr Kannis is currently the Executive Director, Infrastructure and Finance, Department of Treasury and Finance, Western Australia. Mr Kannis has held a number of senior positions across the Department of Treasury.
ATTACHMENT B: IA STATEMENT OF EXPECTATIONS LETTER
Sir Rod Eddington
GPO Box 594
Canberra ACT 2601
Dear Sir Rod
STATEMENT OF EXPECTATIONS
I am writing to record my appreciation for Infrastructure Australia’s (IA) work to date under your Chairmanship and to outline for you the Gillard Government’s forward agenda for infrastructure.
Since IA was established in 2008 it has transformed the approach to national infrastructure policy in Australia. Groundbreaking work has been done to develop an annual Priority List of infrastructure projects, conduct the first ever national audit of infrastructure, establish a national Public-Private Partnership policy and guidelines, and develop landmark national port and freight strategies. These are worthy policy achievements that will build economic productivity and wellbeing in Australia.
Through this work, and in the context of the global financial crisis, IA has established itself as an important source of advice for all levels of government, industry and the private sector, and has helped deliver important outcomes across the transport, water, energy and communication sectors.
The Government believes the work of IA must continue, and its capacity should be enhanced. I am pleased to inform you that the Government will boost the budget of IA by nearly 40 per cent over the next four years, to $9 million each year.
In addition to this increase, we will provide IA with greater financial independence and accountability commensurate with its independent advisory status enshrined in the Infrastructure Australia Act 2008.
With increased capacity comes a renewed mandate to lead on national infrastructure reform and to modernise Australia’s infrastructure. It is my expectation that Infrastructure Australia will continue developing a strategic view of the nation’s immediate and long term infrastructure needs.
The Building Australia Fund will continue as an investment fund for major projects. However, as the global economy emerges from the global financial crisis and the Government’s fiscal settings tighten, a renewed emphasis on private sector investment is important, and our focus ought to be on ensuring government policy settings promote competitive and efficient investment across both the private and public sectors.
This Statement is the second that I have issued for IA and is intended to guide the Council’s deliberations through the next period of funding. Infrastructure Australia will work with states and the private sector to develop a forward program that takes into account:
IA’s strategic role
A key challenge facing Australia is the imperative to lift economic productivity to ensure Australia’s economy remains globally competitive and builds wealth and quality of life for all Australians. Economic infrastructure is a vital enabler of a strong and productive economy.
The Government established Infrastructure Australia to bring national leadership to infrastructure development and a strategic approach to planning and financing that enhances value-for-money offerings of Australia’s infrastructure assets.
This should remain at the heart of IA’s responsibilities. Looking ahead, the Government expects that IA will develop a greater ‘top-down’ approach, developing a deeper National Priority List that looks beyond individual proposals from jurisdictions. To underscore this strategic role, the Council should consider projects above a threshold of $100 million except in relation to Regional Infrastructure Fund projects and projects that are flagship or demonstrate unique national interest qualities.
As a first step, it would be timely for IA to update its analysis in 2011 of the nation’s infrastructure priorities against the seven priorities identified in the 2008 audit. These priorities are a national broadband network, creation of a true national energy market, competitive international gateways, a national rail freight network, adaptable and secure water supplies, transforming our cities and providing essential indigenous services. It is important that these priorities are informed by future forecasts and would ideally flow from a biennial audit of the nation’s infrastructure needs and gaps.
IA should work closely with states and territories and the private sector to promote opportunities for private sector participation, including options to encourage long-term equity partners such as superannuation funds, encourage best practice PPP procurement, and advise on risk allocation.
To support these goals, IA should develop transparency and investor confidence in the infrastructure market by publishing project assessments and cost-benefit analyses, except where project information is commercially sensitive or confidential.
The Regional Infrastructure Fund
The Government’s Regional Infrastructure Fund (RIF) is a major new initiative that will provide an ongoing funding stream for economic infrastructure, subject to the passage of the Minerals Resource Rent Tax legislation. The Government has made commitments to progress eight important infrastructure projects from an initial funding injection in the RIF.
IA has an important role in shaping this initiative. Specifically, I ask that IA work with governments, communities and the resources sector to identify long-term infrastructure needs and to assess economic infrastructure projects against RIF criteria and having regard to IA’s Reform and Investment Framework which provides for assessments and cost benefit analyses. The $100 million threshold for consideration of projects does not apply to the RIF Program.
Infrastructure financing and taxation
In the 2011 Budget, the Government has announced the Infrastructure Investment Incentive Package, to encourage private sector investment in the IA Priority List.
Specifically, the package removes the application of the Continuity of Ownership Test and the Same Business Test and uplifts early stage losses by the government bond rate for priority projects assessed as ‘ready to proceed’ or ‘threshold’. The package is designed to encourage private investment in up to $25 billion of projects designated from the time of Royal Assent to 30 June 2017. The Government will undertake detailed consultations with industry over the next few months to finalise the package, including the development of appropriate legislation and governance arrangements. I ask that IA be closely involved in this process.
I also welcome the establishment by Infrastructure Australia of an Infrastructure Financing Group of senior private and public infrastructure finance decision-makers to identify further areas for work on private financing reforms.
It would further enhance IA’s national priority list if IA were to identify where projects could be privately financed, where user charges might be considered as a means of project funding, and where alternative financing models are appropriate.
IA’s Work Plan
The following matters are of particular importance to IA’s development of a long term, integrated approach to infrastructure investment:
o National Infrastructure Pipeline – developing a deeper pipeline of quality infrastructure projects in Australia, and enhancing the priority list through a more active approach to developing infrastructure proposals that address infrastructure gaps and bottlenecks and long-term infrastructure needs.
o Private investment in infrastructure – further refining the National Public Private Partnership Policy and Guidelines, promoting best practice PPP procurement and options for private and superannuation sector investment, and identifying reforms to increase competition in project financing.
o Alternative funding sources – investigating and developing more efficient pricing approaches for infrastructure that are fair and sustainable.
o Ports Strategy – continue to work through COAG to finalise the National Ports Strategy Implementation Plan, and assist jurisdictions to develop 50 year plans for major ports, identifying sea and land side impediments and how they should be addressed.
o National Land Freight Strategy – finalise the National Freight Strategy for COAG in 2011, in consultation with public and private sector bodies. Develop an implementation plan aimed at creating a seamless, national freight network, increasing Australia’s competitiveness, lowering costs and minimising congestion on our road and rail networks.
o Water Reform – continuing work on strategies to deliver improved water quality and security in regional Australia and our major cities, in consultation with communities and local councils.
o Urban development – develop approaches for using infrastructure as a catalyst for more sustainable and productive patterns of urban development.
o Indigenous infrastructure – investigating how the infrastructure needs of indigenous communities can be better met, and developing strategies accordingly.
o Public Transport Strategy – develop a strategy aimed at improving service standards through better use of existing infrastructure and investment in new infrastructure.
o Identifying corridors and buffers – working through the Infrastructure Working Group, in consultation with the Department for Infrastructure and Transport, to review practices around the planning and protection of corridors for future infrastructure networks.
o Smart infrastructure and a National Smart Managed Motorways Trial (part of the National Urban Policy). This work should examine the potential benefits of Intelligent Transport Systems and other smart infrastructure to cut emissions, reduce travel time, and optimise use of existing assets to free government resources for more productive use;
o Develop and lead strategies on ‘asset sweating’ through the Infrastructure Working Group to maximise existing infrastructure and increase their efficiency and performance; and
o Advise on the economic and environmental implications of major infrastructure projects within a carbon constrained economy.
Engagement across governments
IA’s ability to work across governments is central to its promotion of national infrastructure priorities.
IA should continue to provide an annual report to the Council of Australian Governments (COAG) on its work, or as requested by COAG or the Commonwealth Minister for Infrastructure and Transport. IA’s reports to COAG will continue to be conveyed through the Commonwealth Minister for Infrastructure and Transport, who will be the Chair of the new Standing Council on Transport and Infrastructure (SCOTI).
I have asked the Secretary of my Department to continue engaging closely with the Council on key national projects, including the delivery of the Nation Building program and the planning studies underway on High Speed Rail and the Sydney Aviation Strategy.
Statement of intentions
I would appreciate a statement from the Council in due course of Infrastructure Australia’s priorities moving forward, including your delivery and performance milestones.
Once again, I congratulate you and the Members of the IA Council on your appointments and thank you for your ongoing commitment. I look forward to working with you as the Council continues its vital contribution to the development of Australia’s infrastructure.
ATTACHMENT C: INFRASTRUCTURE INVESTMENT INCENTIVE PACKAGE
The Gillard Labor Government will introduce a new tax incentive designed to remove impediments in the tax system that discourage private investment in infrastructure projects.
This targets the concerns raised by investors that early stage tax deductions might never be used due to changes of ownership, or if used will have declined in value due to inflation and the time value of money.
The Government will establish special tax provisions for infrastructure projects designated to be of national significance. Losses generated by designated infrastructure projects will be exempt from the Continuity of Ownership Test and the Same Business Test and will be uplifted at the government bond rate.
A decision maker will be empowered to confer designated infrastructure project status on privately financed public infrastructure of national significance based on a range of criteria, including a global capital expenditure cap of $25 billion over the period from Royal Assent of the enabling legislation to 30 June 2017. The selection criteria to be applied by the decision maker, and other design issues, will be the subject of further consultation. This measure will ensure that access to losses within a designated infrastructure project is certain and that the value of those losses is maintained.
Leader of the Australian Labor Party, MP for Grayndler, Rabbitohs Life Member. Authorised by Anthony Albanese, ALP, Canberra.