Feb 20, 2008

Driving Higher Productivity through Investment & Infrastructure






Wednesday 20 February 2008

“Infrastructure is the basic framework or underlying foundation of an organisation or a system.”

“It’s also the roads, railways, schools and other capital equipment which comprise such an underlying system within a country or region. “

This pretty dry definition comes from the Macquarie Dictionary.

Some might argue that it’s appropriate because they see infrastructure as a dry topic.

More often than not coverage of infrastructure tends to be in the economic and financial pages of our media.

Well, it’s certainly true that infrastructure is an economic issue.

Addressing infrastructure shortfalls is a key component of the Government’s 5 point plan to tackle inflation, sitting alongside our commitment to address the skills shortage following 20 separate warnings from the Reserve Bank.

Though important to our economy, infrastructure is so much more than an economic issue.

A member of the press gallery yesterday suggested that I make the title of today’s speech- Making Infrastructure Sexy.

While I might get away with this on the day after the Press Gallery Ball, in the first sitting weeks of Parliament over-reaching is an accusation to be avoided.

I do want to argue, however, that infrastructure is indeed central to the quality of life of each and every Australian.

It is therefore an important component of Labor’s social agenda.

It’s about running water when you turn the tap on.

It’s about lighting up a room when you flick a switch.

It’s about being able to log on to the internet and download things in seconds, not minutes.

It’s about the schools our kids go to, the hospitals that treat the sick, the transport networks we use to get to or from work or leisure activities.

We often take infrastructure for granted until it fails us.

Inadequate infrastructure leads to problems like urban congestion.

Many working parents spend more time commuting in their cars, than at home with their children.

We know that infrastructure shortfalls are costing us 0.8 per cent of GDP or $8 billion a year in lost production, but the real impact is the loss of quality of life for working families and the brake it places on improvements in living standards.

Labor’s Agenda

Action on infrastructure coordination is long overdue.

There is of course precedent for an opposition making commitments about greater infrastructure coordination before coming to Office.

In 1995, when John Howard was Opposition Leader he said that he’d:

"been struck by the need to improve the coordination of infrastructure policy at the Commonwealth-State level".

Yet upon coming to Office, the former Prime Minister did nothing more than blame the States for the next 11 and half years and took no action to fix the problem he’d correctly identified.

We know that planning and coordination are essential to effective economic management.

Not just because the Rudd Labor Government says so.

Not even because a myriad of industry groups such as the Business Council of Australia, The Australian Industry Group, CEDA, Infrastructure Partnerships Australia and Engineers Australia have been championing such an approach for many years.

It’s simply because it has been proven to work.

The last election campaign saw the Australian public draw a distinction between the visions of the two major Parties.

Labor put forward a long term plan with a vision that extends well beyond the 3 year electoral cycle.

Not just a plan for infrastructure but one that responds to our nation’s other key long term challenges – climate change and the skills deficit.

Our infrastructure plan is consistent with our history as a nation building party.

Ben Chifley courageously started the Snowy Mountains Hydro Scheme,

Gough Whitlam gave us practical infrastructure solutions like building sewerage systems in our outer suburbs, and the creation of the Department of Urban and Regional Development.

The Hawke/Keating Government introduced the ‘Better Cities’ program focusing on urban renewal.

The Rudd Labor Government will build on that tradition and adapt it to the needs of the new century.

Already we have committed to:

  •  rolling out a Fibre-To-The-Node broadband network as an essential component of a modern economy; 
  •  investing in innovative solutions to secure our water supply including recycling and desalination plants; and
  •  developing a National Emissions Trading Scheme, innovative renewable energy solutions and clean coal technology.

This Government has also put housing back on the national political agenda.

Through our Housing Affordability Fund the Government will address the cost of developing new infrastructure associated with housing development in new suburbs such as water, sewerage, transport and parklands.

The Government’s commitment to the future is an ongoing commitment to economic reform.

In a globalised economy, if you stand still the world will pass you by.

Infrastructure is a central part of our five point plan to combat inflation.

The Government has identified transport, energy, water and communications infrastructure as priority areas.

The first step is getting the policy structure right.

And at the heart of that structure is Infrastructure Australia.

We said we’d create a Department of Infrastructure, we’ve done that.

We said we’d create a Federal Infrastructure Minister and on the 3rd of December I was appointed to the role.

We said we’d create Infrastructure Australia within the Government’s first 100 days – and at the first Cabinet meeting on the 21st of January in Perth we agreed on the structure and functions of the organisation.

The COAG Working Group on Infrastructure met for the first time on the 23rd of January.

This meeting was scheduled for 3 hours but concluded in just over 2 hours because there was agreement around the table on the program for reform.

There is a consensus that the time for talk is over. It is now time to get on with the job.

Tomorrow I will introduce into the House of Representatives the Infrastructure Australia Bill 2008.

Soon I will be appointing the 12 members of the Infrastructure Australia Statutory Advisory Council.

Three will be come from the Commonwealth, 3 from the States, 1 from Local Government and importantly 5 from the private sector, including the Chair.

The direct involvement of the private sector in such a critical body represents an enormous step forward and is a recognition that the public sector must work in partnership with the private sector to achieve the desired long term goals.

The Infrastructure Australia Advisory Council will be assisted by the Office of Infrastructure Coordination, which will be based in Sydney and headed by the Infrastructure Coordinator.

Infrastructure Australia will advise governments, investors, as well as the owners and users of infrastructure on matters including: 

  • national infrastructure priorities;
  • the policy and regulatory reforms needed to improve the efficient utilisation of national infrastructure networks;
  • options to address impediments to the development and provision of efficient national infrastructure; and
  • possible financing mechanisms.

Importantly, Infrastructure Australia will advise on ways in which barriers or disincentives to investing in nationally significant infrastructure can be removed. This will include:

  • improving the efficiency of delivery of projects;
  • aligning infrastructure plans across all levels of government; 
  • harmonising guidelines, legislation and regulations across jurisdictions; and
  •  standardising formats in tender documents and contracts to facilitate consideration of infrastructure proposals and promote best practice procurement to expedite decision-making.

Issues such as pricing and regulatory reform are critically important to further investment and is an area where we can take early action.

Throughout this year Infrastructure Australia will conduct its national audit.

And in March 2009, Infrastructure Australia will deliver to COAG its first Infrastructure Priority List.

The absence of a pipeline of projects is an impediment to infrastructure investment and to infrastructure delivery.

Situations have developed whereby you either have, at one end of the spectrum, the Cross City Tunnel, the M7 Westlink and the Epping-Chatswood Rail line all being under construction simultaneously in Sydney, or at the other end of the spectrum, insufficient projects to ensure ongoing work for the construction industry.

National coordination means greater long term certainty for constructors, owners, investors; and of course users.

And it will lead to more competitive markets, with benefits for the economy and consumers.

Public Private Partnerships (PPPs)

One particular set of guidelines in need of an urgent overhaul and national consistency are those that underpin the assessment of Public Private Partnerships (PPPs).

Therefore, today I can announce best practice, nationally consistent guidelines for PPPs will be finalised this year.

It is an ambitious timetable that further underscores our commitment to economic reform.

This measure will assist in unlocking funds for additional infrastructure investment.

Consistent State and Commonwealth rules would save governments and businesses time and money.

I often hear about the exorbitant and sometimes prohibitive bidding costs faced by potential investors and consortia wishing to build projects.

Leighton Holdings Executive General Manager of Operations has stated that firms currently spend up to $30 million on bids and engage hundreds of staff to finalise complex tenders.

Not only does this lock out some smaller investors and businesses but it also places a great burden on the public sector involved in evaluating the bids.

It’s money that should be spent on improving project outcomes.

Nationally consistent, best practice PPP guidelines will make it simpler and less expensive for local and international financiers to invest in local infrastructure.

The appropriate use of PPPs can provide significant benefits to the public sector such as access to specialists expertise and the transfer of risk to those in a better position to manage it.

The nationally consistent guidelines will ensure that all procurement processes, including PPPs maximise value for money, transparency, and public accountability.

In the past some PPPs have enabled too great a scope for investment advisory fees, legal fees, and management and service fees in the structure of the project.

Better guidelines and a competitive environment are needed.

To ensure we get value for money through PPP arrangements it is vital that we develop and apply a robust Public Sector Comparator to all potential PPP projects.

The Public Sector Comparator reflects the most efficient public sector delivery option likely to be achieved for the relevant project and should be used as the benchmark against which PPP options are compared.

The Public Sector Comparator must be robust and it must accurately reflect risks involved in specific projects.

After all it is taxpayers’ money that is being spent.

Best practice is not static – much has been learnt from previous PPP experiences and our knowledge base will continue to grow.

Maintaining best practice will be an ongoing task for Infrastructure Australia.

Financing of Infrastructure

There is no doubt that overcoming our infrastructure backlog and preparing for the future will require substantial investment.

ABN AMRO has estimated that over the next decade, total infrastructure spending in Australia could reach $400 billion.

The Government must consider a range of financing options if we are to adequately meet current and future infrastructure demand.

Under the Howard Government Australia fell to 20th out of 25 OECD countries for investment in public infrastructure as a proportion of GDP.

This failure to invest in nation building infrastructure occurred at a time of unprecedented growth in Government revenue as a result of the mining boom.

While we support private investment in infrastructure, this does not abrogate the Government’s responsibility to fund nation building projects.

The Government sees spending on infrastructure as an investment in the nation’s future prosperity – not just a cost.

We recognise that if you fund infrastructure, it can increase economic returns to the Government and, over the lifetime of the project, have substantial productivity benefits.

Assessment must be made on a project by project basis and consider all financing options – public provision, private provision or a combination of both.

Above all ideology alone should not determine which option is taken up.

The extraordinary delay by the previous Government in amending Sections 51AD and Division 16D of the Income Tax Assessment Act which were designed to encourage private investment in infrastructure, highlighted how infrastructure financing reform was simply not one of their priorities.

Superannuation funds

One of the most significant changes to occur in Australian financial and investment markets over recent times has been the growth of superannuation funds.

These funds now hold over $1.1 trillion in assets – around the same size as Australia’s annual GDP.

Australia has the 4th largest funds management industry in the world, with fund managers seeking to create a balanced portfolio of investments.

Using superannuation as infrastructure investment capital makes sense.

Infrastructure assets offer a long term secure investment option with a consistently good rate of return and present as a good option for investment of superannuation capital.

Trustees of super funds do not have enough options for investment in Australian infrastructure.

Leadership in identifying projects and structuring them in an appropriate way is vital.

Super funds, in the absence of such leadership, typically invest money into Australian and international equities and even offshore infrastructure.

The development of a pipeline of projects steadily on offer to potential investors provides a real opportunity.

Put simply the nation is faced with a situation where we have a strong demand for infrastructure development on the one hand, and a substantial supply of capital on the other.

With the right leadership we can put these together.

The Urban Challenge

It is also time the Commonwealth re-engaged in the development of our cities.

Australia is one of the most urbanised countries in the world – with over 64 per cent of the population living in our capital cities.

Our cities are critical to the economy, with ABS data showing that Australia’s 8 capital cities contributed to 78 per cent of the nation’s economic growth between 2001 and 2006.

So our economic prosperity will in great part depend on the ability of our cities to operate successfully and a critical challenge for Infrastructure Australia will be the issue of urban congestion.

The Bureau of Infrastructure, Transport and Regional Economics estimates urban congestion will cost families and businesses nearly $20 billion by 2020.

With the freight task set to double by 2020 the greatest impact will be in urban areas particularly around ports, intermodal terminals and distribution centres.

Freight must be able to move seamlessly from the farm gate to the kitchen table and from the mines to the ports.

Of course, a policy for moving goods will not work without a policy for moving people.

It is motorists in their cars much more than truckies in their cabs that are clogging our cities.

When it comes to transport we must look at the whole picture.

We cannot address climate change and unclog our cities without addressing the sustainability of our urban transport networks.

Auslink has some benefits but it hasn’t gone far enough.

Up until now its focus is on stand alone projects rather than looking at transport as an integrated system.

To achieve this perspective, we must consider a mix of policy objectives, funding, and economic and regulatory reforms.

With this in mind, I have commissioned the National Transport Commission to development a national policy framework and national infrastructure plan for all modes of transport – particularly roads, rail, shipping and aviation.

This work will dovetail with the work of Infrastructure Australia.

Infrastructure Australia will consider the sustainability of our cities and the critical importance of infrastructure for regional development.

In recent times, the Coalition, but particularly the National Party, has ignored the vital role of infrastructure in regional economic development and reduced regional policy to a series of electorally motivated short-term funding announcements.


The ability of the Government to undertake infrastructure policy reform and coordinate infrastructure investment will determine whether Australia will have the sustained productivity growth necessary to meet challenges such as climate change, ageing of the population, and globalisation.

The Rudd Government is firmly focused on the future agenda.

National leadership means taking action to remove barriers to new infrastructure investment by: 

  •  ending the blame game and working with all levels of government; 
  •  reinvigorating the Commonwealth Government’s commitment to COAG’s competition and regulatory reforms; 
  •  creating a favourable fiscal environment for potential investors; 
  •  creating a policy framework that provides consistent regulation, and gets pricing and access regimes right;
  • ensuring efficient planning and coordination to create a range of investment options for investors; and
  • perhaps most importantly, looking at infrastructure investment beyond the prism of a three-year election cycle.

The Rudd Labor Government has already shown such leadership and foresight by moving quickly to create Infrastructure Australia.

Infrastructure provision is not just a cost, it’s an investment.

And in partnership with all levels of governments and the private sector, we have the best opportunity to secure our nation’s future.