Mar 9, 2011

Economic Reform – the pathway to high growth, participation and productivity

Economic Reform – the pathway to high growth, participation and productivity

Speech to the Committee for Economic Development of Australia, Sydney

The Hon Anthony Albanese MP

Minister for Infrastructure & Transport

Leader of the House

Member for Grayndler

Wednesday, 9 March 2011

I’m delighted to be here today as a guest of the Committee for Economic Development of Australia.

Congratulations to CEDA on recently celebrating your 50th birthday.

Australia is a vastly different nation today than it was in 1960 when Sir Douglas Copland established CEDA.

We have been through four recessions, one global financial crisis and 20 federal elections.

Our population has risen from 10.3 million to 22.5 million, and is older and much more diverse.

And productivity growth has helped drive an increase of about 170 per cent per capita GDP since 1960.

Being productive is hard work.

In Lewis Carroll’s Alice in Wonderland, Alice finds herself running alongside the Red Queen but getting nowhere.

A perplexed Alice asks why.

The Red Queen responds that in her country

"….it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

Australians know this feeling when it comes to productivity reform.

If we want productivity growth that really makes a difference we need to run fast and keep running.

Imagine if the Hawke and Keating governments had simply stopped after floating the dollar and lifting exchange controls in 1983.

We would have been left with a globally uncompetitive economy.

That the Hawke and Keating governments kept their shoulders to the wheel yielded huge benefits for Australia.

Our productivity growth soared to an average of 2.3 per cent in the late 1990s.

This growth was not the end in itself, it was the means by which incomes could rise and we could fund new social programs.

Unfortunately, the effects of these reforms were then worn away during 12 years of neglect.

Between 2000 and 2008, the average annual productivity growth fell to just 1.6 per cent.[2]

Paul Krugman – the 2008 Nobel winner for economics – famously said,

“Productivity is not everything, but in the long run it is almost everything”.

In her CEDA speech last month, the Prime Minister sketched out a reform agenda.

It is one that will match that of the Hawke and Keating governments.

It will help carry Australia back into a high growth, high participation, and high productivity economy.

But it demands a swag of tough decisions.

It means pricing carbon to encourage new investment in sustainable renewable energy.

Building the national broadband network to give Australians, wherever they live, the chance to be part of the modern economy.

And investing in the infrastructure that eases the bottlenecks and improves the movement of people and freight around the nation.

Treasury figures show that if productivity growth were to rise by two per cent per annum, we would see incomes grow over the next four decades by around $16,000 in today’s dollars, vastly improving living standards and our capacity to fund government services.

There has never been a more important time for investment in Australia’s infrastructure.

We face challenges from congestion and from an ageing and growing population.

And we can only take full advantage of the unprecedented increase in our terms of trade if we get our transport system and logistics up to scratch.

When the Government took office in 2007, we were faced with 12 years of underinvestment in infrastructure.

We ranked 20th of 25 OECD countries when it came to investing in public infrastructure as a proportion of national income.

A DECADE OF NATION BUILDING

The Gillard Government is determined to turn this around.

Away from a decade of neglect to a decade of nation building.

In the Government’s first term we started by making infrastructure a national priority.

We created the first Department of Infrastructure and I became Australia’s first Infrastructure Minister – a role I feel genuinely privileged to have been given to fix infrastructure governance.

We established Infrastructure Australia with a long term, national focus on infrastructure policy development.

It is bringing together the public and private sectors, and working with state and territory governments.

It promotes best practice, such as the first ever nationally consistent Public Private Partnership guidelines to lower the costs for companies bidding on projects.

And we have not stopped at structural reforms. There is a huge amount of concrete, bitumen, steel and fibre being laid.

We are putting our money where our mouth is with the biggest nation building program this country has ever seen.

In 1999-2000, total infrastructure investment made up 5.5 per cent of our GDP.

By 2009-2010, the percentage of GDP invested in infrastructure had grown to 7.3 per cent.

This partly reflects our investment of $37 billion over six years in vital economic infrastructure such as rail, road and ports through the Nation Building Program.

We have doubled investment in roads.

We have increased annual spending on rail more than tenfold.

I am proud that the Labor Government since 2007 has committed more to urban passenger rail expansion than any government in all the preceding 107 years since Federation.

Right now, we’re funding 10 projects – at a cost of $7.3 billion.

On top of this is a massive investment in future communications through the National Broadband Network, and investing in our children through the Building the Education Revolution.

And we have a series of other reforms on the agenda.

The Gillard Government knows that if Australia is to improve our quality of life and if we are to remain internationally competitive, then economic reform and nation building are essential.

Like the Hawke and Keating governments, we must keep our shoulder to the wheel.

So let’s look now at our second term agenda – the second wave of reform.

THE SECOND REFORM WAVE

On 1 January 2011, we implemented a new national prequalification scheme in the construction sector, so a private contractor registered in one state or territory automatically has their qualifications recognised everywhere else in the country.

Good for competition, good for business and ensuring value for taxpayer funding.

We released in January the first ever National Ports Strategy, which we will seek to implement through COAG this year.

We released a draft National Freight Strategy for consultation – and the response from both industry and unions has been most encouraging.

We also progressed the creation of single national regulators in maritime, heavy vehicle and rail safety.

These are currently subject to governance arrangements set by 23 regulators with inconsistencies across state borders, creating confusion, excessive red tape and productivity losses.

Just one example – pity the poor hay producers in the country’s south-east.

In Victoria, trucks are allowed to carry more hay bales across the width of their vehicle than they can in NSW.

So if you’re unfortunate enough to have to cross the NSW/Victorian border, you’ve got to reduce and rearrange your load.

If you’re caught not complying, there’s a fine and loss of licence points.

There are hundreds of examples like this.

And while there’s still some work to be done in the rail sector, we recently reached consensus between state and territory transport ministers on a national set of rules for heavy vehicles and coastal vessels.

What these ministers have done is cast aside more than a century of tribalism to reach this historic point.

But there is still an enormous program of reform ahead of us.

And I want to briefly address four areas.

Firstly, rebuilding Queensland.

Second, productive, sustainable, liveable cities.

Third, reform of our infrastructure networks.

And, fourthly, reinvigorating Infrastructure Australia.

QUEENSLAND AND NATURAL DISASTERS

To Queensland.

There is hard work ahead of us to get Queensland back on track.

These disasters are a national challenge and have had an impact on the national economy.

Treasury estimates that coal production will take a hit of several billion dollars, with production losses in this quarter of around 15 to 16 million tonnes.

Our primary and regional producers will take a hit to crop production of around $1.2 billion.

Tourism is also suffering.

So rebuilding is an immediate priority, not just for Queenslanders, but for the nation.

We are investing $5.6 billion towards recovery and rebuilding but that was prior to Cyclone Yasi so the end bill will be even more.

This is a massive one-off cost, and we will make sure it’s done properly, but it won’t throw us off course from our long term productivity agenda.

NATIONAL URBAN POLICY

We‘ve just closed our formal consultation on the National Urban Policy.

It has been an important national conversation on the future shape and character of our biggest cities and regional centres.

The National Urban Policy will be released later this year.

It will be a blueprint to better connect infrastructure with work and opportunity in our cities to make them more productive, sustainable and liveable.

Put simply, the Federal Labor Government has reengaged with our cities.

It’s why we have established a Major Cities Unit.

It’s why COAG has agreed that by 1 January 2012, all States will have in place capital city plans with agreed objectives and criteria.

It’s why we will not be shy about tying the future of Commonwealth funding to those city plans.

Our National Urban Policy will be a guiding set of principles that will shape our cities into the future.

One projection is that by 2050 the populations of Perth and Brisbane will double, and the populations of Melbourne and Sydney will reach seven million – placing pressure on agricultural land surrounding our cities.

Ninety-seven percent of energy use in our cities is generated from non-renewable sources, leaving us with a growing emissions challenge – we need to turn that around.

Car use is growing faster than population growth—it has exploded thirty-fold since 1950.

The Bureau of Infrastructure, Transport and Regional Economics says the cost of avoidable traffic congestion is projected to grow to $20 billion by 2020 unless action is taken.

The good news is that with proper planning, these daunting figures are less threatening, and we can truly create productive, sustainable and liveable cities.

NATIONAL PORT AND FREIGHT STRATEGIES

Systems-level reform of our infrastructure networks has to start with our freight system.

Last month, I released a draft land freight strategy that builds on our ports work.

Freight volumes will double between now and 2030, so there is an urgent need for leadership and long-term planning.

Infrastructure Australia is engaging intensively with industry and the community to get this long term planning right.

Our vision is for a truly national, integrated and multimodal transport system capable of moving freight seamlessly, reliably and efficiently.

The markers of success will be increased export earnings, lower costs for consumers and increased productivity and economic growth.

And it is as much about using smart infrastructure to make our existing networks more efficient and to ensure our limited dollars stretch further.

An example is our $90 million investment to trial an Advanced Train Management System with the Australian Rail Track Corporation, which uses broadband technology to improve rail network capacity, enable more intense timetabling, cut congestion, increase reliability, and improve transit times and safety – all code words for higher productivity.

These strategies mean serious work to lift performance of our land freight infrastructure for the next three decades, not just for the next three years.

CONTINUING INFRASTRUCTURE REFORM

Let me turn to the work of Infrastructure Australia.

IA and its council are an asset to this nation, and they are achieving what they were set up to do.

Moving forward, IA will have a renewed focus on rigorous planning and economic assessment – all aimed at securing the biggest productivity returns.

It will:

  • Continuously drive to improve the Australian infrastructure market
  • Enhance and deepen the national infrastructure pipeline
  • Advise on how to get the most from project implementation
  • And it will examine financing options to promote efficient investment, and leverage private sector and super fund participation.

Through work like the National Freight Strategy and the National Ports Strategy – IA will be at the forefront of working with the private sector to promote economic reform.

EVIDENCE-BASED POLICY MAKING

Importantly, all these reforms I have spoken about today are a product of evidence based policy making.

A large part of that evidence base comes from my Department’s Bureau of Infrastructure, Transport and Regional Economics.

Today I am releasing the inaugural Australian Infrastructure Statistics Yearbook prepared by the Bureau.

It provides a comprehensive statistical summary of Australian economic infrastructure.

Private markets, academics and policy makers all thrive on timely and accurate information and this provides a rich lode.

The Yearbook shows that average annual infrastructure construction between 2007 08 and 2009-10 was almost double the average over the previous eleven years in real terms (from $28 billion per year to $54 billion per year).

Yearbook statistics show the public sector working together with the private sector with much of the public sector investment being placed in the hands of private sector contractors.

In 2009-10, Australia’s total investment in major economic infrastructure was over $58 billion.

Investment in transport infrastructure represented 38 per cent of the total.

The Yearbook goes beyond the standard data to also cover the economic output generated by infrastructure, to the resulting output of greenhouse gas emissions, to the prices of goods and services associated with infrastructure.

I commend the Australian Infrastructure Statistics Yearbook to you.

Conclusion

We do not expect Australia’s productivity growth to improve to two per cent overnight.

It will take ongoing reforms to sustain such growth.

The infrastructure task we face is daunting, and in a context where infrastructure is becoming more expensive and government funding will need to be increasingly directed towards health and aged care, the Government will not be able to meet this challenge alone.

If Australia’s productivity growth is to regain its previous high levels, we will require the efforts –

– of the community, the public and private sectors, the local, state, territory and Commonwealth governments, and organisations such as CEDA in the planning, development and implementation of infrastructure.

It was John F Kennedy who said we do things not because they are easy but because they are hard.

He said that when talking about sending Americans to the moon.

Here on earth, in Australia, we face our own big challenge.

It requires the determined hard work, goodwill and intelligent foresight of all of us, not just Government.

But the rewards will be enormous.

I am conscious that every minute of every day there is a giant job to achieve.

I won’t be wasting a minute of it.