Good process delivers better productivity – Speech to Infrastructure Partnerships Australia – Sydney
Thanks for the invitation to speak to you today.
For me, meeting Infrastructure Partnerships Australia is always important.
I know we share a common view on the importance of carefully planned government investment in roads, rail and other infrastructure and of supporting measures that facilitate private investment.
Evidence-based investment in infrastructure is good business for your members, and is also a critical driver of economic productivity for the entire economy.
I was pleased to work with you previously as Australia’s first Infrastructure Minister.
When I took up that role Australia was 20th among OECD nations in terms of investment in infrastructure as a percentage of GDP.
I am proud to say it is now first.
Today’s meeting is more than timely, given two recent disturbing developments out of Canberra.
The first was a disappointing federal Budget in which the Government failed to match any of the soaring rhetoric on infrastructure that preceded its delivery.
While the Government promised a big infrastructure spend, the vast majority of its announcements were already in the Budget – funded by the previous Labor Government.
The few new projects announced are being funded by cuts to existing road and rail projects.
And despite the Government’s promises of a cost-benefit analysis for any project worth more than $100 million, new projects like Melbourne’s East-West Link are being funded without such studies.
The second issue of concern is the collapse of the evidence-based process for funding projects which was put in place by the previous Labor Government.
That collapse became clear on Monday when a Senate Budget estimates committee heard that the Abbott Government had committed to pay the Victorian State Government 1.5 billion for the East-West Link project by June 30, including $500m for Stage I and $1 billion for Stage II.
This is despite the fact that the project has no cost-benefit analysis and that, as the committee heard on Monday, construction won’t start until the end of 2015/16.
This directly contravenes the Coalition’s stated policy of making milestone payments contingent on the actual delivery of projects according to time lines.
It is clear that the Government, anxious to demonstrate its infrastructure bona fides and deliver on election campaign thought bubbles, has thrown process out the window.
Before the Budget the Government inflated expectations about infrastructure.
As it leaked to the media bad news about its cuts to health, pensions and education, it argued that the bad news would be offset by good news about infrastructure.
But by Budget day it was clear the infrastructure spend was a con.
The Budget was largely a collection of re-announcements of projects funded by the previous Labor government.
And it featured significant infrastructure spending cuts including:
- Billions of dollars’ worth of cuts to public transport funding for projects including the Melbourne Metro, Brisbane’s Cross-River Rail project and public transport projects in Perth and Adelaide.
- Cuts to existing road projects including the M80 in Melbourne and Tasmania’s Midland Highway upgrade.
- A $1 billion cut to Financial Assistance Grants to local government for local roads through an end to indexation.
While the Government announced a few new projects, it is clear that these are being funded by severe cuts to existing road and public transport projects.
And in doing so, the Government has passed up the chance to play its part in tackling urban traffic congestion by investing in urban rail.
On the new projects, the Government has not produced cost-benefit analysis.
That’s a direct breach of Mr Abbott’s pre-election promise of a full cost-benefit analysis for every infrastructure project worth more than $100 million.
The Budget also creates a $5 billion incentive fund which the Commonwealth will use to reward state governments that sell public assets and use the money to fund new infrastructure projects.
But this isn’t new money either.
It comes from transferring $5.9 billion from the previous Labor Government’s Building Australia Fund and the Education Infrastructure Fund.
To sum up, the Abbott Government’s infrastructure package is a collection of already funded projects and cuts to fund other projects which have not even been tested by experts to verify that they represent value for money.
Creation of the $5 billion Incentive Fund was also presented as having potential to leverage new investment into infrastructure.
However, the Government has done nothing to utilise existing tax concession arrangements put in place by the previous government designed to leverage as much as $25 billion in private infrastructure investment.
Those arrangements would have helped deliver the Melbourne Metro and the Cross-River Rail project.
They would have involved an Australian Government guarantee on private debt associated with approved projects, enhancing their credit-worthiness and helping reduce the cost of capital.
But since the Government has arbitrarily decided that it will not fund urban rail, those arrangements will not be used.
This absurd, counter-productive decision not to fund public transport is the worst feature of the infrastructure Budget.
The previous Labor Government, keen to address congestion in the nation’s cities, allocated billions of dollars to urban rail projects across the nation, including the two projects I just mentioned as well as urban rail investment in Perth, Adelaide and Hobart.
The source of the current Government’s ban on investing in urban rail can be traced to Tony Abbott’s 2009 book Battlelines, in which Mr Abbott wrote:
…there just aren’t enough people wanting to go from a particular place to a particular destination at a particular time to justify any vehicle larger than a car, and cars need roads.
The Prime Minister might not be aware of this, but literally millions of Australians use public transport.
I imagine one or two people in this room are public transport users.
Mr Abbott’s position is wholly ideological.
It makes no sense.
On top of all this, the man who promised before the election not to lift taxes has reintroduced indexation of fuel excise.
He doesn’t want to fund public transport but at the same time will make it more expensive to use the only alternative – the motor car.
When he is being less ideological than when he was writing Battlelines, the Prime Minister argues that if the Commonwealth spends more on building roads, the states will spend more on trains.
If only that was how it worked.
The fact is that in Melbourne, the Napthine Government redesigned the former Metro project after it became clear earlier this year that Mr Abbott would withdraw Labor’s $3 billion budgeted commitment.
What was originally envisaged as a Metro serving the entire city for decades ahead, has become a pale imitation – a second-rate project that does not even go into the city’s CBD.
In Brisbane, the Commonwealth has withdrawn $715 million for the Cross-River Rail project.
The Newman Government is designing a second-rate alternative.
First-rate cities like Brisbane and Melbourne do not deserve second-rate public transport systems, just because the Prime Minister doesn’t like trains.
There wasn’t even any good news in the Budget for rural and regional areas, where the Prime Minister’s freeze on indexation of financial assistance grants will smash the ability of local councils to maintain their road systems.
At this week’s Senate Budget Estimates committee hearing, the secretary of the Department of Infrastructure and Transport, Mike Mrdak, conceded the decision meant many councils would have to re-examine their Budgets to take account of the cut.
This means Mr Abbott’s cut will force councils to either lift rates or slash services, or both.
That’s a poor outcome all round.
For rural roads and those who use them, it will affect road safety and reduce efficiency.
Within seven years, this compounding effect of this move will rob councils of more than we spend each year on the successful Roads to Recovery program.
No wonder Victoria’s Weekly Times attacked the Minister for Infrastructure this week in an editorial urging him to wake up to himself.
COLLAPSE OF PROCESS
In some ways, the Government’s attempt to rebadge Labor’s infrastructure spending program and present it as something new is flattering.
It shows we were already investing in the right projects.
And the $20 billion investment in new projects Labor delivered in the 2013-14 Budget will sustain construction activity and produce ongoing productivity gains.
But what is truly worrying, however, is the collapse of process under this government when it comes to making decisions about infrastructure spending.
This audience will be familiar with the Infrastructure Australia Amendment Bill (2013), under which the Government is attempting to gut the independence of Infrastructure Australia.
Labor established IA in 2008 to independently assess proposals for major infrastructure projects advanced by states and rank them according to their potential to contribute to economic productivity.
But the new Government proposes changes that will allow the government to influence IA’s research agenda, including ordering it not to examine “certain classes’’ of infrastructure like public transport.
The legislation would also allow the government to prohibit IA from publishing the results of its assessments.
This is a challenge to the whole concept of evidence-based policy.
It’s bad for your industry and it’s bad for our country.
The reason the original design of IA stressed transparency was that we wanted citizens to be able to judge for themselves whether government investment decisions were based on the national interest or the political interests of the government of the day.
We also wanted to provide greater certainty for investors.
The ultimate aim should be to have IA produce a pipeline of investment embraced by both sides of politics because it is based on evidence.
I know that Infrastructure Partnerships Australia expressed discomfort with some of these proposed changes in a submission to a Senate committee inquiry into this legislation.
As if this attack on IA was not enough, this week’s Senate Budget Estimates heard disturbing testimony about poor-decision making linked to this year’s Budget.
Among the few new projects funded in the Budget are Melbourne’s East-West Link and the Toowoomba Range crossing in Queensland.
Importantly, neither has been the subject of a final cost-benefit analysis.
As I mentioned earlier, this is completely at odds with the Coalition’s infrastructure election policy, published last September.
That policy says and I quote:
The Coalition will make Infrastructure Australia a more transparent, accountable and effective adviser on the planning, selection and procurement of infrastructure projects.
To ensure more rigorous and transparent assessments of taxpayer-funded projects we will require all infrastructure projects worth more than $100 million to undergo a cost-benefit analysis.
There has been no rigour whatsoever when it comes to cost-benefit analysis for these projects.
But it gets worse.
In the case of the East-West Link, funded in part by the way, by a $500 million cut Melbourne’s M80 upgrade, the government has decided to give the Government of Victoria a total of $1.5 billion payable by June 30 this year.
What is so astounding about this piece of news is that the project will not even commence until the end of 2015/16 at the earliest.
So here we have a government breaking its own rules on cost-benefit analysis and depositing $1.5 billion in the bank account of the Victorian Government for a project the does not need to be funded until the financial year after next financial year.
At the same time the Government continues to assert that the nation faces a Budget emergency that requires massive spending cuts.
The burden must be shared, we are told.
Apparently the Victorian Government is not included in the burden-sharing.
After all, they are facing an election later this year.
This massive and pre-mature payment is just a gift from Mr Abbott to his political colleagues in Victoria to pad their Budget.
All it will do is earn interest for the Victorian Government.
Process is important if we want an infrastructure delivery process that serves the national interest by driving productivity and jobs growth.
Process is important to taxpayers because they need to know what’s going on with their money.
But it’s equally important to the infrastructure industry.
Your members deserve to have confidence that both sides of politics are serious about ensuring that decisions are driven by facts and evidence.
That requires transparency.
In the case of the East-West Link, the estimates committee heard of two pieces of preliminary work suggesting that for every dollar of taxpayer’s investment, there would be an economic return of either 50 cents or 80 cents.
Compare that to the $2.20 return for the M80, from which the Commonwealth cut $500 million in funding.
The other travesty of process that emerged this week was the complete lack of information about the proposed Perth Freight Link – the old Roe 8 project.
There appear to be no traffic projections, no business case and no environmental assessment to back this $925 million investment.
When it was announced on Budget night the WA Freight Logistics Council said they didn’t know where this had come from.
This doesn’t sound like evidence-based planning to me.
People in this room understand the infrastructure business.
And those of your members who have been around for a while know that over recent decades the process for deciding how to spend vast amounts of public money on infrastructure has not always been as rigorous as Australians might have liked.
The nature of democracy is such that governments change and ministers come and go.
But judging from the commitments and assurances given by the current government when it was in Opposition, your industry had every reason to believe that there was bipartisan support for a proper, evidence-based infrastructure investment process.
After the Budget, I believe you are entitled to question that conclusion.
Once again, thanks for inviting me here today.