‘Investing in the national interest’ – Speech to Australian Financial Review National Infrastructure Summit, Sofitel Sydney
A policy-based debate on infrastructure is an important discussion to have at any time.
But right now, it is more important than ever.
Real Commonwealth investment in infrastructure is falling off a cliff, despite increasing demand for better railway lines, roads and ports.
Our cities are choked by traffic congestion. It costs us $16.5 billion a year.
Our exporters need better access to our ports to get their goods to market.
And our regional communities need investment to drive growth and job generation.
Labor’s solution is sensible Commonwealth investment in projects positively assessed by Infrastructure Australia.
We want to work with the states and, where possible, the private sector, to deliver productivity enhancing projects that will underpin future prosperity.
The Turnbull Government is taking a different approach.
That approach is based on cutting Commonwealth investment, pretending the private sector will somehow make up for the cuts and hiding its cuts and inaction behind a veil of rhetoric about concepts like good debt versus bad debt, innovative financing models, value capture and City Deals.
Some of these concepts are worthy of examination.
But none of them are new.
And none of them can replace a core requirement – actual Commonwealth investment.
My message today is simple.
Anyone who pretends that clever financing arrangements or value capture will meet Australia’s current and future infrastructure needs without significant Commonwealth investment is kidding themselves.
In taking this approach, the Turnbull Government is ensuring that the infrastructure deficit becomes worse.
Our nation needs a Government prepared to invest in infrastructure in the national interest.
I’m not the first to call out the Turnbull Government.
The peak lobby group for the infrastructure sector, Infrastructure Partnerships Australia, last month issued a devastating critique of the 2017 infrastructure Budget.
Responding to the Government’s absurd claim that it has increased infrastructure investment, the IPA said:
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.
I know that two Government Ministers and an Assistant Minister addressed this forum yesterday.
Today, let’s deal in facts.
It’s a fact that the Budget cut infrastructure outlays by $1.6 billon this financial year alone compared with its own 2016 Budget figures.
It’s a fact that investment will collapse each and every year over the forward estimates period from the promised $9.2 billion in the 2016 Budget to $4.2 billion by 2020-21.
It’s a fact the only new project being funded on Budget over the next four years is the $13.8 million Far North Collector Road near Nowra in the marginal Liberal seat of Gilmore.
It’s a fact that the Budget did not include one new dollar of public transport investment.
It’s a fact that the Government’s $10 billion National Rail Fund, offered by Mr Turnbull as a way to fund urban rail, won’t produce a dollar this year.
Not next year.
Not even the year after that.
It’s a fact that there is no shortage of private capital available in this nation for investment in good infrastructure projects.
But, as the IPA has pointed out, financial wizardry alone won’t be enough to unlock that private sector investment.
The fact is that with interest rates at record lows, there has never been a better time for actual Commonwealth investment.
This is reinforced by the resources sector moving from the investment to the production phase.
That is a fact.
Prior to the Budget I was heartened by a shift in the Government’s rhetoric on infrastructure.
Suddenly, after years of attacking all debt as evil, the Coalition seemed to accept that it can make sense to borrow to fund good projects that boost productivity.
Labor and the business community have been making that point for years.
And in the past 12 months, Reserve Bank Governor Philip Lowe has repeatedly called for increased Commonwealth infrastructure investment.
But, when the Budget finally appeared, it was a bit like the last visit of Halley’s Comet to our part of the solar system.
Lots of hype, but ultimately disappointing.
The Commonwealth should be working with the states and the private sector to deliver infrastructure.
Instead Mr Turnbull is withholding actual investment and offering long-established concepts like value capture and innovative financing mechanisms as if they were somehow new.
Value capture, for example, was used to build the London Underground.
It has also been widely used in Australia, predominantly by local government in the delivery of affordable housing and community infrastructure.
REINVENTING THE WHEEL
What the Budget did include was funding for the proposed Infrastructure Financing Unit within the Department of Prime Minister and Cabinet.
The IFU’s job will be to work with the private sector to broker innovative financing arrangements for private investment in public infrastructure.
The IFU is a solution looking for a problem that does not exist.
It will replicate the role of Infrastructure Australia, which already possesses the capacity and the legislative mandate to involve itself in financing.
In its pre-budget submission, Infrastructure Partnerships Australia implored the Government not to create the agency.
We cannot identify any currently proposed infrastructure projects which are commercially viable and not already attracting finance.
Therefore we cannot see how the IFU will increase the pace of project delivery.
Commonwealth Government funding support is needed for infrastructure. Commonwealth financing is not.’’
The IPA represents the nation’s big infrastructure investors.
They ought to know what will give them the comfort they need to invest.
But Mr Turnbull thinks he knows better.
His approach also assumes the states have no financing expertise.
That smacks of arrogance.
Infrastructure is part of the core business of state governments.
That’s why the former Federal Labor Government worked with the Victorian and Queensland governments to seal innovative agreements to deliver the Melbourne Metro and Brisbane’s Cross River Rail project.
Value capture and availability payments were integral to these arrangements.
They were hammered out with help from Infrastructure Australia, but scrapped when the Coalition took office.
Similar co-operation between the public and private sectors produced Northconnex in Sydney, the Moorebank Intermodal Terminal, Legacy Way in Brisbane and the Gold Coast Light Rail project.
Indeed, the Infrastructure Australia legislation is very explicit about its mandate to advise on financing projects.
Part 2, Section 5, of the Infrastructure Australia Act 2008 states that Infrastructure Australia has the function of providing advice on “mechanisms for financing investment in infrastructure.’’
The NSW Coalition Government’s Transport and Infrastructure Minister, Andrew Constance, recently told the Australian Financial Review that states want investment, not new processes.
“We are keen to see real money on the table,’’ Mr Constance has said.
“We are not wanting to treat Canberra as an untapped line of credit … we would prefer to see real money going into our well assessed pipeline of projects that work.’’
The Grattan Institute’s infrastructure expert Marion Terrill is also unclear about the purpose of the IFU.
Ms Terrill has told the Australian Financial Review:
I just don’t see what problem (the IFU) solves.
Working out what are the problems and developing proposals to address them and selecting the best one of those – all of that is a state government job, not a Commonwealth job.
Let me say again – the IFU is a solution looking for a problem.
It is simply not needed.
It’s an attempt to reinvent the wheel from a Prime Minister who seems to imagine he is still in the investment banking business.
Today I announce that a Shorten Labor Government will abolish the IFU.
We’ll reallocate its budget to Infrastructure Australia to enhance its core roles of project assessment, development of a project pipeline and provision of financing advice.
This is consistent with the announcement of an enhanced role for Infrastructure Australia which Bill Shorten announced at the Brisbane Media Club during the last term and which Labor took to the election.
Labor recognises that a mix of direct investment, private financing, and risk mitigation are needed and that Infrastructure Australia is the appropriate body to provide that advice.
This reallocation of funding will also be used to re-establish the Major Cities Unit in Infrastructure Australia to drive Commonwealth policies to boost the productivity, sustainability and liveability of the nation’s cities.
Another key Budget announcement was the $8.4 billion equity injection for the Australian Rail Track Corporation to deliver the Inland Rail link.
The allocation is off-budget. This means it must produce a return to taxpayers.
But this is another con.
To get this project happening, the Government needs to provide grant funding.
That was the explicit advice of former Coalition Deputy Prime Minister John Anderson in the implementation study he prepared for the Government for the project in 2015.
Mr Anderson warned that Inland Rail’s operating revenue over 50 years would not be enough to cover construction costs.
“Hence,’’ Mr Anderson wrote, “a substantial public funding contribution is required to deliver Inland Rail.
Mr Anderson was ignored.
Let me stress at this point that Labor supports Inland Rail.
In Government, we invested $600 million upgrading sections of existing railway lines that will be part of the project.
We also allocated $300 million in our last Budget to finalise the route and complete the necessary planning and pre-construction work.
But four years later I’m concerned about the course the Government is taking on Inland Rail.
The Government has not been transparent about its financing of the project.
Crikey journalist Bernard Keane reported that the Government had said the project would stand up based on “returns for equity for ARTC as a whole rather than for the Inland Rail project’’.
This is important.
As this audience would know, projects cannot be considered as equity injections which are off Budget unless it is determined they will provide a commercial return to taxpayers.
But in the case of Inland Rail, the equity injection into the ARTC is justified on the basis of all of the ARTC’s freight activities, not upon expectations of the Inland Rail project itself.
In other words, Inland Rail, on its current funding model, doesn’t stack up.
My second concern about Inland Rail is practical.
Despite being in Government for four years, the Coalition has not addressed the major impediment to the success of Inland Rail.
I’m referring to the fact that on current planning the line will stop 38km short of the Port of Brisbane, at Acacia Ridge.
It’s a bit like the failed Perth Freight Link, which would have stopped 3km short of the Port of Fremantle.
Or like Sydney’s Westconnex, which was originally proposed to take trucks to Port Botany but which goes nowhere near Port Botany.
If the Government is serious about Inland Rail, it needs to get the planning right.
One of the biggest economic challenges facing our nation is traffic congestion in our cities.
If we do nothing, traffic congestion will cost the nation $53 billion a year by 2031.
We need to address congestion by building better roads and better public transport.
Prior to the 2013 election, the former Labor Government allocated significant investment for public transport projects around the nation including the Melbourne Metro and the Cross River Rail Project.
But incoming Prime Minister Tony Abbott scrapped the lot in 2013.
Since 2015, Mr Turnbull has presented himself as an advocate for public transport, at least in rhetorical terms.
But he has failed to allocate any new money for public transport.
Mr Turnbull likes to take selfies as he rides on trains, trams and buses.
But he won’t invest in trains, trams or buses.
Just a couple of weeks ago the Queensland Government announced it would go it alone on the much-needed Cross River Rail project to provide the Brisbane CBD with a second crossing of the Brisbane River.
Mr Turnbull has refused to invest in the project, claiming Infrastructure Australia has not yet approved its business case.
The fact is that Infrastructure Australia approved the business case in 2012 and named Cross River Rail the nation’s top infrastructure priority.
Mr Turnbull is simply stalling.
He tells us Cross River Rail could be funded from the new National Rail Fund.
However, as I mentioned earlier, the fund will produce no money this year.
No money next year.
And no money the year after that.
This fund is not a serious investment vehicle.
It’s a political fix.
Given that four out of five Australians live in cities, there is a strong case for Commonwealth involvement in urban policy more broadly.
Federal Governments need to work with states and local government in areas like planning, urban renewal and with regard to that BBQ stopper, housing affordability.
The former Labor Government did just that.
We created the Major Cities Unit to research the issues facing urban Australia and work with the government on policy solutions.
Tony Abbott abolished the unit in 2013 and withdrew from the urban policy space.
Just as with public transport, Mr Turnbull took over from Mr Abbott talking about how he would re-engage with cities.
But he has failed to act beyond proposing what he describes as City Deals.
City Deals emerged in the United Kingdom as vehicles for co-operation between national and local government over shared economic development goals.
Under the UK model, the two levels of government employ regulatory reform and joint investment to boost economic activity.
Critically, if the process works and results in increased tax revenue to the national government, some of those receipts come back to the councils for investment in other productivity enhancing projects.
It is central to the design of these agreements that they include very clear financial incentives for councils to think outside the square.
Mr Turnbull’s City Deals bear little resemblance to the UK model.
Take a look at the Townsville City Deal.
Its text purports to establish agreement over shared economic goals that are presented as new but, in fact, are as old as Castle Hill, which overlooks Townsville.
For example, the document identifies the fact that Townsville ought to be seen as the industrial capital of North Queensland.
That’s been recognised for more than a century.
It says Townsville is a key centre for the defence sector.
It has been for many decades.
It says that the Townsville Port is a key piece of economic infrastructure.
That’s not news. It’s a motherhood statement.
Getting all levels of government to sign up to motherhood statements is not reform.
It is a repackaging of the self-evident.
The only initiative within the Townsville City Deal is Commonwealth investment in construction of a new rugby league stadium close to the Townsville CBD as headquarters for the North Queensland Cowboys rugby league team.
This is a great project that will boost the local economy.
At the beginning of last year, Labor committed to invest in the new stadium.
The Coalition, unwilling at that time to offer money, instead offered a City Deal, which it finalised more than six months after the election to provide political cover for its matching of Labor’s commitment.
In the same way, the Government offered a City Deal for Western Sydney during the election campaign after failing to match Labor’s commitment to invest in the Western Sydney Rail project.
It also offered a City Deal for Launceston in response to Labor’s plan to invest in an expansion of the University of Tasmania campus in Launceston.
It seems that wherever the Government wants to play catch up to Labor, which has continued to provide leadership from Opposition, it raises the concept of a City Deal.
Once again, the Government is substituting style over substance.
BUDGET – WESTERN SYDNEY AIRPORT
Before I wind up, let me give the Government credit where it is due by restating Labor’s support for the Western Sydney Airport at Badgerys Creek.
It is a good thing that the Government has decided to build the Western Sydney Airport itself after the Sydney Airport Corporation’s decision to pass up on its option to build the airport.
Building a major new airport is so politically fraught that it will never be achieved without bipartisanship.
Labor sees the construction of the new airport as an opportunity to transform Western Sydney.
But to make that a reality, the airport needs to be connected to the Sydney rail network from the day it opens.
The Government’s plan to leave a hole under the airport for construction of a train station at some undisclosed time in the future makes no sense.
It lacks ambition.
That’s why Bill Shorten and I announced in April that a Labor Government would provide initial funding to work the NSW State Government to get the project started.
It’s also why last week, in his NSW Budget response, Labor Leader Luke Foley backed that idea and also proposed the creation of a Western Sydney Airport Authority to ensure the Commonwealth, the NSW Government and affected councils work together to maximise the benefit to the local community of job creation, skills development and proper regional economic planning.
An old Chinese Proverb says that talk doesn’t cook rice.
In the same way, talk doesn’t build railway lines.
Talk doesn’t build roads.
It doesn’t tackle the traffic congestion that makes it hard for parents to get home from work in time to play with their children.
And talk doesn’t provide private infrastructure investors with the certainty they need to decide to risk shareholders’ money on major projects.
When it comes to infrastructure investment in Australia, we need real investment in real projects that will produce real productivity gains.