Jun 9, 2011

Keynote address to the Australian Financial Review Infrastructure Conference

Keynote address to the Australian Financial Review Infrastructure Conference – Building economic prosperity in Australia

Hilton Hotel, Sydney

The Hon Anthony Albanese MP

Minister for Infrastructure & Transport

Leader of the House

Member for Grayndler

9 June 2011

In January 1937, Franklin D. Roosevelt, in his second inaugural address titled One Third of a Nation, reflected on the nation’s progress out of the Great Depression.

Four years had passed since the start of his unprecedented economic program to arrest the Great Depression.

During that time, unemployment had more than halved from an estimated 20.6 per cent to 9.1 per cent.

His speech was a clarion call to improve the lives of one-third of the nation who struggled to meet their basic needs, and a pledge to make every citizen the subject of the country’s interest and concern.

He made the powerful point that a nation’s economic progress is inextricably linked to the well-being of its people.

He said, “in our personal ambitions we are individualists. But in our seeking for economic and political progress as a nation, we all go up or else all go down as one people”.

That statement still holds true today.

And it has been a fundamental belief for successive Labor governments in Australia.

Between 1993-94 and 1998-99, productivity growth surged to 2.3 per cent, the second fastest among key OECD countries.

In the decade that followed, this figure slid to 1.4 per cent.

If we returned productivity growth today to two per cent over the next 40 years, incomes would increase $16,000 per person in today’s dollars.

Productivity reform requires courageous long term decisions.

…Like pricing carbon to encourage new investment in sustainable, renewable energy, and to seize an early advantage globally.

…Like building the National Broadband Network to remove the digital divide and drive innovation across the continent.

The Prime Minister has set out three pillars for this Government’s productivity agenda:

  • A nation-wide improvement in our human capital — that is, skills and training, from the bottom up — from early childhood education to tertiary education right across the country
  • Health care, with the right reforms to make it world-class and sustainable
  • And infrastructure, urban planning, regulatory reform and financing to improve the arteries of our economy, develop our regions, and foster a seamless national economy.

 

OUR RECORD SO FAR

In the four years since we were elected, substantial differences have emerged between the two sides of Australian politics on infrastructure.

I want to look this morning at three of these differences.

And then I want to frame the 2011 Infrastructure Budget in that context, and explain why it is a fitting budget for our times – a forward looking budget for Australia.

First, this Government has given public infrastructure the reform priority and national leadership it deserves.

We established Infrastructure Australia to drive a long-term agenda on infrastructure.

IA ran the first ever national audit of infrastructure – looking at critical gaps and establishing economic priorities.

We then began a priority list of projects, created a national PPP policy, with productivity strategies for our ports and freight network.

All of this work has helped the Federal Government to direct its eye to where economic need is greatest.

This has clearly been a game-changer in Australia.

It has shifted the debate from the short to long-term, from activity to productivity.

IA has begun to change the way the nation plans, finances and builds major infrastructure projects, and has defined new standards by which public investments are judged.

Second, this Government has made it a priority to tackle prolonged under-investment in Australia’s infrastructure.

There are wildly different estimates of the ‘infrastructure deficit’ in Australia, but everyone agrees on its impact.

Families and businesses under the previous government faced the highest inflation in 16 years, and felt personally the costs of urban sprawl, bottlenecks and congestion.

This Government has in place a record investment program that doubles investment in roads, and increases annual spending on rail tenfold.

Between 2006-07 and 2009-10, major infrastructure construction work increased in real terms by more than 40 per cent.

We are now half way through a sweeping construction program of over 120 major construction projects, including:

  • major upgrades to the Pacific and Bruce Highways, and the full duplication of the Hume Highway by 2012
  • boom gates and safety upgrades at 300 high risk level crossings
  • 38 major freight and passenger rail projects, including $7.3 billion for a major passenger rail project in every mainland capital city, making this the most significant Federal investment in Australian rail ever, and
  • extensive rebuilding of more than a third of Australia’s ageing interstate freight rail network, cutting travel times between Melbourne and Brisbane from 37 hours to 26.

Already the rail improvements are paying dividends with Woolworths recently announcing its intention to switch freight along the Melbourne-Sydney-Brisbane route from road to rail.

And we are stepping up in an area of significant market failure in Australia – in globally competitive telecommunications and broadband infrastructure.

Make no mistake, this is an essential utility for a modern 21st century economy.

The International Monetary Fund estimates that across the OECD, each percentage increase in public infrastructure stock increases economic output by around 0.2 per cent.

So all these investments represent good policy.

But as I’ve said before, a long term agenda needs a government that has a bigger story to tell than its own political self-interest.

This investment program draws a line under the previous decade of government, when virtually none of the $334 billion revenue windfall from mining boom Mark I was invested in productive infrastructure.

Third, this Government responded to the global downturn by lifting public investment in Australia’s infrastructure capacity.

While the rest of the world shed 30 million jobs, this Government took significant action such that 740,000 more Australians went to work.

Of our economic stimulus package, infrastructure comprised 70 per cent.

Funding went to shovel-ready projects which could support local jobs and investment in the immediate term, and larger nation building projects to ensure our long term economic sustainability.

Those who attempt to describe this as a hiccup have shown they need to get out more – and they are not ready to manage the Australian economy.

This audience well understands that the aftershocks of the GFC are still being felt around the world, a reminder of how Australia achieved what other countries did not.

 

THE 2011 BUDGET IN CONTEXT

Against this backdrop, the 2011 Budget helps set up an Australia that is built to compete and prosper in the 21st century.

It balances the need to deal with re-emerging capacity constraints, and the need for tight fiscal settings on the Commonwealth balance sheet.

In total, the 2011 Budget provides some $950 million in new and accelerated investment for the Nation Building Program, as well as almost $400 million for Regional Infrastructure Fund projects.

And our continuing commitment to those three areas of difference I just spoke of is right there in the 2011 Budget papers.

First, the Budget continues improvements in infrastructure planning and reform in Australia.

We boosted funding for Infrastructure Australia by 40 per cent and made it more independent, giving it a renewed mandate to develop high productivity infrastructure strategies, undertake audits across the country, and drive further reform of private finance.

We developed measures with industry to improve transparency in the infrastructure market, and to get the governance and planning of projects right.

IA will publish project assessments including cost benefit analyses.

We will develop a National Construction Schedule for a pipeline of construction projects.

We’ve begun work with the states and territories around patronage risk, including forecasting methods and innovative ways to manage demand risk.

And we will develop a post-build evaluation framework to strengthen the benefit-cost framework that IA uses.

We know that the Australian infrastructure market functions best when it works with government and not in spite of it.

We also funded reforms to finally deliver one set of seamless, modern, nationwide rules for the transport industry.

From 2013 there will be three national regulators in rail, maritime and heavy vehicles, not 23 disparate regulators across the country. This is a long overdue reform that will boost national income by up to $30 billion over the next 20 years.

Second, the Budget continues our record investment in regional and urban infrastructure.

This Budget delivers more than $1 billion in extra investment for the next stages of work to duplicate the Pacific Highway by 2016, subject to matched funding by the new NSW Government.

There is no road more important in Australia.

Interstate freight between Sydney and Brisbane is predicted to almost triple by 2029, with 80 per cent of this growth to be carried by trucks using the Pacific Highway.

The Budget continued work in regional Australia, putting forward funding for our first Regional Infrastructure Fund projects, bringing forward funding for early work on the Inland Rail, and reinstating vital Bruce Highway projects that were suspended due to flood reconstruction.

We have also delivered the National Urban Policy, which I launched at a Property Council function at this venue. This Policy will drive better infrastructure and planning in Australia’s major economic centres.

Australia’s cities contribute 80 per cent of GDP. They employ three out of every four Australians and boast the most varied concentration of capital and institutions.

If nothing is done, the annual cost of urban congestion is estimated to rise to $20 billion by 2020.

The National Urban Policy sets in place a clear Commonwealth funding framework requiring all States and Territories to have in place strategic plans for their capital cities by 1 January next year.

Future Commonwealth infrastructure investment will be linked to these plans.

And we announced over $180 million in new programs to support productive, sustainable, liveable cities.

  • The $20 million Liveable Cities program to identify innovative solutions to poor urban design.
  • A new $100 million Suburban Jobs initiative to develop work opportunities closer to where people live in the outer suburbs of our capital cities.
  • A $61 million National Smart Managed Motorways Trial to retrofit smart technology on congested motorways, to improve traffic flows and deploy the National Broadband Network to our infrastructure networks.

Third, this Budget corrects the balance post-GFC between public and private investment – promoting greater private financing of infrastructure.

Australia continues to have substantial infrastructure financing needs.

But there is only so much more that Governments can – and should – do.

We do need the private sector to step up if we are to tackle the infrastructure backlog.

There is no simple panacea for a long term infrastructure backlog.

The package we announced on Budget night has multiple lines of attack – including the measures I spoke of earlier to enhance transparency, to deepen the pipeline of potential projects, and to get the governance and planning of projects right.

We also announced critical reforms to attract up to $25 billion of superannuation and private investment into public infrastructure.

These reforms go to the heart of any investment decision – the relationship between risk and return.

In the case of infrastructure, the current tax treatment of early stage losses lowers the incentive to undertake risky long term investments.

We’ve heard this loud and clear from industry, and through the Henry review process.

Under the government’s new changes, a project assessed as nationally significant by IA may be eligible to have the value of its early stage losses uplifted over time, and exempted from tax rules which prevent tax losses being used where there is a change of ownership.

Overall, the result will be a lower weighted average cost of capital for eligible projects, lower compliance costs, and certainty.

That is, productive projects for the nation will be even better investments for the private sector.

These measures were developed through close consultation with industry, because we want to send a strong signal to the super sector and other investors: plan your business capacity around worthwhile infrastructure projects in Australia.

And to continue this important engagement between government and the private sector, we are establishing a new Infrastructure Financing Group of senior private and public sector advisers to continue these reforms.

Consider that our reform to lift the superannuation guarantee from 9 to 12 per cent will generate an extra half a trillion dollars in savings to 2035.

The challenge, and the opportunity, is to attract more of such savings into essential Australian infrastructure. More infrastructure at lower cost to the taxpayer.

And to do this, we need to make Australian infrastructure a more competitive investment.

The truth is that Australian super funds already invest in infrastructure, but 40 per cent or more of this investment heads overseas.

And the reasons why are found here at home.

The Budget announcement means that second stage investors, like super funds, can have greater confidence about investing here.

 

CONCLUSION

I want to close by making the point that these measures are good policy because they ensure the Government works with the market, not against it.

Returning to FDR’s speech, delivered just as the world was emerging from the Great Depression, the President said this: “We have always known that heedless self-interest was bad morals; we know now that it is bad economics”.

This 2011 budget is one for our times – one that is fiscally strict, but which focuses on the benefits to the community of long term investments in productivity.

And we are able to invest for the future, to look to the future, because we acted decisively as the Australian economy buffeted the global recession and more recently, natural disasters.

[ENDS]