Aug 1, 2007

Leadership in Infrastructure: Securing our Economic Future

Leadership in Infrastructure: Securing our Economic Future

Keynote Address to

INFRASTRUCTURE PARTNERSHIPS AUSTRALIA

PARTNERSHIPS 2007 CONFERENCE

1 August 2007

The Labor narrative for this year’s election will centre on the theme that Australia needs fresh ideas and long term vision to secure our prosperity beyond the once in a generation mining boom.

This theme will run through specific policies on climate change and water, education and skills, and achieving work and family balance.

Australia needs a policy focus that is long term, not one dictated by the 3 year election timeframe.

There is no area where this is more applicable than in meeting the challenge of infrastructure provision.

Today’s conference comes at a time of rising public resentment about infrastructure shortcomings in critical areas such as telecommunications, housing, and water.

There is an urgent need to reform the way Australia responds to current and future infrastructure demands.

We need long term national leadership.

Infrastructure Partnerships Australia has undertaken some valuable work with the “Australia’s Infrastructure Priorities – Securing our Prosperity” Report.

Many of the broad recommendations such as the appointment of an Infrastructure Minister, the creation of a national body to drive reform, developing an infrastructure priority list, and the direction of the funding proposals are consistent with Labor’s policy, as are many of the critical infrastructure projects which have been identified.

This is not surprising given the wide consultation that has informed Labor’s policy development.

The central plank of Labor’s infrastructure policy is the creation of an independent, Commonwealth Statutory Authority called Infrastructure Australia.

Infrastructure Australia will be comprised of representatives from all three tiers of government and key stakeholders.

If we are to move forward, it is critical that we have a clear understanding of the adequacy, capacity and condition of our current infrastructure assets.

Upon being established, Infrastructure Australia will undertake an audit.

This stock take of Australia’s infrastructure assets will then be laid against projections of future infrastructure needs so that we are able to identify where the gaps lie and develop a National Infrastructure Priority List.

Existing infrastructure assets need improvement and new assets need to be built.

Let’s be clear. Labor’s direction will be based upon two facts and one policy objective derived from those facts:

1. Australia has an infrastructure deficit of a conservative $90 billion; and

2. There is an abundance of capital available to address this deficit.

The role of the Federal Government is to promote policies which facilitate the realisation of that capital’s potential through it application to priority infrastructure projects.

By operating at arm’s length from Ministers, Infrastructure Australia will ensure decisions are no longer based purely on political interests or the margin of a particular seat.

We believe important infrastructure decisions that shape our nation’s future must be taken fairly and objectively; they must take into account economic, social and environmental objectives; and must be sensitive to long term challenges such as climate change, and both the age and distribution of our population.

Importantly, in assessing infrastructure proposals, Infrastructure Australia will be well positioned to identify any barriers to implementation and refer these to the Federal Infrastructure Minister.

Infrastructure is not currently dealt with in a systematic way. The silo approach of considering rail infrastructure separately to port infrastructure, and economic infrastructure separately from social infrastructure, impedes economic growth and social cohesion.

It is necessary to adopt a whole of system approach and make sure the entire supply chain runs efficiently. This can only be achieved by national coordination and leadership.

The benefits of planning and coordination

Planning and coordination are essential and effective.

Not because Labor says so.

And not even because a myriad of industry groups including Infrastructure Partnerships Australia, the Business Council of Australia, the Australian Industry Group, and Engineers Australia have made recommendations to government for national coordination of infrastructure.

It is simply because it has been proven to work.

Long term planning and coordination creates policy and investment certainty, and makes the provision of large costly infrastructure projects achievable.

When done well, planning infrastructure enables us to build vibrant, healthy and sustainable communities.

Effective planning helps prepare for the future and its challenges, it boosts international competitiveness, creates jobs and thereby creates prosperity.

Yet for over a decade the Howard Government has failed to show leadership and to nationally plan and coordinate the provision of infrastructure across the nation.

Blame shifting and a silo approach have left us unprepared to meet the nation’s long term infrastructure needs.

While Australia has felt the absence of long term infrastructure planning, states and national governments around the globe have already reaped the benefits.

In the State of California, Governor Schwarzenegger has enacted the California Infrastructure Planning Act requiring the Governor to submit to the Legislature rolling 5 year infrastructure plans.

The French Ministry for Transport, Infrastructure and the Sea maps infrastructure data against future needs in order to help the government prioritise and plan their infrastructure investment.

In 2004, New Zealand undertook an extensive infrastructure stock take to assess the nation’s capability to meet sustainable development objectives.

And most recently, the UK Government have released their “Planning for a Sustainable Future White Paper” which recommends significant improvements to the British planning system such that long term challenges like climate change can be met.

In Australia the call for national planning and coordination of infrastructure by Federal Labor and leading industry groups has fallen on deaf ears.

In response to this year’s Federal Budget the BCA once again noted that:

“the key issue still appears to be the lack of long-term integrated planning to drive investment to address ongoing bottlenecks….”

After eleven years there is still no Federal Infrastructure Minister, no national integrated plan, and inconsistent and overlapping regulation between jurisdictions.

Urban infrastructure / Major Cities Program

Perhaps one of the biggest failures of the Howard Government is its neglect of the 17 million Australians who live in our capital cities and towns on the coast.

This is made crystal clear by the Howard Government’s refusal to have a role in the development of Australian cities, and by the announcement of a National Water Plan that ignores the needs of urban water users.

Infrastructure shortcomings in our cities detract from economic performance and our quality of life.

Capital cities, in particular, are Australia’s economic powerhouses. They represent incubators of productivity and innovation.

ABS data shows that Australia’s 8 capital cities contributed to 78 per cent of the nation’s economic growth between 2001 and 2006.

The Australian Government simply cannot afford to miss an opportunity to invest in the wealth generating hubs that are our cities.

There is a significant role for the Commonwealth in the provision of both economic infrastructure such as telecommunications to boost business, and social infrastructure such as housing to enhance liveability in our major cities.

The proven outcomes of the Better Cities Program under the Hawke/Keating Labor Government illustrate the benefits of federal investment in capital cities.

Kevin Rudd’s announcement of a Major Cities Program in December last year pledges a renewed role for the Commonwealth in our cities.

It is consistent with the bipartisan Sustainable Cities Report which the Howard Government has not responded to.

Labor understands that there is a substantial productivity dividend for the entire nation from more efficient, accessible and liveable major cities.

Through the Major Cities Program the Commonwealth can provide leadership and support practical urban infrastructure programs in partnership with State and Local Governments, local authorities, and the private sector.

Infrastructure programs that will drive productivity and improve our quality of life.

Though we are currently enjoying economic prosperity, productivity growth has slowed over the last decade and we have almost completely lost the relative gains from the productivity boom of the 1990s.

We have become a resource based economy with no long term plan to reduce our dependency on commodity prices.

Infrastructure development is one way we can drive productivity and lock in our long term prosperity.

Telecommunications infrastructure

Consider the productivity gains that come with a robust telecommunications network.

Increased output and improved international competitiveness all result from information networks that are not constrained by low bandwidth.

Australian businesses simply can’t compete with countries where super fast broadband is cheap, reliable and widespread.

For too long communications infrastructure has been treated as a short term political issue, not a long term policy issue.

Since 2002 the Government has announced some 17 different broadband programs. Yet we still do not have a national broadband network to make Australia competitive with the rest of the developed world.

Australia needs a Fibre-To-The-Node broadband network as an essential component of a modern economy.

Social infrastructure – housing

Housing is another area intrinsically connected to the prosperity and the liveability of our major cities.

Much has been said of housing supply and demand of late.

On Monday, Kevin Rudd announced a $500 million Housing Affordability Fund to address the cost of developing new infrastructure such as water, sewerage, transport and parklands.

This is aimed at lowering infrastructure costs to reduce the cost of new housing and increase supply. It can reduce the cost of a new home by up to $20,000.

Labor’s policy will encourage competitive proposals by the private sector, by providing funding on a merit basis. It will favour innovative proposals which spread the cost of infrastructure over time, thereby increasing affordability for new home buyers.

Water Infrastructure

The provision of urban water infrastructure is another area requiring national leadership.

John Howard has made it abundantly clear that he does not see a leadership role for the Commonwealth in the provision of urban water, when on 25 January this year he stated it was:

"less obvious that the Commonwealth should be directly involved in the provision of urban water."

A National Water Plan that leaves out 17 million water users is not a national plan, nor is it a satisfactory response to our water crisis.

Where Commonwealth water programs do exist such as the Australian Water Fund, we have witnessed extraordinary underspends at a time when some cities are struggling to secure their water supply.

The 2006/07 budget figures showed that last year the Government allocated $337 million to the Australian Water Fund but spent just $77 million – less than one quarter.

Through the Major Cities Program and the National Strategy on Urban Water Labor will support major projects, fix ageing infrastructure and assist households to deliver water efficiency.

The principles of the National Water Initiative should be implemented and we must promote market based solutions including water trading so that water moves to high value use.

We have seen a declaration once again this week that the National Party interest on water is not the same as the national interest.

The National Party will continue to be a handbrake on water reform as they oppose valuing water as a finite resource and won’t deal with the over allocation of water entitlements.

Infrastructure financing

Finally I’d like to turn my attention to the important area of Infrastructure financing.

Australia must consider a range of financing options if we expect to adequately meet current and future infrastructure demand.

In April I released the comprehensive Report of the ALP Inquiry into the Financing and Provision of Australian Infrastructure at the ALP National Conference.

The report recommended that funding considerations be taken on a project-by-project basis so that any given project is financed by the most suitable funding vehicle.

Public Sector Financing

Under the Howard Government the proportion of infrastructure financed by the public sector has decreased significantly.

Although sustained public investment in critical infrastructure is essential to ensure productivity growth, and investment in infrastructure offers a high rate of return, public investment in infrastructure has declined under the Howard Government.

The Government’s own research has shown that Australia ranks 20th out of 25 OECD countries for its investment in public infrastructure as a proportion of GDP.

While Labor supports private investment in infrastructure, this does not abrogate the government of its responsibility to provide nation building infrastructure.

Saul Eslake, the ANZ Chief Economist, estimates that since the start of the mining boom the Federal Government has reaped a Budget windfall of some $398 billion over the 9 years to the end of the forward estimates.

This, combined with the fact that revenue raising capacity is greatest at the Commonwealth level, underscores the need for the federal public sector to deliver value for money infrastructure projects.

The Federal Government must accept its share of responsibility in developing the infrastructure that generates wealth for the entire nation.

Public Private Partnerships (PPPs)

Federal Labor is in favour of private investment in infrastructure and PPPs when they are determined to be the best option for a particular project.

We appreciate that the private sector has an appetite for investment in infrastructure so it’s critical that an appropriate environment be created to encourage and accommodate investment.

Sadly, it’s been over five years since the Howard Government first announced it would be introducing reforms to Sections 51AD and Division 16D of the Income Tax Assessment Act – amendments designed to encourage private investment in infrastructure.

Exposure draft legislation was released 4 years ago to accommodate what the government described as provisions in “urgent need of reform”, yet the Federal Parliament is yet to see, let alone debate the final legislation.

We are left to assume that the Howard Government commitment to introduce the reforms by 1 July 2004 must now be considered an example of a “non-core” promise.

It seems that the Government has thrown infrastructure financing reform into the too hard basket.

Australia is now faced with the absurd situation where public investment in infrastructure is in decline and private investment is being held back by Howard Government reform complacency.

Superannuation Funds

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

Superannuation funds are now estimated to hold over $1 trillion in investments.

Australia has the 4th largest funds management industry in the world thanks to the far sighted reform of compulsory superannuation introduced by the Hawke/Keating Labor Government in 1987.

A recurring issue for these funds is the need to create a balanced portfolio of investments through a diversified selection of investments.

Using superannuation funds 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.

Despite this, infrastructure remains a minor player in asset allocation for super funds.

Typically, super funds allocate 5 per cent to10 per cent to infrastructure

And increasingly capital available through superannuation funds is currently moving off shore because of difficulties encountered in directing it towards infrastructure investment locally.

While there are issues of liquidity and diversification, most fund managers are seeking available infrastructure projects to finance.

They have an ever expanding pool of money looking for somewhere to invest.

It is frustrating that in spite of the infrastructure deficit there is no pipeline of projects steadily on offer to potential investors.

Policies which encourage superannuation funds to invest in and thereby address Australia’s infrastructure deficit should be an absolute priority.

Concluding remarks

The nation is faced with a situation where we have a strong demand for infrastructure development and a substantial supply of capital.

With the right leadership we can put these together.

The ability of our government to undertake infrastructure reform and coordinate infrastructure investment will determine whether Australia will have the sustained productivity growth necessary to meet challenges such as climate change, and the changing age profile and distribution of our population.

National leadership will allow us to remove obstacles to new infrastructure investment by:

– ending the blame game and allowing the COAG process to reach its full potential. This includes full implementation of competition and regulatory reforms;

– creating a favourable tax environment for potential investors;

– creating a policy framework that provides consistent regulation, and gets pricing and access regimes right;

– not looking at infrastructure investment through the prism of a three-year election cycle; and

– ensuring efficient planning and coordination creates a pipeline of investment options for investors.

A federal government should be showing foresight to coordinate and deliver infrastructure capable of supporting current economic growth, keeping Australia internationally competitive, and meeting environmental challenges.

To boost productivity and secure our prosperity, Australia must consider infrastructure spending as an investment not merely a cost.

A Rudd Labor Government will provide that leadership and work in partnership with the private sector to secure our long term future.