Jun 1, 2007

National Leadership in Infrastructure

National Leadership in Infrastructure

FRONTIERS IN INFRASTRUCTURE FINANCE AND INVESTMENT CONFERENCE

Keynote Address

Anthony Albanese MP
Shadow Minister for Infrastructure and Water
1 June 2007, Sydney

Check against delivery

This speech is also available as a PDF: Speech to the Frontiers inInfrastructure and Investment Conference – National Leadership in Infrastructure – 26 February 2007

The Labor Party has always been a nation building party.

Our infrastructure record is evidence of that.

Ben Chifley courageously started the massive Snowy Mountains Hydro-Electric Scheme.

Gough Whitlam gave us practical infrastructure solutions like fixing sewerage and hospitals.

Bob Hawke opened up our economy and made us internationally competitive again and Paul Keating completed the standardisation of rail track gauges in 1995.

Under Keating, Better Cities was introduced – a broad ranging strategy of reform that included innovative housing programs and a focus on urban renewal.

Each of these is an example of what can be achieved when we have national leadership in the development of infrastructure.

Infrastructure – our roads, the way we communicate, our water, sewerage, gas and electricity, our schools, hospitals, libraries, public buildings and spaces – is about the nation as we know it, and as we aspire it to be.

Infrastructure plays a critical role in determining the productive capacity of our nation.

That is why meeting the current infrastructure deficit is one of our nation’s greatest challenges.

Australia’s current infrastructure shortfall

Without urgent national leadership, we are in danger of our infrastructure failing us in important ways.

The BCA has estimated that Australia has a $90 billion infrastructure deficit.

They estimate that this shortfall translates to a loss of $16 billion per year or 2 per cent of GDP.

We are already seeing signs of how the Australian economy is being constrained by infrastructure shortfalls.

Just a few weeks ago a Committee for Economic Development of Australia (CEDA) report showed infrastructure bottlenecks are contributing to all time low export volumes and Australia’s skyrocketing foreign debt.

In 2005 export volumes had fallen to just over 17 per cent of GDP from 19 per cent in 2001 – the biggest fall in export volumes as a share of GDP in 45 years of data.

And the annual average export volume growth of 7.3 per cent in the 1980’s and 1990s is now a thing of the past with growth virtually frozen at just 2.1 per cent a year over the period 2001-2006.

Though we are 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.

Inferior broadband networks make it difficult for Australian businesses to remain globally competitive with countries where super fast broadband is cheap, reliable and widespread.

Poor water infrastructure like water wastage from pipes undermines the effort Australians are making to conserve water.

Studies show that the most important determinant of business location is infrastructure.

It is for these reasons that we need national leadership and coordination of infrastructure development.

How have these infrastructure problems emerged?

For over a decade we have had a federal government that has failed to show leadership or nationally coordinate the development of infrastructure across the nation.

In 1995, when John Howard was Opposition Leader he said that he’d

“been struck by the need to improve the coordination of infrastructure policy at the Commonwealth-State level”.

He may have been struck but he certainly hasn’t been moved.

For some time now industry groups such as the Business Council of Australia, the Australian Industry Group, Infrastructure Partnerships Australia, and Engineers Australia have been calling out for infrastructure planning and development to be nationally coordinated.

The BCA, in response to the Federal Budget have again noted that:

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

Yet today there is still:

No Federal Minister for Infrastructure;

No national integrated strategy for infrastructure;

Inconsistent and overlapping regulation;

And overlapping responsibility of Australia’s three tiers of government.

Rather than show national leadership, the Federal Government is all too willing to engage in the blame game.

Capacity constraints risk making our export industry uncompetitive and this costs the entire nation.

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 nine years to the end of the forward estimates.

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

Public investment in infrastructure has declined in spite of the fact it offers a high rate of return.

In addition, there has been a failure to remove private sector investment disincentives.

Implementation of the COAG regulatory reforms would make a significant contribution to addressing infrastructure investment disincentives.

A report by the Productivity Commission suggested that the full implementation of competition and regulatory reforms affecting transport, energy and export related infrastructure and planning could add to national output by up to two per cent.

Of course, State Governments have to do their bit, but the Federal Government needs to see them as partners in prosperity rather than a target to point the finger at.

Engaging in the blame game does not serve the nation well.

Unfortunately, when it comes to issues that are clearly a federal responsibility such as critical broadband infrastructure, we see a similar pattern of underspending and regulatory obstacles.

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.

And we do not have anything that resembles Labor’s commitment: a Fibre-To-The-Node broadband network that offers 98 per cent of the population broadband services 40 times faster than most current speeds.

Our commitments in this area also ensure there will be competitive assessment of proposals from the private sector; regulatory reforms to facilitate the roll-out of a pro-competitive open access network providing equivalence of access charges; and scope for access seekers to differentiate product offerings.

The Howard Government’s $3.1 billion Telstra plan is a plan that will take twenty years before allocated money from this fund is spent on communications infrastructure.

Equally, only half of 1 per cent of the $10 billion National Water Plan will be spent in the whole of the next financial year.

National leadership in the development of infrastructure nationwide in areas such as transport, energy, telecommunications and water is essential if we are to arrest the downturn in productivity.

Federal Labor is absolutely committed to providing national leadership in infrastructure planning and coordination.

21st century challenges

Our infrastructure shortfalls are exacerbated by the many new and real challenges that are present in the Australia of today.

Our greatest challenge is climate change.

Regardless of any abatement measures we adopt, rising greenhouse gas emissions and temperature increases will lead to new rainfall patterns, rising sea levels, and changes in the frequency and intensity of extreme weather events.

These changes have the potential to affect critical infrastructure.

The Australian Greenhouse Office report, “Climate Change – An Australian Guide to the Science and Potential Impact” states:

“If the severity, frequency or geographic spread of extreme events changes, the impact of such changes on infrastructure may be severe”

Buildings and other infrastructure being constructed today will have a productive life span of decades.

That is why we need to think about infrastructure design and performance now and commence adaptation that will reduce the impact of climate change.

Just last month the Victorian Government released a report outlining the potential risks to infrastructure caused by likely future climate change.

It assessed infrastructure types such as water, power, telecommunications, transport and buildings.

If no adaptation occurs, the report shows that even under a low climate change scenario there are high risks.

A second challenge is population density changes which will see significant population growth in our major cities and in some regions.

By 2021, the ABS estimates that the population in our capital cities will grow by 20 per cent

This means the infrastructure we built in the past for one population pattern may not be in the correct places for the new patterns we face.

Thirdly, the ageing population means that infrastructure investment will be ever more important to maintain productive growth as our population ages.

Infrastructure financing: taking advantage of available capital sources

Infrastructure spending is not keeping pace with economic activity.

Although there has been a shift in recent years towards increasing private sector participation in infrastructure projects, this does not change the nature of the problems facing effective infrastructure provision – it merely changes the economic instruments to achieve it.

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

The Report highlights the need to consider a range of financing options to meet infrastructure demand.

On the issue of financing there is, from time to time, controversial debate about Public-Private Partnerships.

And the question has been raised about Labor’s approach to financing infrastructure and PPPs.

Firstly, it is important to say that we don’t regard direct public investment in infrastructure in the same way that the current government does.

We see spending on infrastructure as an investment and not just a cost.

We recognise that if you put money into infrastructure, you increase economic returns to the government and, over the lifetime of the project, that investment can certainly be of benefit to the economy and therefore the nation.

However, we also see a critical role for the private sector in the provision of infrastructure and acknowledge that the best approach can also be a combination of both public and private involvement.

Ideology alone should not determine which option is taken up.

When considering specific projects, governments must look at all financing options and then come up with the best option available, including PPPs.

There are many examples of successful PPPs that have delivered much needed infrastructure on time and on budget.

The provision of schools in NSW provides an outstanding example as do roads projects like the M7 Westlink.

Another opportunity for financing is through infrastructure investment by superannuation funds. There is a natural synergy between superannuation which is about long term, secure investments with a consistently good rate of return, and infrastructure assets.

At the moment because significant opportunities aren’t being provided in Australia for capital available through superannuation funds to be invested in infrastructure, some of that capital is moving off shore.

In his National Press Club address in May, Garry Weaven, Chair of Industry Funds Management said:

“with appropriate leadership and policy development, it [the superannuation industry] can be harnessed to the national interest to simultaneously offset any costs of addressing climate change, create the infrastructure to underwrite Australia’s economic, social and environmental future and, meet the needs of an ageing population”

So far, I have been very encouraged by the meetings and discussions held with people involved in the superannuation industry about supporting infrastructure investment in Australia.

The essential ingredients are there: the nation has an infrastructure deficit, an expanding pool of money, and good economic and social reasons for fund contributions to get a collective benefit from investment here in Australia.

We now require political and national leadership to make the components work in the national interest.

The way forward: Infrastructure Australia

A Rudd Labor Government would significantly change the way Australia’s infrastructure needs are assessed, planned and delivered.

We believe that a coordinated and objective approach to planning and investment of nationally significant infrastructure is the way forward.

To achieve this, Federal Labor has committed to establishing Infrastructure Australia, a Commonwealth Statutory Authority to coordinate the planning, regulation and development of infrastructure.

Infrastructure Australia will ensure there is a coordinated approach to infrastructure provision involving all three tiers of government and key stakeholders.

To move forward we must have a comprehensive understanding of what infrastructure assets exist and where the gaps lie – this is essential if we are to strategically plan future infrastructure investments to meet Australia’s short and long term needs.

Infrastructure Australia will be charged with undertaking an audit to assess the adequacy, capacity and condition of Australia’s infrastructure assets and will use this to develop a National Infrastructure Priority List.

We will work in partnership with the States and Territories and contribute our fair share to those projects that add to the nation’s wealth.

Major Cities Program

A Rudd Labor Government will also establish a Major Cities Program to boost investment in major Australian cities – the key drivers of our national economy.

The House of Representatives Environment and Heritage Committee made a bipartisan call for the Commonwealth Government to take a leadership role in restoring the health of our cities.

The Sustainable Cities report (tabled August 2005) states:

“That there is a critical role for the Australian Government to provide holistic national vision and to establish a framework….to plan and fund sustainable Australian cities”.

Labor agrees.

Insufficient planning and investment in infrastructure in our cities constrains economic growth and deteriorates our quality of life.

With some 80 per cent of Australians living in our cities, Australia is one of the most heavily urbanised countries on earth and the development of our cities desperately needs the involvement of the Commonwealth.

The Major Cities Program will see the Commonwealth again providing leadership for developing our major cities.

It will allow us to keep up with growth demands in our inner cities, the expanding urban fringe and regional centres experiencing rapid expansion.

Labor understands that there is a substantial productivity dividend from more efficient and accessible major cities, which are, after all, the nation’s economic and creative engine rooms.

Our major cities must remain globally competitive without compromising their liveability.

Through the Major Cities Program the Commonwealth can engage in urban infrastructure programs in consultation with State and Local Governments and authorities, and provide leadership and support for practical initiatives in our major cities.

Labor announced our National Water Security Plan for Towns and Cities as part of our reply to the Federal Budget. This Plan will ensure Australia can deal with our worst water leaks and losses. It is a modest program, but one that will make a real difference.

Under the Plan, a Labor Government will invest $250 million in matching funds with water authorities and work in partnership with them to minimise water loss. This includes investment in modern, more efficient water infrastructure and funding for practical projects.

We have entered into an unusual political dynamic. It is one where the Federal Opposition is setting the agenda and the Government is playing catch up on

Labor’s ideas. This has been attempted on education and training, climate change, emissions trading, water policy and now soon it will occur on local water infrastructure.

I expect in the coming weeks the Howard Government will announce its “pipes to recovery” program modelled on Labor’s “Securing our Water Plan”.

The Government’s proposal will support local water authorities to address ageing infrastructure issues as well as consider new proposals such as small recycling initiatives.

It will have substantial funding and I am pleased to be able to announce it for them.

Concluding remarks

Providing adequate and appropriate infrastructure to meet 21st century challenges such as climate change, population growth, and an ageing population will not be easy.

But national leadership and a coordinated, objective approach to infrastructure development is a must.

Strategic investment in the productive economy in order to sustain Australia’s long term prosperity is also a must.

The economic prosperity afforded to Australia by the resource boom can be locked in to tomorrow by investment in infrastructure today.

Available investment capital must be put in touch with our nation’s infrastructure priorities to make Australia competitive again and to re-ignite productivity growth.

Now is the time for national leadership, coordination and investment in nation building infrastructure.