Jun 29, 2017

Project funding needed, not just fancy finance – Opinion – The Australian Financial Review

An old Chinese Proverb says that talk doesn’t cook rice.

In the same way, talk doesn’t build railway lines. Nor does it build roads, ports or other pieces of critical infrastructure.

Despite much talk about infrastructure in the lead-up to last month’s Federal Budget, the Government reduced investment by $1.6 billion this financial year alone.

Investment will fall off a cliff over the next four years, from the $9.2 billion originally promised this year to $4.2 billion in 2020-21.

In the end the infrastructure Budget was a bit like the last time Halley’s Comet visited our part of the solar system – all hype, but ultimately disappointing.

Peak infrastructure sector representative group Infrastructure Partnerships Australia issued a devastating critique of the Budget.

Responding to the Government’s absurd claim that it has increased infrastructure investment, the IPA said: “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.’’

This is a bad outcome for the economy at a time when we need to address our infrastructure deficit to underpin economic growth.

But even more concerning is the way in which the Government imagines that the private sector will make up for its cuts and inaction if acts as a broker to achieve “innovative’’ financing arrangements for major projects.

That is the reasoning behind the creation for the new Infrastructure Financing Unit (IFU).

Labor strongly supports engagement with the private sector on infrastructure projects.

But anyone who pretends that clever financing arrangements or old concepts like value capture will meet Australia’s infrastructure needs without significant Commonwealth investment is kidding themselves.

This approach will ensure that the infrastructure deficit becomes worse.

The IFU will sideline Infrastructure Australia, which already possesses the capacity and the legislative mandate to involve itself in financing. Part 2, Section 5, of the Infrastructure Australia Act 2008 explicitly states that Infrastructure Australia has the function of providing advice on “mechanisms for financing investment in infrastructure.’’

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, the submission said.

“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 big infrastructure investors. They ought to know what will give them the comfort to invest in public infrastructure projects.

Creation of the IFU also arrogantly assumes states governments have no financing expertise.

In fact, infrastructure is part of their core business.

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 the involvement of Infrastructure Australia but were unfortunately scrapped when the Coalition took office.

Similar co-operation produced Northconnex in Sydney, the Moorebank Intermodal Terminal, Legacy Way in Brisbane and the Gold Coast Light Rail project.

The IFU is a solution looking for a problem that does not exist.

A Shorten Labor Government will abolish the agency and reallocate its funding to Infrastructure Australia to enhance its ability to deliver its responsibilities of project assessment, preparation of a pipeline of projects and provision of financing advice.

The funding will also be used to re-establish the Major Cities Unit within Infrastructure Australia to drive Commonwealth policies to boost the productivity, sustainability and liveability of the nation’s cities.

The infrastructure sector does not need a new bureaucracy.

It needs a Federal Government prepared to invest in nation-building and work with states and the private sector in genuine partnership.

This piece was first published in The Australian Financial Review today http://bit.ly/2sT7gn3