Sep 24, 2014

Second Reading – Infrastructure Australia Amendment (Cost Benefit Analysis and Other Measures) Bill 2014

Mr ALBANESE (Grayndler) (12:52): At the last election the coalition promised to apply cost-benefit analysis to infrastructure projects worth more than $100 million. The Infrastructure Australia Amendment (Cost Benefit Analysis and Other Measures) Bill 2014 provides cover for a breach of that promise. Once again this government has treated its election promises like plates at Greek wedding. Labor will support this bill but with amendments to keep the government to its promises, to ensure that there is proper value for taxpayers for infrastructure investment and that we get the right infrastructure investment to boost productivity. These amendments are consistent with the approach we have taken on earlier legislation.

This legislation purports to require proper cost-benefit analysis for major infrastructure projects to help decide whether they are worth the investment of scarce public dollars. But it comes, of course, more than two months after this minister handed out $3½ billion for two road projects that have not been the subject of proper cost-benefit analysis. I speak here of the Westconnex road project in Sydney and Melbourne’s East West Link. Even worse, the government has obtained the funding for these untested projects by cancelling approved funding for two critical public transport projects which have been the subject of full analysis by Infrastructure Australia.

Far from creating a proper process, the legislation before us will institutionalise this retrospective cost-benefit analysis. Retrospective cost-benefit analysis is by definition next to useless. This legislation requires cost-benefit analysis only after the allocation of more than $100 million of taxpayers’ funds to a particular project. So instead of doing the analysis, finding out what the benefit is of a particular project, doing comparative analysis of projects that are submitted to Infrastructure Australia, then determining a payment could be made and then making milestone payments upon delivering on the objectives of the project, this legislation does the opposite. You pay the money first—over $100 million—and then you do the analysis to decide whether it was a good idea or not.

This government says it wants expert opinion to help it decide how to spend money effectively, but it is legislating to make that advice irrelevant. The minister is in effect legislating to entrench his breaches of his election promises of cost-benefit analysis before funding is allocated—fund now, check later. This is a bizarre proposition from this government. Labor will seek to amend this bill to make it clear that infrastructure project selection starts with a measurement of cost benefit prior to any decision to fund. This is consistent with Labor’s approach to the Building Australia Fund, where projects are required to be prior assessed by Infrastructure Australia. Labor will achieve this by making the $100 million about the capital value of the project rather than how much funding has been earmarked to it. This amendment will also ensure that projects nominated by the minister for evaluation are also assessed by Infrastructure Australia. Labor will also move to amend the Land Transport Infrastructure Act to make Infrastructure Australia assessment a pre-requisite for funding projects over $100 million in value. Finally, we will move amendments to require a standard method for cost-benefit analysis and to strengthen transparency. The government, if it is fair dinkum, should support these amendments.

In his contribution to this debate the Minister for Infrastructure said this:

To maximise productivity improvement through investment, funding must flow to projects that yield the highest benefits.

The minister went on to say:

It is critical to base project selection on rigorous analysis and sound planning to avoid wasteful investment.

Of course the minister was right, which is why it makes complete sense to check out the bona fides of the project before providing funding. If that were the effect of this bill, it would have my unqualified support, but that is not the effect of this bill—the opposite is so.

Under this bill, by the time experts have given their opinion on the economics of investing in a particular project the funding will have already been provided. While the experts weigh up costs and benefits, ministers of this government will already be out there spruiking a project. The people of Australia have lately become accustomed to this government treating its election commitments with contempt, but what is truly remarkable in this case is the way in which this minister is continuing to pretend that he is delivering on these promises. In his contribution to this debate the minister said:

IA is already assessing projects which involve Commonwealth funding of at least $100 million and will make public the details of the valuations.

This was the Government’s election commitment and this is what we are delivering without the trigger being specific in legislation.

The problem with this is twofold: the fact that the minister is saying that IA are assessing projects that have already received funding—which speaks for itself—but it is very different from what the government actually promised. Just two days before the election the coalition released its infrastructure policy so there could not be much scrutiny before 7 September. It said:

To ensure more rigorous and transparent assessments of taxpayer-funded projects we will require all infrastructure projects worth more than $100 million to undergo a cost-benefit analysis … Infrastructure Australia will also be required to calculate and publish the net present value of recommended infrastructure projects and to justify why a given project has been recommended and prioritised.

That is the policy and it could not be clearer. I support that policy; it is what we put into practice in government and it can only be interpreted the cost-benefit analysis should take place first.

It is not as though the government said one thing before the election and another afterwards. After the election, on 12 September, the minister told Infrastructure Partnerships Australia:

Infrastructure Australia will publish its reports on its website as transparent advice for the Government to consider when allocating its infrastructure funding.

The minister made clear that that would be when, not after, it was making the decision. That is why the legislation today is so flawed. Within months of the government being elected the Prime Minister had gone from speaking about proper analysis to calling proper analysis, to quote him, ‘analysis paralysis’. That was the term he used to justify not sticking to the commitment made prior to the election just as he said, prior to the election, that there would be no cuts to health or education or pensions.

The Prime Minister’s position as outlined in this bill also entrenches his absurd refusal to invest in public transport. Given that the bill requires cost-benefit analysis after funding is allocated and the fact that the government refuses to fund any new public transport project, we can conclude that Infrastructure Australia will never be asked to conduct a cost-benefit analysis on any public transport project. We know that that will reinforce what the Productivity Commission and others have said is a result of this government’s policy. That is, not only is the federal government’s refusal to fund any public transport project bringing that figure down to zero but, of course, states are responding by also reducing their funding for public transport projects, because they are seeking to prioritise projects that will attract some co-funding from the federal government. Therefore, where they have before them two projects, a road project and a rail project, common sense—as well as the Productivity Commission, Infrastructure Australia and others—tells you that they will fund the road project and not the public transport projects.

We created Infrastructure Australia to take the politics out of infrastructure delivery, to break the nexus between the political cycle, which by definition is three or four years, and the infrastructure investment cycle, which is long-term. We inherited an enormous infrastructure deficit. When we came to office Australia was ranked 20th in the OECD for infrastructure investment as a proportion of the national economy. When we left office we were ranked first. Australia went from 20th to first over those six years. We invested not just in any project; we invested in the right projects. We invested in all 15 projects that were identified by Infrastructure Australia. Infrastructure Australia also ensured that there was more rigour in state government processes. Quite frankly, the states had in the past been negligent in doing the proper planning work and getting that up to scratch. For example, when the global financial crisis hit and there was an opportunity for projects to be funded to stimulate the economy and to see us through that crisis, there were very few projects that were actually ready to go, on which the hard work of planning had been done.

One of the things that Infrastructure Australia also did, and I see nothing wrong with the government doing this, was provide seed funding for state governments, such as the $40 million we provided for the Melbourne Metro project, to see if projects could be got up to speed. It was a dynamic process between Infrastructure Australia and the state governments to make sure that projects could truly deliver on maximising productivity benefits. That dynamic process prior to major funding being delivered was exactly what we envisaged Infrastructure Australia would do, not just doing an analysis after. In this case, $3½ billion was already prepaid last financial year to the Victorian and New South Wales governments. The government has ignored that. It has ignored proper advice. It has ensured that we have a process that is deeply flawed.

An example of that is the East West Link project. We asked after the budget, in Senate estimates, where $1½ billion has been allocated—$500 million for stage 1 and $1 billion for stage 2. They cannot even say where the tunnels are coming up. They cannot say precisely what the route of the project is. But $1 billion of taxpayers money was paid, in advance, last financial year. The government says that there is a budget crisis but $1½ billion was paid in advance before a contract has been signed, before plans have been finalised and before a cost-benefit analysis has been published. We have seen only two cost-benefit analyses for the East West Link: one of 0.5—that is, 50c returned for every dollar invested—and one of 0.8, which lifts it up to 80c, if you take into account a whole range of other factors to lift it up as high as possible. After the allocation of that $1½ billion, during the Rural and Regional Affairs and Transport Legislation Committee’s estimates hearing held on 26 May, Senator Conroy asked Infrastructure Australia:

So Infrastructure Australia has not seen the full business case?

Infrastructure Australia:


That is on page 31 of the hearing transcript. Senator Conroy asked a question about East West Link stage 1:

But it does not recover costs?

Infrastructure Australia:

Not for the core benefit-cost ratio.

That was their statement—very clear. Then Senator Conroy asked:

You have not been able, with all the information you have got so far, to classify it as ready to proceed?

The reply from Mr Roe of Infrastructure Australia was:

That is correct.

Then, when asked at the same estimates meeting about East West Link stage 2—to which a billion dollars has already been paid—Infrastructure Australia acknowledged that it had only received ‘conceptual information’. Mr Fitzgerald from IA said:

There is significantly more information that we would require for it to be a full business case.

So you have the extraordinary situation that money has been forwarded well in advance of any proper analysis being undertaken.

The independence of Infrastructure Australia is central to Labor’s approach to infrastructure delivery. Under this government, however, Infrastructure Australia is already moving away from the independent model it was designed to follow. It started when the minister brought legislation to this House proposing to give himself the right to dictate Infrastructure Australia’s research agenda. He also proposed giving himself a right of veto over publication of IA research, which would have destroyed the transparency of the current system. I am pleased to say that Labor, backed by the Business Council of Australia, Infrastructure Partnerships Australia and several other groups, campaigned against these proposals. That led to the government accepting Labor amendments that preserved IA’s independence.

But I do worry about how Infrastructure Australia has been functioning in recent times. We have had a range of new board members appointed, as well as an acting Infrastructure Coordinator—John Fitzgerald. I have asked for information about how the CEO of Infrastructure Australia is going to be chosen. I have asked what advertising is taking place and how the recruitment process for that position is being determined. It is not a position that should be determined politically. Based on what we have seen so far, Mr Fitzgerald can hardly be described as an unbiased analyst. In the budget estimates committee hearing in May, Mr Fitzgerald revealed that he had been with consulting firm KPMG, where he had been a lobbyist for the East West Link project. The job he had prior to that was working on the East West Link project for the Victorian government.

Senator Conroy raised this issue and asked at Senate estimates if there were any potential conflicts involved—because it stood out as an obvious one. Challenged about this at the hearing, Mr Fitzgerald declared himself an advocate for major national projects. Infrastructure Australia is not supposed to be an advocate; it is supposed to be an impartial organisation that deals with facts. That is why I was very concerned that, on 29 April, Mr Fitzgerald produced a media release—on Infrastructure Australia letterhead—in which he said that Infrastructure Australia had consistently held the view that the East West Link was a meritorious project. It was quite extraordinary for him, as a public servant, to put out such a press release.

Mr Fitzgerald has since then continued to take an increasingly political approach to what is supposed to be a non-political position. In July, TheAgerevealed that an Infrastructure Australia report had questioned the amount of money that was being spent on roads around the nation and had asked whether proper analysis was being conducted in order to maximise the benefit of that investment. This report was a contribution to the debate and was consistent with the way Infrastructure Australia works. It was put out for comment from the sector. Mr Fitzgerald intervened to disown the report, a report which had come from the organisation he was the acting Infrastructure Coordinator of. That is quite extraordinary.

Just a few weeks ago there was some controversy about court action that two local councils were taking over the East West Link project. It is, after all, a very controversial project in Victoria—and it should be noted that Victoria is facing an election in the next few months. On the Friday, Mr Fitzgerald again issued a media release—again on Infrastructure Australia letterhead—this time criticising the position that was being advanced by the Labor opposition on the project, in particular the Labor opposition questioning whether, in the circumstances, signing a contract for the project would be legal. I would find it unbelievable if, say, Mike Mrdak, the secretary of the department, or Dr Watt from PM&C or any other senior public servant were to intervene in such a situation. But Mr Fitzgerald did—by putting out a media release.

One has to ask the question: who authorised Mr Fitzgerald’s intervention? The Infrastructure Australia board had certainly not met. The government—not the minister, to be fair, but his errand boy, the assistant minister—has been quite critical from time to time about the former Infrastructure Coordinator, Michael Deegan, and in the past has talked a lot about having an independent board at arm’s length. It is absolutely extraordinary that this occurred. Mr Fitzgerald, as a former public servant, should frankly know better. You can be a political participant or a public servant. If you want to be a political participant, join a political party and run for public office. But do not be an acting public servant in a senior position who behaves in such an extraordinary fashion.

That is my concern with regard to proper processes. Similarly, with the WestConnex project in Sydney, we in government were of the view that there is a real argument to extend the M4 from where it currently finishes through to the city. It is absurd that it ends some considerable distance from the city and then people, after being on the M4, hit a traffic jam. This is just like how the M5, which I have also been critical of, needs to be extended to the port.

Indeed, the current Prime Minister identified this objective in his book Battlelines. He said this:

Sydney, for instance, should fill the gaps between the CBD and the M4 at Strathfield… There should be a link between the northern beaches and the city and between the western suburbs at Port Botany.

If you look at the contribution of Mr Tony Shepherd—and I have raised my concerns with Tony Shepherd, as the head of WestConnex—the problem is at the moment, as they themselves say, the proposed stage 1 is an extension to Haberfield and the proposed stage 2 is an extension to St Peters. This is a road to a traffic jam. This does not solve the problem. Anyone who drives to Sydney Airport will know that the idea of dumping traffic to the west of Sydney Airport, let alone not taking it to the port, is extraordinary. King Street in Newtown is a car park. This is a road to a car park. It is not dealing with the productivity benefits that would be dealt with, in terms of a freight link from Port Botany—which would see such growth—through to the M5.

In terms of the M4, there is extraordinary uncertainty being created for my constituents and for the people of Western Sydney, who deserve better than this approach. That example has been exemplified by the correspondence to one of my constituents, Vince Crowe of Haberfield, who received advice on 26 June 2014 from the WestConnex Delivery Authority. One said that his property was needed to be purchased and the other said that it was not needed. That is what happens when you make policy up as you go along. That is what happens when you do not have proper planning and proper processes.

What should be occurring is the federal government working with the state government to ensure that those objectives are met. We need to make sure that we get this legislation right. The way to get it right is to do the analysis first and then forward the money second, as the project is going along. That is what we did in government and that is the way that you maximise the productivity benefits of infrastructure investment.

This is one of the key issues that needs to be dealt with in terms of dealing with urban congestion and the other challenges that are there, particularly in our urban communities. The second thing that the government needs to do is to get rid of this bizarre ideological position that it has of not funding public transport and distorting the market. You need to have an integrated transport strategy when you look at issues of how we get better planning in our cities. If you look at just roads funding, you will distort not just what the federal government does but also what the state government does and you will not be able to deal with urban congestion. It is as silly as completely separating looking at how we move people from how we move freight. It is interconnected. People, freight, road and raid are all interconnected. Unless you have a strategy to deal with all of those issues, you will not be successful.

Regardless of their political perspective, I think Australians will be disappointed by this legislation; but there is an opportunity for the government to get it right by adopting Labor’s amendments. I indicate that we are perfectly willing, as always, to engage in constructive discussion with the government about these issues. That is because when Australians decide to invest in a house, they make relevant checks on its title, its susceptibility to flooding, its easements and other important issues. They hire people to produce property reports so that they know the house is in good order. They do that before they purchase a house, not afterwards. That is due diligence and that is common sense. That common-sense approach can certainly apply when you discuss what is the best way for the government to deal with the challenge of dealing with our infrastructure deficit.

The fact that in its first year of office the government has failed to begin one new project that it has developed itself should not actually be an excuse for it to engage in a breach of proper policy. We will be voting for our amendments and voting for amended legislation. That is what we want to see happen. The government should reconsider its position and should do nothing more, but also nothing less, than what is consistent with the policy it took to the election.