Speech to Australian Logistics Council – Delivering for Australia: The Importance of Process in Infrastructure – Melbourne Cricket Ground
I’m pleased to once again address the forum of the Australian Logistics Council.
Many Australians don’t understand the importance of the logistics industry to our nation.
Your work sometimes goes unnoticed.
It’s only when supply chains don’t work – which is the exception in this country – that people notice them.
That of course is a tribute to your industry.
It’s critical to the way our nation works.
Chinese military leader and strategist Sun Tzu once described logistics as “the line between disorder and order’’.
Another military genius, Alexander the Great, once noted that his logistics advisers were a completely humourless bunch.
After all, Alexander said: “They know if my campaign fails, they are the first ones I will slay.”
Fortunately, things are different in the 21st century.
But logistical failure is still very serious.
In a busy world where time is money, the financial penalties involved in not being able to move goods quickly are no laughing matter.
THE IMPORTANCE OF DELIVERY
The theme of this forum is Delivering for Australia.
That’s just what your industry does.
And I am sure the task involves a never-ending quest for improvement.
But delivering for Australia is also the job of the Commonwealth Government.
And delivering reliable infrastructure is central to that responsibility.
Both of us have to get it right.
You might be running a trucking company and through hard work and clever management, you might wring every last drop of productivity out of your operation.
But without efficient, well-maintained roads that are not congested, much of your effort will go to waste.
That’s why it’s so important for your sector that governments get it right.
Us getting it right, is a precondition, for you getting it right.
And if we both get it right, we unlock productivity gains, jobs growth and prosperity.
THE IMPORTANCE OF PROCESS
I have a long-term interest in infrastructure and transport.
It was a central theme of my first speech in Parliament in 1996.
We must deliver the right projects at the right time to maximise the economic impact of our investment.
Public funds are limited.
It is essential that when we invest those scarce funds, we do so in a way that maximises the effect of the investment on national productivity growth.
The former Labor Government had that principle in mind in 2008 when we created Infrastructure Australia – the first attempt in this nation to apply an evidence-based approach to infrastructure.
Infrastructure Australia’s job is to advise the Commonwealth on the relative merits of infrastructure projects competing for public funding.
The challenge is to break the nexus between the political cycle, which is short-term, and the infrastructure investment cycle, which is long term.
Of course, Infrastructure Australia is an adviser.
Elected governments still make decisions, as they should.
But by publishing its evidence, Infrastructure Australia provides the public with information on which to base its judgements about government performance.
There is another important reason for this transparency.
If both sides of politics can rely upon Infrastructure Australia to provide facts to back decisions about competing infrastructure projects, both can embrace its evidence-based findings.
That has the potential to create a pipeline of productivity-driving infrastructure projects with bipartisan support – a pipeline that can exist across multiple electoral terms and multiple governments.
This design is far superior to the old system, under which decision-makers could always be tempted to determine investment priorities with the assistance of the electoral pendulum.
The Infrastructure Australia model provides far greater certainty.
After creating Infrastructure Australia, the former Labor Government used its independent advice to begin to tackle what we saw as a serious infrastructure deficit.
While the mining boom had fattened Commonwealth coffers during the Howard era, the government of the time failed to reinvest the proceeds of the good times in improved infrastructure.
The deficit was particularly serious in the area of freight.
Six years later, when Labor lost office, we had made a genuine impact – reforming the system, creating the nation’s first national freight and port strategies and delivering record investment.
When Labor Government took power, Australia was 20th in the OECD for infrastructure investment as a proportion of GDP.
When we left, Australia was 1st.
We lifted annual per capita spending on infrastructure from $132 a year in 2007 to $225 in 2013.
We doubled the roads budget – building or upgrading 7500km of road.
We rebuilt more than a third of the national freight network – more than 4000km of track as part of a $3.4 billion investment in freight rail.
One outcome of our investments is that by 2016, the average trip from Brisbane to Melbourne will have been shortened by seven hours.
The journey from the nation’s east to west coasts will have been reduced by nine hours.
Big companies like Woolworths and Australia Post have moved some of their freight to rail.
That’s highly significant.
There will always be a role for moving freight by road.
But when we move freight on to efficient, properly maintained rail systems, we make the roads safer and we reduce carbon emissions.
This approach highlights the value of having an independent adviser like Infrastructure Australia.
Its existence allows us to stop seeing individual transport modes as separate from each other and to begin to see our transport system for what it is – incredibly complex, multi-layered and interconnected.
When we take a helicopter view of the infrastructure scene – looking not just at individual projects but at how they all fit together – we can invest in projects that supercharge productivity – projects whose combined value exceeds the sum of their individual parts.
When it comes to freight, the role of government must be to eliminate bottlenecks and create seamless links between different modes of transport.
That’s why our freight and ports strategies, developed by Infrastructure Australia, are so important.
All players in the supply chain should now be working to the same objectives.
DECLINE OF PROCESS
However, the best evidence-based system in the world is of no use if governments fail to make use of it.
I am deeply concerned that the current government is drifting away from the Infrastructure Australia model.
Despite pre-election promises that it would adhere to, and indeed strengthen, the model, the current government appears to have succumbed to political temptation and is drifting away from transparency and evidence-based policy making.
The worst example is its $3 billon commitment to Melbourne’s East-West Link.
In last year’s Budget, the Commonwealth provided the then Victorian State Government $1.5 billion as an advance payment for the project.
It did this without Infrastructure Australia having seen a cost-benefit analysis, let alone having approved the project.
As those of you who live in Melbourne know, the project was at the very centre of November’s state election campaign.
After the election, documents released by the incoming Andrews Government showed that the project had a benefit-cost ratio of only 0.45.
That’s a paltry return of only 45 cents in the dollar.
Those documents also suggested that the Napthine Government sought to conceal this research, knowing that the decision to proceed with the project would not stand up to Infrastructure Australia scrutiny.
At the same time this was happening, the Commonwealth was withdrawing investment in projects like the M80 upgrade, the Melbourne Metro and the Managed Motorways program – projects that Infrastructure Australia had endorsed.
In this case, proper process went out the window along with common sense and respect for taxpayers.
The last thing this nation needs is political parties fighting election campaigns on the basis of the delivery of major infrastructure projects that have not undergone independent scrutiny.
Only the facts can empower voters to make informed judgements about what politicians say in the heat of electoral battle.
Elected representatives should have enough ambition for this country to put their best foot forward in terms of productivity rather than resorting to the backward step of making decisions without any evidence.
That’s why I was disappointed to hear that when the Assistant Minister for Infrastructure addressed this forum yesterday, he continued to argue that taxpayers should invest billions of dollars in the East West Link, knowing it has a benefit-cost-ratio of 0.45.
Such an approach would not be treated seriously in the private sector.
And it is no way to treat public money.
It’s not just the East-West Link that concerns me.
In Sydney, the state and Commonwealth governments’ approach to the proposed Westconnex project is showing signs of also not going through proper process.
This was identified by the NSW Auditor-General Grant Hehir late last year in a report in which he noted serious deficiencies in planning and quality assurance processes relating to the project.
Mr Hehir’s report found that:
The preliminary business case submitted for gateway review had many deficiencies and fell well short of the standard required for such a document.
The report said there were not “clearly separate roles and responsibilities for delivery, commissioning and assurance’’ nor “robust processes and procedures to manage the conflicts’’ that arose from this lack of separation.
The object of Westconnex is to take people to the Sydney CBD and freight to Port Botany.
Infrastructure NSW acknowledged this fact in a 2012 report identifying its immediate concerns about Sydney’s infrastructure.
In a section under the heading First Things First, the report said:
In recent years, rapid demand growth at Port Botany and Sydney Airport has impacted on NSW’s transport networks, particularly around these facilities.
With growth forecast to continue, investment is urgently needed in land side infrastructure to allow access to these gateways.
The expert advice was unambiguous.
Yet Westconnex, as it currently proposed, will not take freight to the Port.
It will not take people to the city.
It’s a road to a traffic jam.
I’m all for a project that will reduce traffic congestion in Sydney, particularly western Sydney.
But if we are going to proceed, let’s get it right.
Money spent on infrastructure must meet its strategic objectives.
Another issue that concerns me is the Commonwealth‘s willingness to hand money to states without requiring them to meet construction milestones.
That is certainly the case with both Westconnex and the East-West Link.
Money has been handed over upfront, with no attempt to hold states to agreed milestones.
This is at odds with comments made on June 6 last year by the Assistant Minister for Infrastructure, who told the Civil Contractors Federation:
… that we’re only making payments to states when they actually deliver the milestones, that they’re not getting money in their bank account prior to milestones being delivered …
But as those comments were being made – the government was preparing to place $1.5 billion dollars in the Victorian Government’s bank account, well in advance of anything actually happening.
INFRASTRUCTURE AUSTRALIA LEADERSHIP
Perhaps part of the problem has been the lack of leadership within Infrastructure Australia.
The former Infrastructure Co-ordinator left his post in February, 2014, and has since taken up a senior infrastructure role in the South Australian Government.
It took until last Thursday – more than a year – for the government to appoint Philip Davies as his replacement.
I wish Mr Davies good luck.
He’s a man with an impressive record in infrastructure and has a particular interest in public transport.
Infrastructure Australia must be central to delivering better infrastructure outcomes.
Another issue on the current Government’s agenda that I know is important to your sector is maritime reform.
There’s an understandable push from business to lower the cost of shipping.
The current Government has made clear that it plans to roll back Labor’s coastal trading regime, which came into effect in 2012 after exhaustive consultation with industry.
Labor’s arrangements allow for foreign-flagged vessels to work Australian domestic trade routes provided no Australian vessels are available.
Conditions include the payment of Australian level wages to ensure local shipping companies can compete.
Rather than resort to the sort of protectionism we see in the US maritime sector, we did not ban foreign vessels.
Indeed, to encourage an Australian international shipping fleet, we created a new register which would see shipping companies and seafarers engaged in international trade have a zero rate of taxation.
It was a balanced package – one designed to allow the local industry to survive and, over time, to prosper.
The current Government calls these arrangements red tape and has sought to undermine the changes since before they even took effect.
Let make Labor’s position on this issue crystal clear.
When a business chooses to move freight around this nation by road, the truck driver is paid Australian level wages in accordance with Australian law.
When a business moves freight around this nation by air, the pilot is paid in accordance with Australian arrangements.
Labor believes the situation should be no different when people move freight by sea.
Allowing one mode of transport to pay third-world wages while others do not will distort the market.
Let me now turn to where I believe infrastructure development should be headed in this country over the next decade or so.
A focus should be continual intermodal integration to lift efficiency.
Let me put it in the words of Infrastructure Australia, which, not long after its creation in 2008, outlined its national themes for better infrastructure.
Rail and road freight infrastructure planning and investment can no longer be undertaken in isolation from each other, or worse, in competition with each other.
Traditionally, policy has been segmented by mode; for example, by road, rail, aviation and shipping, and by jurisdiction.
Much of the early work of the former Labor Government was dedicated to creating an integrated approach – one we can now use as a springboard to achieve greater efficiencies.
Our national strategies for ports, freight and aviation were not simply feel-good rhetoric.
They formed a blueprint for co-operation between the Commonwealth and state governments to achieve this integrated vision.
Projects like the Northern Sydney Freight Line and like the Southern Sydney Freight Line are about separating freight and passenger traffic, thereby boosting productivity.
Here’s another example – one that highlights the need for government to work with industry to achieve efficiencies.
In 2013 the former Labor Government partnered with the NSW State Government to fund $364,000 worth of road improvements to improve access to the Chullora Intermodal in Sydney.
We did this because Infrastructure Australia told us that restrictions to heavy vehicle use that existed before the upgrade had cost the economy and freight operators $22 million over the previous five years.
For a relatively small investment, we have significantly boosted productivity.
As a result, Asciano has invested $30 million in two new cranes at Chullora, which it expects will remove up to 100,000 truck movements a year from Sydney roads.
This is best practice.
By 2013, when Labor released its Nation Building II program, we identified four themes for the future of infrastructure delivery, using the better integration we had delivered to achieve better outcomes.
The four themes were: Innovation, Moving Freight, Connecting People and Safety.
The innovation theme focuses on investment in smart infrastructure, planning, research, evaluation and compliance.
As an example, smart infrastructure such as electronic signage on urban highways can improve traffic flows by up to 15 percent, helping to curb congestion.
On safety, the Commonwealth should continue to invest in local roads and the elimination of black spots.
Under the Connecting People theme, we should pursue the productivity of our highways, roads and rail corridors while directly targeting pinch points and alleviating urban congestion.
And on the Moving Freight theme we should further extend and connect our road and freight linkages – particularly at our ports and intermodal facilities.
These themes all stand alone.
But they also fit together.
Their interconnection involves a payoff for everyone.
For example, a focus on safety saves lives.
But it also improves productivity by eliminating black spots.
A focus on better connections for freight improves productivity, but also improves road safety by taking freight off the roads and on to railway lines.
In these times of fiscal restraint, we should also be thinking hard about the use of technology because in many cases it allows for better use of existing assets.
Earlier I mentioned the poor benefit-cost ratio involved in the East-West Link here in Melbourne.
While the current Government still wants to pursue that project, it has cancelled a $137 million investment in the managed motorways program relating to the Monash Freeway here in Melbourne.
Infrastructure Australia analysis suggests that project has a cost-benefit ratio well above five.
This is a reminder that using innovative technologies that allow for better signalling and changing lane flows according to peak hours can yield huge gains at relatively low investment levels.
We’ll always need to build new infrastructure, and if we choose the right projects, the work pays for itself in productivity gains.
But we must never forget the productivity gains we can find by making better use of existing assets.
As I have explained today, I’m concerned about what I see as a drift away from evidence-based decision making.
That drift will make it harder to be certain that we are spending money in a manner that maximises its impact on productivity.
It’s time for all governments, at all levels, to act on the basis of facts when they spend large sums of public money.
For example, the former Labor Government partnered with the ACT Government to build the $288 million Majura Parkway.
This exciting road project will allow tens of thousands of trucks to avoid the city of Canberra and instead travel along the new parkway to the east of the city.
It will reduce a 20-minute journey at peak time to only seven minutes.
We funded for one reason. When it is completed, it will deliver a real boost in productivity.
Then there was the Hunter Expressway in which the commonwealth invested $1.5 billion.
Talked about for 20 years, but because there was no political gain, never delivered.
We did it.
There was only one reason: It returned more than $4 in productivity gains for every dollar invested.
Or there was the allocation of $300 million for the Inland Rail – the first money to advance construction – not added to by the current government.
When we think about infrastructure, we need to forget about politics and focus on outcomes for the entire economy.
To some political practitioners, such an approach seems like a wasted opportunity.
But they are missing the point.
Governments are judged on their ability to achieve national progress – to create jobs and to maintain and enhance and efficient and productive economy.
Any government that can do that will be judged kindly by voters.