Speech to Infrastructure Australia Conference – Infrastructure Finance Reform – Meeting the Challenge
The Commonwealth Government is determined to deliver on our productivity agenda.
The fact is that Government cannot achieve this alone.
That is why we are doing everything we can to facilitate private sector investment, so that together we can find solutions to the bottlenecks and choke points that are stopping our economy from fulfilling its potential.
I am therefore delighted to be here with you today to outline some of the many improvements we are making to the investment environment.
Firstly, let me take you back a little in time.
When we came to office in 2007 we faced a serious infrastructure deficit.
Australia ranked 20th out of 25 OECD countries when it came to investing in public infrastructure as a proportion of national income.
Over the preceding decade, public investment in the nation’s infrastructure as a proportion of national income had fallen by close to 20 per cent.
This lack of investment had sliced almost one percentage point off annual growth.
The Federal roads budget was $2 billion less than it had been a decade earlier.
Rail was barely on the national agenda.
There had been chronic underinvestment in interstate and urban rail for decades.
In fact, there had been no Commonwealth investment whatsoever in urban public transport by the previous Government, despite the rising cost of congestion.
The IT and Innovation Foundation ranked Australia 27th out of 30 country on average download speed for broadband.
In short, Australia’s ageing infrastructure was hindering economic growth and eroding our international competitiveness.
The Government was determined to reverse this precarious position.
Since then, we have made the largest ever Commonwealth Government commitment to Australia’s transport infrastructure — $36 billion over the six years to 2013-14.
We have doubled the roads budget.
We are rebuilding one third of the interstate rail network.
We have committed more to urban public transport since 2007 than all governments combined since Federation, up until our election to office.
We know that by itself, Government investment will not deliver the infrastructure solutions Australia needs – which is why we need financing reform.
Let me focus today on one critical aspect of that agenda — infrastructure finance reform.
Infrastructure Australia has identified more than $86 billion in potential projects that could vastly improve our national productivity.
But without investment, it’s just a list.
We need the private sector to step up if we are to tackle an infrastructure program of that magnitude.
So let me outline what we are doing to improve the investment environment for big projects such as these.
2011-12 Commonwealth Budget
I will begin with this year’s Commonwealth Budget reforms which directly address concerns raised in the past by potential infrastructure investors.
In the Budget, we announced that we would change the tax treatment for new infrastructure projects.
Up to $25 billion in projects assessed as nationally significant by Infrastructure Australia could be eligible to have the value of their early stage losses uplifted over time at the government bond rate.
They would also be exempted from tax rules which prevent tax losses being used where there is a change of ownership.
The Assistant Treasurer and I released a discussion paper on this measure last month.
Consultations will run for six weeks, closing on 9 December, and I welcome your comments on this important reform.
Overall, the result will be a lower weighted average cost of capital for eligible projects, lower compliance costs and greater certainty, especially for brownfield investors such as superannuation funds.
The Government also announced the creation of a National Infrastructure Construction Schedule.
The schedule will – for the first time – provide potential investors with detailed information on upcoming infrastructure projects across all levels of government.
This will mean a transparent pipeline of committed upcoming projects with an indication of the potential for private sector participation.
To address concerns relating to patronage forecasting and demand risk, the Government has engaged eminent expert Dr Robert Bain who will review selected toll road projects in Australia.
He has been asked to recommend ways of improving the accuracy of patronage forecasting.
His recommendations will then be considered by the COAG Infrastructure Working Group, which I chair.
Over-optimistic forecasts in the past have not helped investor confidence.
This has translated into lost opportunities for investors and our economy.
The COAG Infrastructure Working Group has worked extremely hard to deliver further micro-economic reform.
Rarely is this process easy and these reforms may not appear earth shattering.
But it is by chipping away at barriers in the economy that we are able to make a real difference to productivity.
For example, in January we introduced a National Prequalification System so that contractors need only prequalify in one state or territory to tender for construction contracts.
This has meant the end of a great deal of complexity and red tape.
The working group has streamlined major infrastructure project approvals processes, with major changes to legislation and administration by all levels of government.
Again, a cut to red tape, and a speeding up of project delivery.
There are now consistent guidelines on Public Private Partnerships – making the process clearer for private companies considering investing in key infrastructure projects.
There is now also a national Alliance Contracting Policy with guidelines and best practice examples.
Finally, some of you will be familiar with the volume of case studies on best practice planning already produced by the working group.
A second volume is being prepared, looking at the strengths and weaknesses of various models.
This will be available on line by the end of the year.
Infrastructure Finance Working Group
There was a further concern – clearly articulated by the business community – about the way we finance and fund infrastructure assets.
To make sure we respond appropriately, the Government has set up the Infrastructure Finance Working Group under the auspices of Infrastructure Australia.
The working group is composed of nine senior private and public sector leaders with expertise in infrastructure finance.
It is chaired by Jim Murphy from Treasury.
Their task has been to examine infrastructure finance and funding practices and then recommend improvements.
The working group released its issues paper for consultation in July and consulted widely among stakeholders for several weeks.
Many high quality submissions were received — from superannuation funds to contractors, banks, consultants, and State and Territory Governments.
Part of the purpose of today’s event is to canvas the ideas that emerged from that process with you – our infrastructure leaders.
Later we will hear the ideas and potential reforms to emerge from the working group process.
Infrastructure financing reform is just one part of our productivity agenda.
Last Friday was a historic day for the transport sector.
We secured unanimous agreement by transport ministers to approve legislation for single national regulators in heavy vehicle, rail and maritime.
This is the most important microeconomic transport reform in our history.
It signals the end to mounds of unnecessary red tape and costs and will remove a massive bureaucratic load.
In heavy vehicles alone, 849 different rules had existed.
It is a reform that is overdue by about a century.
It will boost the national economy by $30 billion over the next 20 years.
Today is an opportunity.
An opportunity for you as infrastructure leaders to shape the finance and funding landscape.
And an opportunity for Government to listen to your views on how we can further improve the investment landscape.
Thank you for your attendance today at what is the first in a series of events hosted by IA to discuss the infrastructure this country must have if we are to realise our potential and prepare for the growth we know is coming.
Further events will be held over coming months focussing on other areas of infrastructure reform: water, roads, user charges and Indigenous infrastructure, to name a few.
At the heart of it all, an ambitious nation-building agenda must be underpinned by an equally ambitious vision of finance and funding reform.
We have an enormous nation building task ahead of us.
It is not something the Government can do alone.
It can only be done in partnership with you – the nation’s investors.