Speech to Infrastructure Partnerships Australia Lunch – Getting It Right On Nation Building – Tuesday, 15 May 2018
Thanks for inviting me to address you today, so soon after the Federal Government’s delivery of the 2018-19 Budget.
Can I begin by paying tribute to the leadership of Brendan Lyon over the last decade. Brendan is a man of integrity, vision and intellectual depth who has the national interest as his motivation in his working life.
Anyone who has visited the IPA office and seen the respect for Brendan from his team knows he is also a pretty good bloke and I wish him well in both his career and his personal life.
Today is an opportunity for me to outline Labor’s Budget response on Infrastructure and offer some insights into the approach of a future Labor Government.
But before I do that I want to congratulate Infrastructure Partnerships Australia for the strength and integrity of your post-budget analysis and general advocacy for your sector.
As we all know, the weeks leading up the delivery of the Budget featured leak after leak designed to create the impression of a big increase in increased infrastructure investment.
There were some journalists and business people, who accepted what they were told at face value.
They didn’t wait to examine the fine detail once the Budget documents were released.
But just like last year, IPA looked beyond the narrative to identify the facts as expressed in the Budget documents, noting for example that in this Budget, the Government cut Federal infrastructure investment by $2 billion over the next four years.
As your CEO Adrian Dwyer noted in IPA’s media release on Budget night, “the warm infrastructure narrative has not been met with cold, hard cash in the Budget papers’’.
He went on to add:
“At a time when our population is growing and our cities are more congested than ever, we need to see infrastructure dollars trending up not down.”
It won’t surprise Adrian or anyone here to hear me say that I agree.
But putting my views and interests aside, it’s critical for our democracy that representative groups like IPA are prepared to be honest in their analysis of claims that are made by people in power.
The sector must continue to engage in a debate based on facts.
When it comes to budgets, what matters is not rhetoric, but the numbers in the documents.
Those numbers can represent real dollars, real investment, real jobs – and if it’s the right project, real future economic growth.
Now, because I know you’re busy people, I always try to have a moment in my speeches to IPA that is memorable, to lift it up above the noise.
Today, that moment is to quote the Buddha, who once said: “There are only three things in the world that cannot be hidden – the sun, the moon and the truth.’’
The IPA has consistently had the courage to call out political spin.
You call it as you see it, just as you did when I was Infrastructure Minister in the previous Federal Labor Government.
I didn’t always agree with your views, but I respected them and continued to engage with you.
IPA’s intellectual integrity in promoting a fact-based public debate about infrastructure serves the public interest and is a credit to your organisation.
BUDGET AT A GLANCE
That’s your view of the Budget.
Here is mine.
The Budget is a con job – a triumph of spin over substance.
In the lead-up to its delivery, the Government sought to pretend that it was about to reverse its five years of cuts and start investing in the future.
But once the documents hit the desk, we learned the Budget did not include a dollar of new funding for infrastructure over the Forward Estimates period.
There was nothing to build the rail from to Melbourne Airport.
Nothing for the Western Sydney Rail beyond a small amount for a business case.
Nothing for Brisbane’s Cross River Rail.
New projects announced in the pre-Budget period will all be funded from previous allocations.
We can see this clearly on pages 137 to 144 of Budget Paper Number 2.
On program after program and for State after State, there are lines of zeros in the Forward Estimates.
Let’s be honest. This was framed as a pre-election Budget.
It more about politics than policy.
It is commitments on the never-never.
It’s a bit like Mr Wimpy in the Popeye cartoons who used to wander around saying: “I will gladly pay you on Tuesday for a hamburger today’’.
But in this case Malcolm Turnbull tells Australians: I will gladly build you a new road or a train line five years from now if only you vote for me in the next election – and the one after that.
The Budget documents show that of $19.3 billion in funding announced for new specific projects, a paltry 1 per cent will be invested in the next 12 months.
One per cent.
Over the Forward Estimates, less than 20 per cent of the funds will available for construction.
Put another way, four out of every five dollars allocated to infrastructure projects last week won’t be invested for at least four years.
Not before the next election, nor the election after that.
In the meantime, actual investment will continue to fall off a cliff.
In 2017-18 the Coalition Government promised to distribute $8 billion in infrastructure grants to the states.
But that will fall steadily over the following years to $4.5 billion by 2021-22.
The fact is that little has changed since a year ago, when the independent Parliamentary Budget Office calculated that over the next decade, infrastructure investment as a proportion of GDP will fall from 0.4 per cent to 0.2 per cent.
It is also clear from the Budget Papers that even when the Government allocates funding, it lacks the ability to translate the promises into bulldozers on work sites.
In each of its first four Budgets, the Coalition has not delivered the full amount of funding it announced.
Indeed, over these four Budgets, the difference between what the Government allocated and the amount actually delivered is $4.7 billion.
Underspending is everywhere.
Roads – $2.8 billion
Rail – $200 million.
The Black Spots Program – $100 million.
The Northern Australia Roads Program – $132 million.
You might understand this sort of failure if it were a one-off.
But this has happened every year.
Across almost every program.
It is a rolling parade of failure.
It indicates the Government is either unable to administer its programs, or it is seriously misleading the nation about its real investment intentions.
There’s an old saying that if something seems too good to be true, it probably is.
So it is with the Government’s continuing attempt to move away from direct infrastructure grants to the states for major projects and toward off-Budget funding.
For several Budgets now, the Coalition has been experimenting with new financing approaches to avoid providing infrastructure grants to the states.
Three years ago it created the Northern Australian Infrastructure Facility.
The NAIF has spent little beyond fees and travelling expenses for its directors to attend meetings in southern capitals.
It has become the No Actual Infrastructure Fund.
Last year, the Government created its Infrastructure Financing Unit to supposedly attract more private investment in public infrastructure projects.
Yet again, sidelining Infrastructure Australia, which is tasked with examining financing options for projects.
As IPA said last year in its pre-Budget submission, there is no shortage of financing available for good projects.
Your submission noted that what was needed was not financing assistance, but Commonwealth infrastructure grants to make projects stack up.
A year later, the IFU has not produced a single project.
It has been moved out of the Department of Prime Minister and Cabinet and into the Department of Infrastructure and Regional Development.
It’s a failed experiment.
Let me make something clear. There are circumstances in which off-Budget funding through equity investments makes sense.
The former Labor Government used an equity model to fund the Moorebank Intermodal Terminal in Sydney.
But the test of applicability for this type of funding is simple – off-Budget projects must produce a return to the Budget.
That return must exceed running costs, but also a make a return on capital investment.
In the days before the Budget, the Government told the Melbourne media it would invest $5 billion in a rail line from Melbourne’s CBD to the airport at Tullamarine.
While this project had previously been talked about, the funding announcement came out of the blue.
The first the Victorian Government heard about it was when Mr Turnbull’s office sent Premier Daniel Andrews a letter after he had already leaked his plan to the newspapers.
But when the Budget Papers were released, there was no funding for construction.
We are asked to accept the notion that the Commonwealth contribution to this project may come via an equity injection.
This is absurd.
Public transport projects don’t make money.
They are critically important, because they reduce traffic congestion and help drive economic growth.
But neither the costs of their operation, nor their capital investment, can be covered by operating revenue.
It is sham funding.
It is the funding that you put in place when you don’t actually intend to deliver a project, but you want people to think you will.
The Melbourne Airport fantasy follows last year’s $8 billion equity injection to the Australian Rail Track Corporation to fund the Inland Rail Link between Melbourne and Brisbane.
Once again, it is clear that Inland Rail will not make a return to the Budget – a point noted by former Deputy Prime Minister, John Anderson, in his 2015 Implementation Study for the project.
Mr Anderson noted that: “The expected operating revenue over 50 years will not cover the initial capital investment required to build the railway”.
This fact was reaffirmed earlier this year when the CEO of the ARTC, John Fullerton, told the Joint Committee of Public Accounts and Audit: “From a strict ARTC point of view, no, the revenue that flows to us would never cover the full capital cost and provide a return.”
As I have said in previous speeches to IPA, Labor supports Inland Rail.
It’s a visionary project that has the potential to make a real difference to the ability of producers to get their goods to market and, in that context, makes economic sense in the long-term.
But the fact is Inland Rail will cost public money.
It won’t build itself.
Expert analysis in the days after the Budget focused on the uncertainties surrounding off-Budget funding.
Marion Terrill, of the Grattan Institute, warned that airport rail lines were expensive and stood no chance of generating a return to the Budget.
Ms Terrill said:
“”There’s a real risk these equity investments will end up not even making a positive rate of return, never mind a commercial rate.
“”If infrastructure projects are never going to make a commercial return, the Government should stop pretending they will.
“”And if they are worth building at all, the government should fund them transparently on-budget.
“”If the numbers on these projects don’t stack up, future taxpayers will be on the hook for today’s bad decisions.”
The Chief Economist for Industry Super Australia, Stephen Anthony agreed.
“We’re opening up the potential for more unfunded liabilities but we don’t need more time bombs,” Mr Anthony said.
The University of Sydney’s Garry Bowditch said the off-budget financing options seemed “fanciful’’.
And for the industry view, Adrian has said on behalf of the IPA:
“Ultimately there are only two ways to pay for infrastructure – tickets and taxes.
“We can’t finance our way out of a funding problem. I’m worried that what we might see in budgets is a financial vehicle for a project when that isn’t right for the project.”
Let me turn briefly to Infrastructure Australia.
The former Labor Government created Infrastructure Australia in 2008 to provide independent advice to Government on projects that are under consideration for Commonwealth funding.
Our aim was to take the politics out of decision-making concerning project funding.
To break the nexus between the short term political cycle and the long term infrastructure investment cycle.
That means the organisation’s independence is critical.
I’m concerned that after five years of Coalition Government, Infrastructure Australia’s independence is being undermined.
For instance, back in 2012, Infrastructure Australia produced an infrastructure priority list which named the proposed Cross River Rail project in Queensland as that state’s number one priority.
This important second rail crossing of the Brisbane River in the Brisbane CBD was assessed by Infrastructure Australia as “ready to go’’.
It was on that basis that the former Labor Government reached deal with the-then Newman LNP Government in Queensland to deliver the project.
But that collapsed when Tony Abbott took office and withdrew all Commonwealth investment in infrastructure not already under construction.
But on the most recent national Priority List, Cross River Rail is well down the list of priorities.
That doesn’t make sense – until you consider the fact that the Turnbull Government has made clear that it does not see Cross River Rail as a political priority.
Instead, it proposes to invest in rail projects further north, on the Sunshine Coast.
This ignores the fact that you can’t increase capacity to the Sunshine Coast without Cross River Rail.
I also worry that Infrastructure Australia appears to be timing the release of its analysis of projects to suit the Government’s timetable.
Prior to the Budget, Infrastructure Australia produced a positive assessment of the long-proposed next section of Adelaide’s North-South Corridor, from Regency Rd to Pym St.
This was released the very day the Government was dropping a story to the Adelaide Advertiser that it would provide funding for the project.
The South Australian Government submitted the business case for this project to Infrastructure Australia on June 22 last year – more than ten months ago.
Labor will use upcoming Senate Budget Estimates hearings to examine the simultaneous timing of the release of the assessment and Government’s funding announcement.
A BETTER WAY
Over the next 12 months you can expect to hear more from me about how a Federal Labor Government would approach the infrastructure portfolio.
But whenever I am asked about how I would approach a return to Government, my response is simple: look at the record.
We established Infrastructure Australia and ensured its independence.
The former Labor Government doubled the roads budget.
We built or upgraded 7500km of road.
We rebuilt more than a third of the nation’s rail network – 4000km.
We invested more on urban public transport than all previous Commonwealth governments combined.
We implemented national laws covering heavy vehicles, maritime and rail safety laws; slashing regulators from 24 to 3.
We published first ever National Freight and National Port strategies – long term blueprints to guide investment in the nation’s port, roads and railways.
We increased spending on road, rail and public transport infrastructure from $132 per Australian to $225.
When we took office, Australia was 20th on a list of advanced nations in terms of infrastructure investment as a proportion of GDP.
When we left office, Australia was 1st.
Our investments did cost money.
But they also facilitated ongoing economic growth by boosting productivity.
We created a pipeline of projects that should have attracted broad support on the basis of analysis of costs and benefits and their value to the economy.
In 2018, one of the biggest risks to ongoing economic growth in this country is the Coalition’s refusal to provide the investment required to deliver and continue to develop that investment pipeline.
Rather than investing in future growth, this Government is falling over itself to avoid investing.
The 2018 Budget is not an infrastructure Budget. It is an infrastructure mirage that calls us to look years ahead to an investment horizon that might never be reached.
Meanwhile, average Australians looking for better roads and public transport are stuck in an infrastructure desert.
This self-delusion will lead to increase our national infrastructure deficit.
Once again, let me thank you for inviting me here today. It’s always good to engage with Infrastructure Partnerships Australia – as I like to think of you, the good IPA!
Rest assured that in the coming months, as Labor finalises our policy approach to the next election, I will continue to engage with you in the national interest.
And in Government, I would ensure a constructive working relationship with you.