Speech to Australian Financial Review Infrastructure Summit- Towards More Effective Infrastructure Policy – Monday, 4 June, 2018
Thanks for the opportunity to address you today and can I congratulate the Australian Financial Review for staging this important summit to examine the critical policy area of infrastructure.
There’s always a lot happening in national affairs.
But it’s often the case that the media’s understandable and necessary focus on the daily cut and thrust of the political battle leaves little room for serious debate about policy issues that affect Australians in their everyday lives.
Infrastructure is one of those important policy areas.
Australians want and deserve railways and roads that serve their daily travelling needs.
Businesses want and deserve efficient transport networks so they can get their goods or services to markets as quickly as possible.
If we get it wrong on infrastructure policy, we degrade our national quality of life and inhibit business activity.
But if we get it right we all win.
We enhance our quality of life by facilitating faster movement of people and goods.
And we boost productivity, which in turn drives job creation and economic growth.
This summit provides a good opportunity for me to provide feedback on Labor’s view of the 2018-19 Budget, delivered just a few weeks ago.
And, more importantly as we move steadily toward an election year, it’s a chance for me to sketch out the broad outline of the direction of infrastructure policy under a Federal Labor Government.
About a year ago the independent Parliamentary Budget Office produced an important report that charted the future direction of infrastructure investment in this country.
Based on analysis of the 2017 Budget papers, the PBO said that over the next decade, Federal infrastructure investment expressed as a proportion of GDP will decline from 0.4 per cent to 0.2 per cent.
That’s half – quite a reduction in a nation which we all agree is suffering from an infrastructure deficit.
This at a time when we should be increasing investment in the right projects.
That is a view shared by industry groups like Infrastructure Partnerships Australia, which has consistently called for increased federal grants to the states and territories.
For a few weeks in April and early May, it looked as they might get what they were hoping for.
Suddenly newspapers were full of reports about new rail and road projects.
There was the front page news of a $5 billion Federal contribution for a passenger rail line from the Melbourne CBD to the city’s airport.
There was another front pager about how the Government would build Western Sydney Rail to the Western Sydney Airport as part of a new City Deal it had signed with the NSW Government and Western Sydney councils.
Then there was to be funding for the Adelaide’s South Road project, the Coffs Harbour Bypass, Perth METRONET and railway improvements between Brisbane and the Sunshine Coast.
However, with due respect to our hosts today, it turns out that you can’t always believe what you read in the newspapers.
When Budget 2018 was delivered, there was no money for the construction of Melbourne Airport Rail.
There was no money for the construction of Western Sydney Rail.
In fact, there was no new money, full stop.
Pages 137 to 144 of Budget Paper Number 2 tell the story.
In program after program and from state after state, the 2018 Budget allocations feature zero after zero after zero.
To be fair, there were new projects – all to be funded from previously appropriated funding.
But critically, the lion’s share of the funding won’t be delivered for years.
Only 1 per cent will be invested in 2018-19.
85 per cent won’t be invested until beyond the Forward Estimates.
This means Australians waiting for progress on important rail and road projects will not get it this year. Not next year. Or the year after. Not even the following year or the one after that.
Voters will have to re-elect the Coalition not once, but twice more before the bulk of the money will appear.
…Very optimistic for a mob that have had four infrastructure ministers in less than two years.
In the meantime, Federal infrastructure grants to the states and territories are about to enter freefall.
In 2017-18, the Government promised to distribute $8 billion in infrastructure grants.
In the following years that will fall to $6.3 billion, $5.6 billion, $5 billion and then to $4.5 billion by 2021-22.
Looking across the four-year Forward Estimates in this year’s Budget, there is $2 billion less for project delivery than was the case only 12 months ago.
Federal infrastructure investment is on a very sharp downward trajectory.
There was a time in this country when Government Budgets were about what would happen in the next four years.
But under the current Government, the investment horizon now stretches to a decade and sometimes beyond that.
Budget 2018 was not a blueprint for nation building investment in the national interest.
It was a political document – a triumph of spin over substance.
Australia needs infrastructure investment now, not a decade from now.
We need it in our cities – to tackle traffic congestion that costs the economy more than $16 billion a year in lost productivity.
We need it in our regions, to drive economic growth and promote decentralisation.
And we need it in our rural areas, to ensure that producers can get their products to their markets or to our ports as quickly and cost-effectively as possible.
Part of the decline in Federal grants is attributable to the Government’s attempts to attract more private sector investment in public infrastructure projects.
That’s a worthy aim if you get the formula right. The former Labor Government used value capture and availability payments to deliver major projects.
The Coalition Government is struggling to find a workable model.
Three years ago it created the Northern Australia Infrastructure Financing Facility.
The NAIF, these days often referred to as the No Actual Infrastructure Fund, has failed to deliver a major new infrastructure project.
Last year the Government established the Infrastructure Financing Unit, designed to use “innovative financing mechanisms’’ like value capture to secure private investment.
After a year of operation, the IFU has not produced a single new project.
This year’s new idea is the fantasy that public transport projects can build themselves without public investment.
A case in point is the proposed $5 billion investment toward the construction of the Melbourne Airport Rail Link that I mentioned earlier.
Despite the alleged commitment, there is no money in the Budget for construction of this project.
Instead, the Government claims it will fund the project off-budget using an equity funding arrangement.
This is an extraordinary proposition.
Off-Budget funding can work for some projects.
It can work for toll roads.
And indeed, the former Labor Government used an equity funding model to deliver the Moorebank Intermodal Terminal.
But the golden rule for projects to be taken off-budget is that they must be able to provide a commercial return to the Budget.
That return must cover not only operating expenses, but also a commercial return on the capital invested.
There is no public transport service in this country that covers its operating expenses, let alone the cost of construction.
The Melbourne Airport Rail Link is a worthy project.
It is supported by the Victorian State Government of Daniel Andrews, although his immediate priority is completion of the Melbourne Metro.
But the Federal Government’s proposed funny money funding model is a sham.
It is the funding commitment you make when you don’t actually want to commit funding.
No wonder this approach is attracting criticism from independent experts.
The Grattan Institute’s Marion Terrill, commenting on the Melbourne Airport Link proposal, warned there was a risk the project would not even make a positive rate of return, let alone the commercial rate.
Ms Terrill said:
“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.”
Adrian Dwyer, the head of peak industry group Infrastructure Partnerships Australia, said:
“There are only two ways to pay for infrastructure – tickets and taxes. We can’t finance our way out of a funding problem.”
Let me turn quickly to the other big problem with infrastructure policy in 2018: the escalating crisis in project delivery.
In each and every year the current Government has been in office, it has failed to spend the money it has allocated to infrastructure projects.
Over the first four budgets, the difference between what the Government has promised and what it has actually invested is $4.7 billion.
That’s 20 percent of allocated funding not delivered.
Underspending is everywhere – across program after program, in state after state and year after year.
For major roads, the Government has promised to invest $16.5 billion but has delivered $13.8 billion.
The $2.7 billion shortfall represents a cut of 16 per cent.
When it comes to the Northern Australia Roads Program, the $190 million underspend is equivalent to 65 per cent of the Budget.
One third of all funding allocated to the Black Spot road safety program has also not been delivered as promised.
We can all have our views about whether the Government is providing enough funding for rail and roads.
But when one out of every five dollars budgeted is not being spent, we’ve got a crisis in program delivery.
I’ve been raising this issue for a couple of years now.
The problem has persisted under the revolving door of Infrastructure Ministers since the last AFR Summit.
When people ask me what a Federal Labor Government would do in the area of infrastructure, my answer is simple – look at our record as a guide to how we would act in the future.
The previous Labor Government delivered record infrastructure investment.
On our watch, annual Federal infrastructure investment increased from $132 per Australian to $265.
We doubled the roads Budget and built or upgraded 7500km of road.
We rebuilt a third of the interstate rail network, some 4000km of track.
We invested more on public transport than all previous Federal governments combined.
Importantly, the former Labor Government also transformed the process by which we assess projects and allocate funding through the creation of Infrastructure Australia as an independent adviser to Government.
In Government we invested in every one of the priority projects identified by IA.
Prior to that reform, governments would allocate funding for projects according to their political whims.
The creation of Infrastructure Australia introduced an evidence-based process.
It broke the nexus between the short-term electoral cycle and the long-term infrastructure investment cycle.
So the short answer to what Labor would do in government is simple – we’d pick up where we left off.
Our immediate focus would be to increase investment in public transport projects like the Melbourne Metro, Brisbane’s Cross River Rail, Western Sydney Rail and Perth METRONET.
Traffic congestion is harming national productivity and steadily eroding the quality of life of Australians.
It was partly caused by that great wrecker Tony Abbott, who took office in 2007 and immediately scrapped the billions of dollars that had been allocated to vital public transport projects.
Mr Abbott’s bizarre ideological antipathy for public transport, combined with the current Prime Minister’s self-delusion that train lines can somehow build themselves, means this country is way behind where it should be on urban rail.
We confront this shortage at the very time when population growth and increasing population density in our cities means people will increasingly rely on public transport to get around.
One of the smartest things the Coalition Government did when it took office was to retain Infrastructure Australia as its independent adviser on major projects.
I have concerns about the extent to which the Government has sought to sideline and politicise Infrastructure Australia.
But let me put those concerns aside and acknowledge the Government has kept this important organisation, created by the former Labor government a decade ago.
We would return Infrastructure Australia to the centre of policy making, including on financing options in accordance its the legislation.
The policy architecture is already in place.
The pipeline exists, even if, under the current Budget, the funding does not.
As an aside, let me note an example of bipartisanship on infrastructure policy that will deliver real results for Australians and the Australian economy: construction of the Western Sydney Airport.
For years needless politicking prevented the development of this important piece of infrastructure.
Both sides of politics feared that backing the idea of a second Sydney airport would expose them to election scare campaigns.
But a few years back a few of us on both sides of politics quietly took a joint decision to put politics aside and act in the public interest.
As a result, work is underway on the new airport as well as associated road infrastructure.
We are working together to deliver not just an airport, but an aerotropolis that will transform the Western Sydney economy and create thousands of well paid jobs for its residents.
Bipartisanship is producing real results for the community.
It doesn’t mean there aren’t differences. The commencement of rail connections needs to be urgently progressed with real investment.
There is an important lesson here that should be applied to many other policy areas.
Australians, including our business community, understand that the nature of politics means different political parties will have different views on issues.
They understand that this is an important feature of democracy.
But what they don’t like, and don’t deserve, is needless political division that prevents the delivery of sensible outcomes that serve the national interest.
We know that the idea of analysing the costs and benefits of major projects helps governments pick the right projects and achieve better outcomes.
Knowing that this system is effective, we should now consider broadening it.
Under a Labor Government we’ll enhance Infrastructure Australia’s role in ways that can secure better outcomes.
For example, we know that smart technology can dramatically improve the effectiveness of our transport system.
Managed motorways programs including smooth entry points, variable speed limits, and lane directional changes can make a huge difference to travel times.
Under a Labor government, state governments seeking Commonwealth grants for new roads will need to demonstrate that they have incorporated smart technology into the design of their projects wherever possible.
We will require proponents of projects to consider incorporating active travel options such as cycling and pedestrian access into their plans.
We know also that the impact of climate change requires that we think harder about sustainability.
This could include use of renewable energy, or whether the design of projects caters for the shift toward electric cars by providing re-charging options.
We can also harness the Infrastructure Australia process to enhance skills development and improve procurement processes.
For example, when it comes to the construction of the Western Sydney Airport, Labor has made clear that we will require at least 10 per cent of construction jobs be filled by apprentices.
This means we will not only get new airport, we’ll use the opportunity to develop our national skills base, which will have knock on benefits for the economy.
Requiring states to take the same approach to other major projects will go a long way towards reinvigorating Australia’s training system, which, regrettably, has been badly run down under the current Government.
On another point, I am often approached by medium-sized construction firms concerned that they can never get a piece of the action when governments call tenders for major infrastructure projects.
The most common complaint is that the contracts are on such a large scale, they can’t bid for the work, meaning the work ends up going to a handful of our biggest contractors.
I would encourage states and territories to work with industry to craft creative procurement plans that spread the benefit of major government contracts more evenly across the infrastructure sector.
As a bonus, there is no shortage of evidence to suggest that greater involvement of mid-tier construction companies leads to savings to the public purse by fostering greater competition.
These are just a few ideas.
You’ll hear more from me about Infrastructure Australia’s mandate closer to the election.
But my basic point here is simple: Better planning delivers better outcomes.
Through the Infrastructure Australia process, we have an opportunity to improve the quality of project planning to achieve outcomes that better meet the expectations and requirements of both the public and business community.
Once again, let me thank the Australian Financial Review for staging this summit.
Infrastructure policy is always important.
But in 2018, with our population growing quickly, our cities in transition and our businesses as anxious as ever to reduce costs and boost productivity, we face some real challenges.
For my part, I believe governments have two choices on nation building.
We can be passive and react only after problems arise.
Or we can seek to image a better future and take real, practical steps to create that better future.
That requires planning, collaboration and a willingness to put the national interest first.
In government, Labor intends to do just that.
MONDAY, 4 JUNE, 2018