07-August-2009
Speeches, Infrastructure, The Economy
OUR RECORD
I have the dual responsibility of climate change and infrastructure.
After nearly twelve months I have formed the very strong view that Climate Change is best tackled from a position of economic strength. Only companies with strong balance sheets and a competitive edge will be able to fund the innovative technology necessary to meet even modest abatement targets. This is where Australia can show leadership.
This need to work from a position of economic strength is equally true of other key challenges we face as a community, including maintaining and growing the nation’s infrastructure.
It explains why total infrastructure spending in Australia, in constant 2007 dollars, rose from $21 billion in 1996 to $56 billion in 2007, an increase from nearly three per cent of GDP to 5.4 percent of GDP.
Despite the endless denigration and misrepresentation from our political opponents, that is a significant and massive growth in infrastructure spending as a proportion of GDP over 11 ½ years.
And it didn’t come about by borrowing and spending.
We had to start by fixing Australia’s financial infrastructure when we took over in 1996.
We paid off $96 billion of Government debt. This government would have been confronted with an extra $8 ½ billion in interest payments each year, solely from that debt, if the former government had not paid if off.
Paying off that debt and avoiding those interest payments meant close to $100 billion extra was available over those years to spend on infrastructure, on services and on lower taxes to create jobs for Australians; and we saw nearly 2 million of those created.
Fixing Australia’s financial infrastructure meant turning around a culture of running massive deficits under the previous Labor administration and replacing it with a culture of running budget surpluses.
The Coalition fixed up other financial infrastructure. We created an independent Reserve Bank and introduced rules to govern our financial sector through APPRA and ASIC. Those rules are now the envy of others in the Western world and go a long way to explaining Australia’s resilience in the face of the global financial crisis – though you wouldn’t know reading the Prime Minister’s recent 6,000 word indulgence.
We introduced major reform of the indirect tax system, giving States a huge growth tax to fund vital infrastructure. Sadly, incompetent State Labor governments have wasted that legacy.
And, we made major reforms to superannuation.
Again over our 11½ years in government our sadly depleted defence infrastructure faced a major overhaul, with real annual growth of 3 per cent throughout that period (involving a 47% increase over 12 years from $10.6bn in 1995-96 to $22bn in 2007-08).
Our workforce infrastructure was brought into the 21st century.
On the wharves we had the epic battle to modernise the Australian waterfront.
The result has been a 60% improvement in productivity with average crane rates increasing from 17 movements per hour to world’s best practice of 27 or 28 per hour.
In the workplace we faced political opposition at every turn, yet introduced major flexibility and abolished the job-destroying unfair dismissal laws for small business.
All this resulted in the lowest unemployment rate in 33 years, a youth participation rate ranked second among OECD countries and a real increase in wages, over and above inflation, of nearly 22 per cent.
In the building and construction industries the establishment of the ABCC has had a profound impact. Working days lost per thousand employees due to industrial action plummeted from 37.4 in late 2005 to just 1.7 in mid 2007.
Productivity increased markedly with projects being delivered on time and within budget, resulting in a staggering 1.5% boost to Australia’s GDP, or over 5 billion in dollar terms each year.
This is a far cry from the pre-ABCC days of unbridled union power, when union bosses directed construction schedules, and threatening and intimidatory behaviour was commonplace.
No government in its right mind would wind back such a major reform.
I can assure you that the Coalition will continue to oppose any attempt by the Rudd Government to effectively abolish or water down the ABCC.
These reforms mean that Australia faces the difficulties now and ahead from a position of strength.
The reforms did:
o Inject a large measure of flexibility into our economy
o Paid off all Federal Government debt of $96 billion
o Created a $60 billion Future Fund
o Created $38 billion for Auslink I and II
o Created multi-billion dollar heath and education funds
o Provided all the funds for this Government’s Building Australia Fund, and
o Created a $10 billion water infrastructure fund
All of that off the back of real reform.
I mention this to underscore the importance of real productivity related reform if we are to afford and attract strong infrastructure spending in the years ahead. Building mountains of Government debt is not a sustainable long term plan.
Against this background, you have to ask the question if the Reserve Bank is flagging the possibility of a “housing price bubble” emerging in the middle of the biggest financial crisis in 80 years that maybe the Government has overreached with its debt funding spending binge in some areas.
LABOR’S TRACK RECORD
What is even more concerning is that with a growth of Commonwealth debt to $315 billion, a mere $8.5 billion has been ear-marked over the next few years for vital economic, productivity producing infrastructure?
Furthermore, with this level of debt hanging over future generations, the priority should be to spend every one of these dollars as wisely and as effectively as possible.
To this end, the evaluation and ranking of infrastructure proposals must be part of a truly objective and transparent process.
Investors and the community need to have an understanding of why projects are chosen, what is the expected contribution of productivity, the relative benefits that would flow from competing projects and the impact on economic growth?
This level of transparency was promised repeatedly in the lead up to the last election by the Labor party. Again, in last year’s Budget there was a cast iron commitment “to transparency at all stages of the decision making process”.
Yet the Rudd Government has now committed to spending tens of billions of largely borrowed funds with absolutely no transparency about how these projects were prioritised, why some have been funded over others or even the presentation of the top-line benefit cost numbers.
The Government’s claims of objectivity and impartiality ring hollow. The smell of politics is potent.
In the Budget the Government committed to $80 billion worth of projects - $60 billion unfunded – without releasing one skerrick of the analyses on which these projects were based. This is a scandal. It is unacceptable.
Yet, the so-called Federal Minister for Infrastructure, Anthony Albanese, now claims that it is not possible to make this kind of information public because it is commercially sensitive. What disingenuous nonsense.
How could anyone with a straight face pretend that revealing that a project has a benefit cost analysis of 1.8 or 0.9, or 0.2, as I suspect is the case with the $14.7 billion being spent on school halls, how could they protest it was commercially sensitive.
In March 2008 when Sir Rod Eddington completed the East West Link Needs Assessment (EWLNA) and delivered his report to the Victorian Government, the public was drowned in information.
More than 1,700 pages of reports and supporting technical documents are still currently open for the public to view at the Victorian Department of Transport’s website.
This includes a report by three economic consultancy firms outlining the economic benefits and costs of the transport infrastructure options that were considered by the East West team.
Present value of costs, present value of benefits, benefit cost ratios, it’s all there.
Why shouldn’t all the cost-benefit analysis including data, assumptions and the models carried out by Infrastructure Australia across a wider range of infrastructure spending also be made public?
The Rudd Government must come clean with this information if their integrity is not to be open to serious question.
Not only has the Minister for Infrastructure failed to demonstrate that tax payer dollars are spent on infrastructure projects that deliver the greatest value for money, but he has failed to provide clear performance standards for the infrastructure investments the government is making.
The government’s infrastructure spending has been based on the principle of obscurity. Tens of billions of dollars of spending and borrowing have been directed to projects that have not been subject to either robust selection criteria or to clear performance standards. Where is the hard edged economic analysis about the make-up of the stimulus package?
There are no means for assessing whether the spending on infrastructure is prudent because the performance standards have not been clearly set.
It is unacceptable for a government to spend tax payer dollars and to borrow vast amounts of future generations’ money without providing transparency and accountability.
In order to spend every infrastructure dollar wisely and effectively the Labor Party came to Government with its central plank of infrastructure policy being the creation of an independent Commonwealth Statutory Authority called Infrastructure Australia, designed to advise of the nation’s infrastructure decisions in a fair and objective fashion.
I support that objective and the creation of Infrastructure Australia.
In making its pre-election case for the creation of Infrastructure Australia, Mr Albanese said, and I quote:
“Infrastructure is not currently dealt with in a systematic way. The silo approach of considering rail infrastructure separately to port infrastructure, and economic infrastructure separately from social infrastructure, impedes economic growth and social cohesion.
It is necessary to adopt a whole of system approach and make sure the entire supply chain runs efficiently. This can only be achieved by national co-ordination and leadership”. End of quote.
Given that the Commonwealth now provides significant funding to all these areas, I agree with these sentiments.
This was Labor’s claim back in 2007, but unfortunately the rhetoric hasn’t matched reality.
On Budget night earlier this year Minister Albanese flooded journalists inboxes with a total of 18 media releases detailing the Rudd Government’s infrastructure commitments.
Road projects – tick. Rail projects – tick. Ports – tick.
But if you go through each media release you won’t find any mention of water infrastructure, energy infrastructure, social infrastructure, school’s funding, hospital funding or for that matter, communications infrastructure.
Where was the Minister for Infrastructure when the Prime Minister announced the “single largest nation building infrastructure project in Australian history”? The $43 billion National Broadband Network.
Infrastructure Australia was established to ensure evidence-based Government investment in infrastructure projects yet was given no role whatsoever in assessing Labor’s $43 billion broadband project.
Instead we saw the Prime Minister and the Treasurer on television imploring Australians to invest in a company which had no business case, no cost-benefit analysis and no feasibility study. It was the sort of corporate cowboy behaviour our Prime Minister has so condemned in his sanctimonious sermons about neo-liberals.
It seems that the Rudd Government will use Infrastructure Australia as a political shield when its accused of lacking transparency but deem it irrelevant when politically convenient to do so.
The Rudd Government can’t have it both ways.
Labor promised to give Infrastructure Australia a much wider mandate in terms of assessing the merit of large scale infrastructure spending to cover communications, water, energy, health and for that matter education and other social infrastructure.
This would make sense.
Yet, no where is Labor’s need for rigour in spending borrowed billions more evident than in what is termed “the single largest school modernisation program in Australia’s history,” which the Minister for Infrastructure and Infrastructure Australia also played no part in.
From showering schools set for the wrecking ball with federal funding to state administrators carving out their own share, the $14.7 billion education spend is riddled with inefficiencies at the expense of the taxpayer.
All of which has been funded by debt but yet was carried out with no analysis of its productive potential for the economy.
In the Prime Minister’s recent 6,000 word essay, he stated that, and I quote,
“..The Government is implementing a strategic, co-ordinated approach to development, integration and planning of Australia's critical infrastructure.” End of quote.
Give me a break.
It is impossible to identify any coherence in the federal Government’s infrastructure spending plans.
Far from removing the silo approach, and adopting a whole of system approach, the Government has embarked on a hotchpotch of multi-billion dollar spending, much of it appearing to be politically inspired and none of it transparent and accountable.
And where is the co-ordinating Minister, the Minister for Infrastructure, in all this? - focussing on transport.
Anthony Albanese is not our first ever Federal Minister of Infrastructure, as promised, he is in reality Australia’s 33rd Federal Minister for Transport.
REFORMING THE REGULATORY ENVIRONMENT
After the release of the May Budget earlier this year, KPMG estimated that on top of the $22 billion the Rudd Government had committed to infrastructure another $60 billion from the private sector or Government borrowing would be needed if most of these projects were ever to be completed.
Yet the global financial crisis has created a challenging environment for raising large scale private capital for infrastructure projects.
At a time when the Federal and State Government’s are issuing hundreds of billions of dollars of government bonds to pay for their unprecedented debt, private investment to fill this funding “black hole” for infrastructure projects is highly problematic. It is simply being crowded out.
In addition, given the difficult economic environment, superannuation funds do not have the appetite as part of their asset allocation strategy to invest large sums in greenfield projects with factors such as the level of patronage and the illiquid nature of such investments proving too much risk to shoulder.
Instead, such funds are eyeing off distressed infrastructure assets which are already operational both here and overseas as the preferred form of asset class to get the returns for their fund members.
As demonstrated by the previous Coalition Government though not all reform comes with a big financial price tag such as the reform of the waterfront.
If Mr Rudd wants to do something constructive to attract private investment he should use the crisis to cut through the mountains of federal, state and local government red tape.
The economic crisis has provided a unique political opportunity to reform highly complex and expensive tendering processes, the myriad of planning and project approvals and the financial instruments and risk sharing for major projects.
PUBLIC PRIVATE PARTNESHIPS
The Minister has stated that “building infrastructure needs will require a partnership between public and private sectors”.
However, the economic downturn, as you would all know, has led to a massive reduction in available credit financing through the limit on funding available.
As IPA has stated, “constraints on capacity on existing infrastructure will limit economic activity and restrict growth”.
Unless the Federal Government intends to take combined Federal and State Government debt to half a trillion dollars, the government’s response to the $60 billion shortfall in its projected infrastructure commitments appears to be a wishful reliance on the private sector.
But given that the government has failed to provide clear performance standards and accountability for its own infrastructure projects, how can it be reasonably expected that the private sector will contribute $60 billion or more to government projects?
No investor would be forthcoming with their funds unless they understand why investment projects have been selected, how they will be held accountable, and what their investment returns will be.
These are characteristics of effective public private partnerships that the government has manifestly failed to establish or apply in its Nation Building Program.
It is also important to note that the $60 billion shortfall in the government’s infrastructure projects is nearly twice the total amount of PPP projects estimated to have taken place in the twenty-five years between 1980 and 2005.
So the government is hoping that somehow the private sector, in the midst of a global squeeze in credit, will provide nearly double the amount in PPP funding provided over a twenty-five year period. This is more a fancy than a concerted and robust approach to ensuring Australia has the infrastructure it needs to compete in the future.
CONCLUSION
Setting an overarching national infrastructure strategy would be a constructive starting point for the Federal Government and COAG. It would drive regulatory reforms, inform private investment in economic and social infrastructure, inform immigration policy, water policy and even influence the development of policies such as the emissions trading scheme where ill-informed policy is already putting the brakes on crucial investment in electricity generation and other areas.
In the face of mountains of debt, Australia needs an infrastructure road map – a co-ordinated program that provides value for money through high productivity and maximum private sector involvement, transparency, vision, innovation and excellence. A co-ordinated program of future projects that have been subject to rigorous analysis and are consistent with a realistic long term funding program.
Media Contact: Nick Xerakias, 0410 417 173