INVESTING IN THE FUTURE: LABOR’S POSITIVE PLAN FOR INFRASTRUCTURE
BRISBANE
THURSDAY, 8 OCTOBER 2015
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It is time to be ambitious for Australia.
Ambitious for Australia to be the best in the world.
Ambitious for the best solution on climate change.
Ambitious for the best health care system, and National Disability Insurance Scheme.
Ambitious to be the best in education, skills and innovation.
Ambitious to have the best superannuation system and the best minimum wage system.
On occasion, we are cautioned against vaulting ambition.
But there are other times when we must be ambitious out of necessity.
Now is such a time.
Australia needs to have the best market for our infrastructure.
- Taking a generational approach
- Built upon political consensus, not division
- Drawing on our national savings
- Priced efficiently
- Internationally attractive – and competitive
- And providing a return to the community, directly and indirectly
This is necessary – and it is achievable.
And it is important now.
The mining boom is winding down.
China is shifting from investment, to consumption.
The International Monetary Fund estimates every one percentage point decline in China's investment – leads to a 0.2 per cent reduction in Australia’s potential growth rate.
Rapid change is the new normal, all around us:
- Our growing region
- The rise of services, and the digital economy
- Our ageing population
- A changing climate
- The march of women toward equality.
We must be ambitious in this time of change.
Aiming high.
Creating new jobs, boosting our productivity and improving our competitiveness.
This is why, under my leadership, Labor has examined the whole spectrum of solutions:
- Smart investments in education, innovation and collaboration
- Better incentives for start-ups
- Closing superannuation loopholes
- A stronger stance on multinational tax avoidance
- 50 per cent renewable energy, by 2030
- 3 per cent of our GDP on Research and Development by 2030
We have not just been talking about these issues.
We’ve backed our rhetoric with substance.
We take our responsibility to be an alternative government, as seriously as our duty to be a strong opposition.
But more is required.
Australia needs to lift its ambitions in education and skills development, higher education, in research, innovation and commercialisation, in infrastructure and an efficient taxation system.
And today, I want to outline Labor’s plan to create the best infrastructure market, unlocking investment in productivity-enhancing, job-creating infrastructure.
Quality infrastructure is central to driving Australia’s economic growth, creating jobs and boosting our productive capacity.
The right investments in transport, energy, communications and water infrastructure will deliver smarter, more liveable cities – and better connected regions.
Unclogging our roads, addressing out-dated and overcrowded rail networks and modernising our energy networks.
Not just building a generation-overdue second airport for Sydney, but ensuring transport infrastructure is ready at the same time – not as an afterthought.
Of course, infrastructure investment alone cannot fix the emerging structural weaknesses in our economy:
- our relatively high costs
- narrow industry base
- and ongoing dependence on foreign capital.
But an efficient infrastructure market is an essential part of the productivity solution we need.
AUSTRALIA’S INFRASTRUCTURE DEFICIT
Yet right now, capital investment in infrastructure by governments is falling.
Just last week the ABS found that public sector investment in infrastructure has fallen by 20.1 per cent for the June 2015 quarter, compared with the last quarter Labor was in government.
Infrastructure Australia has estimated that the economic cost of underinvestment is projected to reach $53 billion a year by 2031.
Australia’s infrastructure deficit is an economic challenge that demands national leadership.
This is why Labor in government created Infrastructure Australia.
- Doubled the roads budget.
- Increased the rail budget more than tenfold.
- And invested more in public transport than all previous governments combined.
It’s why we developed:
- A national ports strategy.
- A national freight strategy
- And a national urban policy for our cities.
It’s why we introduced national transport regulators, which will boost our national economy by $30 billion over 20 years.
It’s why a Shorten Labor Government will invest in infrastructure in our cities and our regions, as a national economic priority.
Re-booting this investment, lifting productivity and restoring growth – means facing up to the sticking-points and stumbling blocks which stand in the way of good infrastructure projects being financed and taken to market.
Our existing infrastructure market is not clearing.
A combination of:
- high costs of originating projects
- commercial risks
- high costs for development and construction.
- forecasting errors
- unrealistic expectations of returns on prices, in a low inflation environment.
- And long procurement and uncertain processes
Are deterring long-term equity investors, like superannuation funds, with a less attractive ‘risk and return’ profile.
This is not a conventional ‘market failure’, caused by the quality of the project in itself.
It is an imbalance of information, creating uncertainty and delay - holding investors back at the early stage.
Governments - given their sovereign position, and their ability to see the full array of long term benefits – have a role to play in creating confidence and encouraging private investors to back good projects.
But instead of our political system being part of the solution – it is currently part of the problem.
Smart, productivity-enhancing infrastructure like the Managed Motorways program – the best benefit-to-cost ratio of any project recommended by Infrastructure Australia - has been abandoned by this government.
Important, long-term national projects should not be at the mercy of short-term political timetables – or petty partisanship.
It’s time to go beyond vague calls for ‘reform’ - and get serious about tackling the infrastructure deficit and our productivity shortfall.
Australia’s future growth depends upon significant investment in long-term physical assets.
These projects cannot be funded by government revenue alone.
Australia has a deep pool of domestic capital in superannuation, searching for stable and reliable assets to invest funds over extended periods.
And we have a national to-do-list of priority infrastructure projects.
Projects that Infrastructure Australia has either assessed, or is in the process of assessing.
Some projects that were ready to go, in some cases had funding in the Budget – such as Melbourne Metro and the Cross-River Rail here in Brisbane, have lost years as a result of the Coalition’s failure to act.
A Labor Government will work with Infrastructure Australia and the States to revitalise these nation-building projects as our first priority.
Here in Queensland, we will prioritise:
Brisbane’s Cross River Rail, boosting capacity and easing congestion with a second connection to the CBD.
Light Rail on the Gold Coast, finishing the second phase of a very successful project in time for the 2018 Commonwealth games.
The planning work on the Ipswich Motorway, from Darra to Rocklea, unclogging one of the busiest stretches of road in Queensland.
Fast-tracking the Pacific and Bruce Highway packages, delivering thousands of direct and indirect jobs.
And nation-wide, Labor will back:
Airport Rail for Badgerys Creek, connecting the Western and South lines. Because Western Sydney’s new airport needs to be served by public transport from day one.
Melbourne Metro, boosting productivity across Melbourne by reducing the pressure on an overburdened train system.
Upgrading Tasmania’s Midland Highway, where the Coalition has cut funding by $100 million.
Investing in public transport in Perth, such as the Metronet plan, a project to improve traffic flows in one Australia’s most congested cities – which Infrastructure Australia should assess.
And the Gawler Line electrification in Adelaide, Labor provided $76 million to get this project moving but the Coalition has cut all funding.
A new Labor Government will ensure the Commonwealth funding to get these projects underway and completed as soon as possible, is found in the current infrastructure budget.
Building these projects is Labor’s priority - because building infrastructure creates jobs.
If we look at the Cross-River Rail, Melbourne Metro and the Perth Metronet for example – these three projects alone would create over 10,000 jobs in construction.
Here in Brisbane, the Cross-River Rail would create an additional 5000 indirect jobs, as a result of productivity improvements.
And if you take the Pacific Highway upgrade as an example of value for money – every dollar we invest, returns three to our economy.
These are the concrete benefits of viable, productive infrastructure investment – delivering direct and indirect jobs in the immediate and long-term.
AN INDEPENDENT INFRASTRUCTURE AUSTRALIA
Beyond these immediate priorities, Labor will improve the way all infrastructure projects are assessed, structured and selected, to secure a bankable, stable pipeline of long-term work.
We will work with the private sector to get good projects up and going.
The truth is, the traditional Commonwealth grant funding approach cannot guarantee the scale of the work required.
We’ve tried it the old way – on the back of the budgetary process.
It isn’t sufficient for our needs.
We can’t expect to catch-up the shortfall and unlock the infrastructure market through business-as-usual.
Nor can we expect State Governments to simply do more, with less.
Fortunately, by 2025, Australia’s superannuation savings will be $4 trillion – we should be putting some of this money to work on nation-building.
This is why Labor’s infrastructure focus will be on enhancing participation from the private sector - including superannuation funds and international investors – and more innovative support for State Governments.
As I said in my 2015 Budget Reply Speech, and as Anthony Albanese has consistently championed - an active, independent, Infrastructure Australia will be at the heart of our policy approach.
Just as the Reserve Bank of Australia is the independent authority at the centre of monetary policy, Infrastructure Australia will be an independent authority at the centre of capital investment, driving results in the national interest.
Independent from politics – and accountable to the public.
Our plan will transform Infrastructure Australia from a passive body receiving proposals, to an active participant in the infrastructure and financing market.
- Identifying and evaluating key projects
- Working with State Governments and state agencies to make big nation-building projects ‘investment-ready’.
- Bringing financial modelling and commercial rigour to develop a long term pipeline of projects for the Commonwealth Government
and ensuring the steady movement of projects through these assessment, development and financing phases.
Under Labor, Infrastructure Australia will evaluate projects on
- benefits to the economy and the community
- commercial viability
- and the capacity to enhance national productivity.
We will build public confidence and community support, through transparency.
Publishing the proper business case for each project, so the value of the investment, and the facts behind the decision are clear.
This independence and rigour will be matched with meaningful authority.
EMPOWERING INFRASTRUCTURE AUSTRALIA
Labor will empower Infrastructure Australia to structure deals, engage private sector partners, and work closely with state governments to take projects on the priority list from the drawing-board to construction.
And to overcome the current obstacles and attract private sector investment.
Labor will establish a $10 billion financing facility for Infrastructure Australia to provide, if needed, a combination of guarantees, loans or equity investment to get new projects underway.
This facility will be created through the existing $3.6 billion in the Building Australia Fund – and further capitalised with government borrowings, taking advantage of the historically low cost of government debt.
Giving Infrastructure Australia the ability to act as an independent, funded project-broker, will provide new and greater certainty to investors.
And it will create a powerful incentive for State governments to propose and approve projects.
The guiding principle for financing would be: ‘least contribution required’.
That is, the minimum necessary to get a project to market.
This is not new to Labor.
We provided $405 million along with the New South Wales State Government to mitigate risk and ensure the F3 to M2 project - now renamed NorthConnex - moved from a ‘proposal’ of decades-standing to a project under construction today.
Commonwealth investment ensured the success of the Gold Coast light rail.
A project that has exceeded all patronage forecasts, to the point whereby a simple use of the savings from the Moreton Bay Rail Link will ensure that Stage 2 should enter construction early next year.
Once a project is underway and financeable, Infrastructure Australia could sell its equity or debt interests to long-term investors like super funds.
This would maximise the return to the Commonwealth, while allowing it to re-commit this capital to new projects.
And to remove the unintended consequences of Infrastructure Australia taking all the upfront risk the Commonwealth involvement will be priced based on what stage and risk profile the project is at.
The strong emphasis will be on early participation from investors.
Adding a proven financing function is a natural evolutionary step for Infrastructure Australia.
We will develop these expanded functions in consultation with experts and industry.
Within our first 100 days, a new Labor Government will establish an independent Expert Panel to determine the revised structure of the new empowered Infrastructure Australia and to develop the financing mandate.
This will ensure a focus on:
- commercial return
- financial rigour
- corporate governance structures
- and risk-management procedures
are all in place prior to any funding.
I acknowledge some people will be sceptical about a government taking this course.
But I can assure you that Labor’s proposed model – and the process – replicates the proven success of the $10 billion Clean Energy Finance Corporation.
Leveraging private sector participation, financial discipline, credit risk assessment capacities together with an understanding of the importance of nation-building.
Ultimately, our long-term goal is for financial self-sufficiency for Infrastructure Australia.
Empowering Infrastructure Australia to look beyond discrete individual projects to assess, support and promote the delivery of a co-ordinated network of infrastructure.
Tapping into the potential of our regional centres, to create new growth corridors serviced by rail, road, air, the NBN –in addition to good schools, hospitals and aged care facilities.
This approach would help take the pressure off our cities – and deliver productivity boosts for tourism and agriculture.
Better processes to develop productivity-enhancing infrastructure have been backed by a host of experts: the International Monetary Fund, the Reserve Bank, the Business Council of Australia, AiG, Infrastructure Partners Australia and Morgan Stanley.
But, inevitably some critics will seek to make this a scare campaign about debt.
Others might say that our approach will crowd out private investors.
These criticisms are wrong.
This is not a give-away and it’s not a grants program.
Our plan will act as a catalyst, injecting momentum into private sector investment.
Empowering Infrastructure Australia to take a strict commercial approach, based on credible cases - will attract more private investment – not crowd it out.
In relation to debt, it is, of course, important for Australia to manage our debt, to continue to repair the budget trajectory.
But there is a significant – and very real – distinction between debt raised for capital expenditure and debt raised for recurrent expenditure.
Capital expenditure on productivity-enhancing infrastructure – is a fiscally-responsible investment in long-term growth and revenue.
Nation-building creates jobs and drives growth.
Labor’s plan will leverage $10 billion of government-backed financing into tens of billions of dollars of private sector investment.
For example, in the case of the CEFC, every dollar of government financing is leveraging $2.20 in additional investment.
But even using a conservative analysis, prepared by Infrastructure Partners Australia, which assumes no additional leverage:
$10 billion infrastructure investment
- Will directly create approximately 26,000 jobs.
- And add around an extra $7.5 billion every year to our
And the IMF has found that when there is ‘economic slack’, such as Australia is currently experiencing, increases in infrastructure spending can boost GDP to the extent that the public debt-to-GDP ratio declines.
So, if a national infrastructure project delivers significant productivity benefits, creates jobs and boosts growth then we should think about how we factor the value of those gains into our decision-making.
The Prime Minister and his Treasurer have spoken a lot about moving away from slogans.
Today is a chance for them to show that this was more than just a clever catch-phrase
A chance to show that “no more slogans” was not just another slogan, in a better suit.
And it is a challenge for our friends in the media too.
Let’s not be afraid of a more confident, more ambitious conversation.
Let’s give the Australian people credit, for understanding that not every revenue measure is a ‘great big new tax’ and not every spending decision is a wasteful ‘black hole’.
Let’s bring on a bigger and better debate:
- about the future of infrastructure
- the role of government
- and the need for investment in the productive capacity of our economy.
An informed discussion about borrowing to invest in our nation’s future.
Australian families borrow money all the time, most commonly to buy their homes.
Australians don’t take the irrational view that because buying a home means borrowing money, they will simply pay rent for the rest of their lives.
Before they borrow, Australians do their research and ensure that they pay the right price for their home.
A home to serve their family’s needs and which will, over time, appreciate in value.
We should bring the same mindset to government investment in national infrastructure.
Nation-building projects should be seen as a long-term investment in Australia’s productivity and prosperity.
And as a short-term driver of jobs and growth – for our economy in transition.
Every facet of Labor’s economic plan is aimed at boosting productivity, including the new approach on infrastructure I have outlined today:
An empowered Infrastructure Australia - making rigorous, rational assessments – backed by the best research.
A new consensus for investing in the long-term projects: -
- unlocking our cities,
- connecting our regions,
- revitalising our country towns
- and enhancing the liveability of our communities.
All of it designed to deliver an economic dividend for the decades ahead:
- Boosting productivity
- Driving growth
- Creating jobs
Australia’s future prosperity depends upon a government as ambitious and bold as Australians themselves.
A government that believes in writing the country large.
Building the big things, and backing the big ideas.
A government investing in the national interest.
This is what a Labor Government will do: in infrastructure, innovation and education.
And when we get the market right.
Just like when we get the market right for climate change and emissions.
The world will be investing here.
The world will be investing in Australia’s ambition.
This is Labor’s vision – unlocking the great savings of our nation.
Ensuring Australian savings help build: modern industries, liveable cities, vibrant regions, productive enterprises and strong communities.
This is the future Labor will build, to advance Australia.
ENDS
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