Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Nation Building and The Future Economy
Address to The Infrastructure Association of Queensland Lunch
9 September 2008
Thank you for that welcome and for providing the opportunity to speak on something of deep personal interest to me and of great policy interest to the Rudd Government - improving Queensland's and the nation's infrastructure.
We know the modern, competitive economy we're trying to build depends on 21st century infrastructure - a key part of our efforts to get the domestic economic fundamentals right in a slowing global economy.
Can I begin by acknowledging IAQ Chairman, Jeremy Prentice, and IAQ Executive Director, Paul Clauson.
And from all the familiar faces here today I want to single out for a special mention, my friend Anthony Chisholm, State Secretary of the ALP. I mention him because it is worth saluting the close relationship between the forward-thinking business community and Labor in this state.
Yesterday in Brisbane, I met with the Council of Mayors of South East Queensland - representing eight councils including Brisbane, Ipswich, Logan, Toowoomba, the Sunshine Coast and more.
And that meeting proved two things to me: One, it turns out it is possible to spend $20 billion on infrastructure in a 30 minute meeting - a billion dollars every 90 seconds! And two, never stand between eight mayors and councillors and the multi-billion dollar Building Australia Fund!
That meeting really was, for me, another illustration of just how acute our capacity constraints are, and the magnitude of the challenge to fix them. This is especially the case here, in Queensland.
I want to take this opportunity to commend Anna Bligh on her Government's plan ‘Towards Q2, Tomorrow's Queensland'. At the launch yesterday, she set the goal of being the strongest growing economy in the country by continuing to invest in infrastructure, driving competitive tax arrangements and building confidence in this economy.
Anna and Kevin and I have at least one thing in common - we're obsessive about infrastructure and obsessive about nation building. And the main reason I'm here today is to give you a bit of a tour of those nation building plans - the role of Infrastructure Australia, the Building Australia Fund, and what they mean for how you go about your business.
Like many of you who grew up here in Queensland, I have seen it change almost out of all recognition in our lifetimes. In what seems like no time at all, we've gone from a state not taken seriously down south to a booming, influential centre of prosperity and good government. From a place stuck in the past to the smart state of the future.
And when people now think of Queensland they're as likely to think of the growing cosmopolitanism of central Brisbane as they are of our famed sun and surf, the outback and the long trains full of resources making their way from mine to port.
This transformation has been made available by the proceeds of economic growth, and particularly of the resources boom. The success has been enormous. But we can't rest on past achievements. We can't be lazy or complacent about future prosperity, especially given the population pressures we face, and the global economic challenges that have landed on our doorstop in recent months.
You'd all be aware that Queensland's population is set to grow from its current level of around 4.2 million to nearly 6 million by 2032. That's a nearly 50 per cent increase over the next 25 years. The infrastructure implications of that are enormous.
And as a resource-rich state we will inevitably be required to make our industries and our lifestyle less carbon intensive. Our infrastructure will have to be cleaned up and re-tooled for the future. This urgent task is even more pressing given the global economic challenges we confront.
The fact is, every economy in the world is facing tough economic conditions today. The global credit crunch and global oil price shock have buffeted confidence and share markets around the world and are slowing global growth. We shouldn't be surprised that these global factors - together with ten consecutive interest rate rises under our predecessors - are slowing our economy and showing up in our economic indicators.
Last week's National Accounts showed our economy grew by 0.3 per cent in the June quarter, 2.7 per cent over the year. These are solid numbers considering the global challenges we're facing and what's happening to other developed economies.
And we have further reasons for optimism. We have a strong surplus, record terms of trade, and a nation building plan backed up with real dollars. We're on the doorstep of the emerging economies that will make this the Asian Century. And we have businesses investing in the future with confidence - as shown in the Capital Expenditure and National Accounts Figures, released in the past fortnight, showing very strong projections for investment.
But we also have substantial capacity constraints holding our economy back. That's one reason why we've long recognised the need to get infrastructure improvements moving here in Queensland and nationally. And it's why we have committed to a $76 billion infrastructure investment program, allocating funds for transport, utilities, communications, and social infrastructure. This includes $26 billion for roads and rail through Auslink and a further $41 billion for our nation building investment funds, including the Building Australia Fund.
These areas of investment will be key to lifting productivity and building the long term economic growth with low inflation that we are all seeking. The only responsible, long term strategy to deal with capacity constraints is genuine nation building and substantial investment in critical infrastructure.
It's within this part of my portfolio that I get to work closely with my good mate Anthony Albanese, the Minister for Infrastructure, Transport, Regional Development and Local Government.
Like me, Anthony's the type of guy who understands how important infrastructure is to the future of Australia and the future of the modern competitive economy we want to build.
Magnitude of the Challenge
We all know the Australian economy has been operating at closer to full capacity than it has been for many years. Demand has been growing faster than the ability of our human and physical infrastructure to supply it - generating inflationary challenges.
And terms of trade at generational highs also creates their own set of challenges. High international prices for non-rural commodities - particularly for iron ore and coal - have seen significant increases in business investment and production in these sectors. But judging from the bottlenecks in our supply chains, the ships waiting off Newcastle and Dalrymple Bay, and your own experiences, our export infrastructure is struggling to support this growth.
The BCA have repeatedly highlighted concerns about infrastructure bottlenecks in a range of areas, including rail freight networks, urban roads and electricity networks.
Let's consider a couple of facts:
- The Bureau of Infrastructure, Transport and Regional Economics estimates urban congestion could cost Australian families and businesses around $20 billion by 2020 under a ‘business as usual' scenario.
- And around $3 billion of that would be borne by families and businesses right here in Brisbane.
It's also important we consider the age of our infrastructure:
- The average age of Australia's public infrastructure has been rising since the late 1970s.
- As Australia underwent a major expansion in infrastructure from World War II through to the 1960s, the average age of public infrastructure was at its lowest in the late 1970s (about 16 years).
- And now the average age is around 20 years.
We are approaching the point where much of the large amount of public infrastructure put in place in the 1950s and 1960s will need to be renewed or replaced.
And when it comes to the ability of infrastructure to support economic activity, Australia is below the average of leading advanced economies - based on the index derived by the World Economic Forum in its Global Competitiveness report.
So we do have a massive task ahead of us to build new infrastructure and renew old infrastructure. But the economic benefits will be immense.
The Productivity Commission estimates that improving productivity and efficiency in energy, transport, infrastructure and other activities could increase GDP by nearly 2 per cent. And by specifically removing infrastructure bottlenecks alone, CEDA estimates we could raise Australia's GDP by 0.8 per cent per year.
There are three things we must do to achieve this kind of growth. The first - human capital investment - will be crucial. Getting our policy settings right in terms of population, education and training policies will help us to improve the size and skill of our workforce and overcome one of the biggest bottlenecks facing our economy - skills. The Rudd Government is addressing this through our Education Revolution investments now underway.
The second - regulatory change along with reforms to our industry policies, tax policy and competition policy frameworks - will also be vital. And this too is being addressed - through the COAG reform process and the Henry Review into the tax system that's now underway, both massive and complementary undertakings crucial to future prosperity.
But what I want to concentrate on here today is the third part of that equation - improving transport, communications and other physical infrastructure. It's not just about ‘new infrastructure'. It's also about the right infrastructure - planning the roll-out strategically, making existing infrastructure work better, and leveraging private investment.
Nation Building Fundamentals
I'm a great believer in the efficiency of market mechanisms combined with minimal and nationally consistent regulation.
I'm also a believer in a sensible role for government to correct obvious market failure and engage in nation building projects. In other words, we need to ensure that the right policy settings are in place to encourage efficient investment and, where appropriate, governments should make strategic investments themselves.
This national approach to decision making and rigorous cost-benefit analysis is essential, particularly in the current economic climate.
That's why we created Infrastructure Australia - to advise on our infrastructure gaps and bottlenecks. Headed by Sir Rod Eddington, its role is to bring together the private and public sectors, to provide a truly national approach to infrastructure development for the first time since Federation.
Let's just reflect on that for a moment. In over 100 years we have never had a coordinated national approach - makes you wonder why we don't have the ‘railway gauge' mismatch repeated dozens of times.
Our approach is a dramatic shift in Australia's national economic policy. Future infrastructure projects will be determined by the nation's economic needs — not short term political interests.
Infrastructure Australia will consider the adequacy, the capacity, the condition and the operation of our existing infrastructure through its National Infrastructure Audit to be completed by the end of this year. From this, it will produce an Infrastructure Priority List to guide future public and private investment and policy decisions by the Commonwealth Cabinet.
And finally, Infrastructure Australia is developing nationally-consistent best practice guidelines for public private partnerships. I will talk a little more about private sector investment and the role of PPPs in a moment.
We created Infrastructure Australia to engender public discussion on how we can improve planning and investment in infrastructure as well as improve the use of existing infrastructure. An indication of how fair dinkum we are about this process is the fact that my own Treasury Department coordinated an Australian Government submission to Infrastructure Australia. In it, we emphasised the important role of infrastructure in driving productivity growth and in meeting Australia's longer term economic challenges such as climate change and population ageing.
The submission identifies our main priorities as:
- Improving the adequacy and efficiency of the national transport system - in particular, improving the operation of Australia's strategic freight and export supply networks;
- Accelerating and implementing reforms to enhance national markets in both electricity and gas - particularly important for the effectiveness of the Carbon Pollution Reduction Scheme;
- Establishing a nationally compatible water market linking urban and rural water networks and improving pricing structures; and
- Policies to provide affordable access to telecommunications services.
State and Territories are also making submissions on their respective strategic infrastructure needs and priorities.
And I do want to remind you that public submissions are welcome, and it's these ideas from people like yourselves that will help guide future investments we make from the Building Australia Fund.
Building Australia Fund
As you know, we established the Building Australia Fund with an initial allocation of $20 billion. This is a significant new investment in Australia's productive capacity. It will help leverage many more billions of dollars in private investment by, for example, providing seed funding for projects that generate social returns above the commercial returns to the private investor.
This $20 billion will come from the 2007-08 and 2008-09 surpluses for future capital investment in transport and communication priorities. It will include up to $4.7 billion for a National Broadband Network roll-out to ensure Australians have access to world-class communication infrastructure.
Government decisions about investments from the Fund will be guided by Infrastructure Australia's national audit and national priority list. Drawdowns from the Fund will be used for efficient investment in infrastructure that boost productivity and support economic growth.
Private Sector Investment
But direct government investment in infrastructure is only part of the story.
As you know, recent infrastructure policies of all Australian governments have focused on creating competitive markets where public and private suppliers can provide infrastructure efficiently. You may not realise this, but private sector investment accounts for around half of total infrastructure investment in Australia.
While recent falls in survey measures of business confidence suggest that business is concerned about future economic conditions, a better gauge of business sentiment is business investment intentions. In particular, the most recent ABS data for business investment intentions reveals that business expects to invest around $100 billion in 2008-09. This is massive. A record high.
Business is a crucial partner in the provision of Australia's infrastructure - and despite the doom and gloom in the daily political commentary, business is investing in the future with confidence.
As I noted earlier, the Building Australia Fund does not represent investment in new infrastructure of $20 billion alone. Billions of additional State Government and private sector investment can also be expected through the use of public private partnerships.
Public Private Partnerships
The private sector will play an increasingly important role in strategic infrastructure provision.
Governments are, of course, making increasing use of PPPs to deliver infrastructure services, in partnership with the private sector.
Consider, for a moment, this fact: ABN Amro estimates that up to $80 billion of public infrastructure investment over the next decade will be undertaken through PPPs. That just underscores how vital it is for us to improve the efficiency and consistency of how these partnerships are used.
Which is why Infrastructure Australia is in the process of developing national best practice guidelines for PPPs. These guidelines will help address the inconsistent, complex and sometimes costly processes currently in place. They will also help ensure that taxpayers get maximum value for money from partnered investment in infrastructure.
There's an Infrastructure Australia discussion paper out on this issue and, again, I encourage you to participate.
Planning and Regulation
As you know, nation building depends on more than just money.
One of the key themes to emerge from the 2020 Summit was the need for Australia to move towards a national approach to regulation.
We are working with the States and Territories on integrated market-based reforms - especially in transport, energy and water markets - to improve price signals and facilitate the more sustainable use of scare resources.
And we'll need well-planned infrastructure to meet growing levels of demand. That's why the Housing Affordability Fund will provide $500 million, to State and Local Governments, for proposals that streamline planning and approval processes, or reduce infrastructure costs.
It is also why we have provided $75 million in 2007-08 for the States to undertake a series of extensive studies into projects that have the potential to tackle urban congestion and transform the productivity of our economy.
Already in the Pipeline
In addition to this, and in addition to the investment we plan through the BAF and by leveraging private sector money, we are also involved in nation building projects here in Queensland.
For example, there's the more than $22 billion in road and rail infrastructure through the new Land Transport Investment Program - "Auslink II" - which will run from 2009-10 to 2013-14. Of this amount, the Australian Government has announced commitments totalling $4.4 billion for Queensland.
And we're partnering with the Queensland Government to tackle urban congestion and planning now, rather than waiting until it's too late.
In May, we announced $13 million for a number of planning studies to enable the upgrade of the Bruce Highway. And we plan to spend nearly $2.2 billion to upgrade the Bruce Highway over the next five years.
Over $1.1 billion has been committed to upgrade the Ipswich Motorway from Dinmore to Goodna, and a further $455 million for the Pacific Motorway.
In total, commitments to projects in the Brisbane, south east Queensland and Sunshine Coast regions total more than $2.6 billion.
I hope I've given you today a decent tour of our nation building plans.
Let me leave you with these points: Through investments in AusLink, the Building Australia Fund, the Education Investment Fund, and the Health and Hospitals Fund we are building the foundations of the nation's economic future. Rest assured, this is a very serious, central component of our economic agenda - backed up with $76 billion of taxpayers' money.
We know genuine nation building means lifting the productive capacity of the economy - road by road, port by port, cable by cable, university by university.
We know modern, efficient infrastructure is like the veins and major arteries supplying the beating heart of the economy - the core of our prosperity.
For families it means less time in the car, and better education and training opportunities for the kids.
But it also means boosting productivity, lifting international competitiveness, and investing in our human capital. That's how we deliver a new generation of growth with low inflation.
Wherever possible we'll be getting out of business's way - by reforming the national regulatory environment through the COAG process.
Infrastructure Australia, the Building Australia Fund and a sensible attitude to public private partnerships will help us achieve the infrastructure goals the nation and business both want.
Let's be honest with each other today; the past decade has seen too little national leadership of this sort.
Forgive me for injecting a little bit of politics here, but you may have heard the former Treasurer on radio this morning - trying to promote his book.
Typically, he is trying to pretend he alone could have prevented the global credit crunch - that just smacks of arrogance. And he's trying to pretend the world economy isn't slowing faster than our own, or that consumer confidence isn't falling right around the world.
Unless his book has a chapter on inflation at 16 year highs, or ten consecutive interest rate rises, or failing to provide leadership on national infrastructure - I don't reckon it will be worth the 55 bucks.
This is the real story of the Costello Treasurership; squandered opportunities.
His short term politics and failure to see past the next election is what gave us the long term consequences that have fallen to the Rudd Government to fix.
He'll be forever remembered as the man who lacked the foresight to fix the roof while the sun shined. And the Australian economy, unfortunately for all of us, was left exposed by his personal neglect - of skills and infrastructure in particular. He was a shirker, when we needed a nation builder.
We simply shouldn't have the level of capacity constraints we have after more than a decade and a half of economic growth.
We're determined to overcome the years of neglect that saw the fruits of the resources boom squandered in favour of consumption.
I firmly believe the only long term strategy to deal with capacity constraints is genuine nation building and substantial investment in future growth. That's our commitment and we ask for your support, advice and cooperation as we go about building a more prosperous future.Thank you, and I look forward to your questions.