Thank you for the introduction, Simon.
And thank you for inviting me to speak at this event, which I see is billed as Australasia’s foremost debt and foreign exchange conference.
I’m delighted to have been asked to speak today about infrastructure because a significant focus for the Australian Government, in this our year of G20 presidency, has been the establishment of a Global Infrastructure Initiative to increase the quality and quantity of infrastructure investment around the world.
The Treasurer first flagged this initiative at the G20 Finance Ministers meeting, here in Sydney, in February of this year and he and I have been working since to bring it to fruition.
The B20, through its own working group, identified a similar need and put forward to Finance Ministers in July the need for an infrastructure hub.
At the recent meeting of G20 Finance Ministers in Cairns, Australia secured agreement for a Global Infrastructure Initiative, with the final details to be agreed at the G20 leaders meeting in Brisbane next month.
Before going into more detail about the infrastructure initiative and how it will work in practice, I would first like to provide some background on why the Government sees infrastructure investment as so important to Australia and the worlds’ economic future, and why we think the private sector is best placed and most suitable to undertake the lion’s share of this investment.
Over the coming decades the world demand for additional infrastructure investment will be immense, and without this investment, global growth would be significantly lower.
The B20, the business forum established to advise the G20, estimates that $60 to $70 trillion is needed for investment in infrastructure around the world by 2030 just to maintain growth at the current rate.
This is equivalent to around $4 to 5 trillion each year.
Worryingly, it is at least $1 trillion per year more than is currently planned to be spent, leading to a significant shortfall in investment that could put a major brake on global growth.
Clearly, something needs to be done to address this gap.
And it’s not just the B20 saying there will be a shortfall in infrastructure investment.
In 2013 the McKinsey Global Institute estimated that $57 trillion in infrastructure investment will be required between now and 2030 just to keep pace with global GDP growth. Anything less would significantly slow global growth.
This is nearly 60 per cent more than the $36 trillion spent globally on infrastructure over the past 18 years.
Significantly, these estimates are actually at the bottom of the range of estimates of the global infrastructure deficit.
Back in 2010, the World Economic Forum's Positive Infrastructure Report highlighted that the world faces a global infrastructure deficit of a whopping $2 trillion per year over the next 20 years.
To put that number into perspective, $2 trillion is roughly equivalent to the combined GDP of Australia, New Zealand and Singapore.
Or to put it another way, it’s also equivalent to around 5 times this year’s entire federal budget.
That is a massive deficit to bridge, and one that only positive action by the worlds’ governments can solve.
However, let me make it clear, this is not just about additional investment for investment’s sake, it’s about the right investment into the right infrastructure which is actually going to add to the productive capacity of the economy.
If you don’t invest in the right infrastructure you may as well be washing money down the drain.
This is not about ill-considered measures to temporarily prop up the economy, it’s not about school halls or pink batts, it’s about making sure the economy has the infrastructure in place to allow the economy to work at its productive potential.
It’s about the transport infrastructure that will allow products and people to be moved in the least-cost, most efficient way.
It’s about the energy networks that will allow businesses and households to access the energy that they need at a competitive price, and which will not charge them for gold-plated networks that they will never need.
And it’s about communications infrastructure that will meet the needs of businesses and the community without leaving a mountain of debt for future generations to pay off.
The case for increased investment in the sort of high quality, productive infrastructure Australia needs has been firmly established.
In recent years there has been countless reviews, inquiries, commissions and reports pleading for a change to the way infrastructure is funded and managed in this country.
This year alone, two significant independent reviews commissioned by the Government have recommended changes to the way infrastructure is delivered in Australia.
The Productivity Commission inquiry into public infrastructure, released in July, and the National Commission of Audit released in March, both observed that infrastructure governance, project selection and setting project priorities in Australia was deficient, and that reforms to this process were required.
The Commission of Audit and the Productivity Commission both noted that, where possible, infrastructure should be funded through user-charges and that Government should only invest in infrastructure where economic and social benefits exceed commercial returns.
If a project is likely to generate a financial return of any form, there is no reason why the private sector should not be able to invest in that project.
This Government believes where there is no compelling reason for assets to be under government control, then the private sector should be provided the opportunity to invest in that asset.
By encouraging private investment in infrastructure, the Government is unlocking a massive pool of potential infrastructure investment, while also reducing the financial burden on future generations of taxpayers.
As outlined in the 2014-15 Budget, the Government is strongly committed to delivering the infrastructure that Australia needs to improve the productive capacity of the economy and underpin long term growth in incomes.
That is why the Government has committed to delivering over $50 billion of infrastructure investment to 2020 as part of its Infrastructure Growth Package.
The Infrastructure Growth Package is targeted at removing well known infrastructure bottlenecks that are constraining growth in the Australian economy.
Projects that will receive funding include the WestConnex project here in Sydney, which will finally link the Western suburbs with the city and port, and the massive East West Link in Melbourne.
These projects, along with the many other projects funded by the Government as part of the Budget, will transform the safety, efficiency and security of transport in Australia.
The Infrastructure Growth Package also includes $5 billion for the Asset Recycling Initiative, which provides financial incentives for state government to privatise assets.
The Asset Recycling Initiative is expected to support close to $40 billion of new infrastructure investment from the private sector and state governments.
The Treasury estimates the Government’s total infrastructure investment commitment in the Budget will catalyse overall infrastructure investment in excess of $125 billion by 2020.
The Global Infrastructure Initiative
This brings us to what Australia is doing to support other countries fix their infrastructure deficit.
Our Government’s initiatives to encourage private sector investment in infrastructure can also be utilised around the world to address the infrastructure deficit.
That is why Australia is driving the Global Infrastructure Initiative, which encompasses the G20’s multi-year infrastructure agenda.
The Initiative includes G20 member countries’ individual commitments as well as the collective actions which can be taken by Governments to improve the general investment climate and encourage private sector participation in infrastructure investment.
A Global Infrastructure Hub is being developed as the implementation mechanism for the Initiative.
As identified earlier this week by Telstra CEO David Thodey, who is the Coordinating Chair of the B20 Infrastructure & Investment Taskforce, one of the biggest infrastructure investment issues facing the world at the moment isn’t a lack of available funding, in fact, far from it.
Record low interest rates and a huge and growing savings pool around the world means there should be no funding gap.
The real gap is in the information available to investors and governments, and, ultimately, the availability of investable infrastructure projects.
Addressing this gap will be the task of the Hub.
The Hub will be a knowledge sharing platform and network to facilitate collaboration between governments, the private sector, multilateral development banks and international organisations in order to increase investment in quality infrastructure.
The Hub will address key data gaps for potential private sector investors to make sure that such investors have full knowledge of available projects.
The Hub will develop voluntary model documentation to outline best practice project development approaches.
It will also develop and maintain a consolidated database of infrastructure projects.
And the Hub will help to build the technical capacity of government bureaucrats in infrastructure investment.
Ultimately, the Hub will help drive private sector investment in the high quality, productive infrastructure that Australia and the world needs to continue to grow and prosper into the future.
While the Government is strongly supportive of the development of the Hub and the role it will play, we also wish to make clear that the Hub has a clear objective and it will be tightly focused on that objective.
Too many initiatives have become mired in scope creep and unclear objectives. This will not be the case with the Hub.
It will have a well-defined and time limited mandate from the G20 to deliver the specific elements of the broader Global Infrastructure Initiative that I outlined above.
The Government is committed to ensuring the Hub works closely with international organisations in a structured network to leverage their expertise and build on their existing work.
So, in short, the work of Australia as G20 President is driving enormous opportunities for infrastructure public private partnerships across the globe.
I hope you will watch the further developments of the Global Infrastructure Hub with interest.
Once again, thank the Commonwealth Bank for inviting me to speak today on what is an exciting time for infrastructure development in Australia and the world.