Mark Birrell: reforming infrastructure to 'right reasons at the right time'

By Mark Birrell

September 15, 2014

Infrastructure is fundamental to the national economy and it underpins both economic and social wellbeing. It helps define our national identity, because our infrastructure aspirations are a reflection of our ambition as a country.

Australia is already acknowledged as having among the world’s most sophisticated infrastructure and construction sectors. Correctly so, given our national legacy of past reforms to the procurement and regulation of infrastructure assets, and especially the creation of infrastructure markets.

But it is increasingly obvious to users, providers and policymakers that infrastructure reform must go further. There is now something of a national consensus that infrastructure is an economic and social policy opportunity that Australia has to use this decade to seize.

Therefore the challenge to each of us, and the guiding challenge for Infrastructure Australia, is to distil this infrastructure consensus into an actionable program of well-led and carefully articulated enabling policies; which progressively deliver much-needed projects across the federation.

Reforming the infrastructure federation

While I am optimistic about the outlook for infrastructure, and our collective opportunity to drive change and win real benefits, I am also realistic about the degree of change that will be needed.

Since federation, Australia’s infrastructure has been viewed within a context of state assets and state requirements. This is a legacy of a constitution that limited the federal government’s infrastructure responsibilities to those few sectors that affected commerce between the states, or were trans-national in nature (even in 1901).

In effect, the constitution left us a legacy where the national government’s role for infrastructure was limited to telecommunications, interstate freight and aviation.

While these neat divisions were often over-ridden by the practicalities of commonwealth-state financial arrangements, the role of the national tier of government as the dominant source of funds (and increasingly as a source of formal project approvals) has only become clear to all in recent years.

But the rise of the central government, and the imperative of national networks and markets, has not always been matched with corresponding corrections to structural accountabilities, funding sources or project management capabilities.

This has been compounded by the recent problems of declining state government budget settings. And while Canberra has emerged as a welcome source of alternative budgetary allocations, it has not always had the inherent skills to choose project recipients, let alone actually deliver such projects itself. This legacy adds rich complexity to the issues before us.

That is why Infrastructure Australia is an important structural reform — because if we perform our role well, we will better equip Australia to fully address the costly shortfalls in infrastructure.

These shortfalls have for too long depressed productivity and resulted in business performance and employment creation being compromised. Let us never forget our collective national experiences of:

  • Transport networks failing to keep pace with demand,
  • State-owned water and electricity utilities being unreliable or unreasonably costly;
  • Hospital facilities confounded by lengthening waiting lists; and
  • Freight corridors being neglected.

Observations like this are now so common, and immediately familiar, that they necessitate a strategic, national response.

But there is one particularly compelling reason for us to act: if we get our infrastructure right, we will protect Australia’s quality of life at a time of sustained population growth and global economic change.

Infrastructure Australia now independant

Against this historic federal context, Infrastructure Australia has been given a special mandate from the Prime Minister to resolve and advise on the range of solutions to better address the country’s infrastructure task. Our role is all the more substantive given the benefit of the agency’s permanence and independence under our new Act of parliament.

Our foundation roles are the completion of a fresh national audit of existing infrastructure, then using this assessment to distil a 15-year vision for Australia’s infrastructure. The audit is being produced with the engagement and support of all state and territory governments.

Ideas will be invited from the public, capturing the aspirations of those who are direct consumers of the many services that infrastructure delivers.

The 15-year plan, and the audit that informs it, are key outputs for Infrastructure Australia and form the immediate focus for the agency. These documents, done comprehensively and in a real partnership with governments and the broader business sector, will provide a much clearer picture of where the national interest is best served and what projects need to be fast-tracked.

And our infrastructure plan should give national economic policymakers renewed confidence and urgency toward enlarged and accelerated infrastructure investment.

It should also provide the community with a deeper understanding of the scale of the infrastructure task — and allow the community to directly share in the trade-offs and see why substantial reform is meritorious.

Our approach to the audit and the national infrastructure plan will be driven by our positive belief that Australia’s infrastructure gap can be filled. Indeed, smarter regulation and more efficient investment could equip Australia to get substantially more from the infrastructure that we already have – and marshall a measurably larger capital funding envelope to deploy to major projects.

In our work, we will be seeking to bring forward infrastructure which:

  1. Strengthens our role as a globally focused economy, helping Australians export value-added products, services and resources;
  2. Meets our needs as a highly urbanised nation, enhancing the livability of our cities and fostering the skilled jobs and innovative businesses that cities create; and
  3. Underpins Australia’s prospects for sustainable growth, utilising the best of new technology and encouraging strategic planning and integrated land-use decisions.

Our success as an agency relies in part on the degree of rigour and the transparency that we are able to systemise into the selection of major projects.

A welcome aspect of the growing community understanding and consensus on infrastructure has been the expectation that governments undertake appropriate due diligence on each major project. A focus on the relative benefits and costs, together with clear articulation of the objectives that a project is expected to achieve, will drive better decisions and maximise the practical and economic effect of projects that are brought forward.

With our new legislation now in place, Infrastructure Australia will be required to record evidence of cost/benefits and reasons for the inclusion of any major projects on our national infrastructure pipeline. IA’s toolkit assessment will look at economic, social and environment factors.

Evolving out of all this will be an observable and better respected prioritisation process and a highly credible pipeline of nationally significant projects.

Across the nation we should be able to ensure that new infrastructure is constructed for the right reasons at the right time.

While the development of a well evidenced and ambitious 15-year national infrastructure plan forms our foundation output, it is only the beginning of our program of reform.

The funding imperative

We know that the missing piece in infrastructure is as much about our capacity to pay for it, as it is about shortfalls in planning, procurement or operational efficiencies. For this reason, Infrastructure Australia under my leadership will bring a much stronger focus to canvassing the great constraint on progress: funding.

With the guidance of my new board, the wisdom of the national and state treasuries — and the contribution of the business sector — Infrastructure Australia will seek to provide wise answers on what is needed in infrastructure, and what can be afforded.

A primary task must be to expand the total funding base for new infrastructure, and to create effective market mechanisms that signal efficiently for, and sustain, new capital investment.

The current debate about funding sources and privatisations should be encouraged. Australia can certainly better utilise private sources of capital, including superannuation funds, particularly through their appetites for privatised assets.

Selling or leasing old assets like ports and energy facilities allows the proceeds to be immediately redeployed to fund new projects, like public transport systems or freight networks. Handled well, the multiplier effect of these initiatives will be considerable and long lasting.

Of critical importance, the consumer price benefits in markets like electricity will also be substantial — because of the better disciplines and incentives that have been proven to apply to utilities under private ownership.

So the discussion about asset recycling is vital, because it offers the breakthrough we need in the immediate term.

Immediate and longer term

No one would pretend that the sale of capital assets and reinvestment of the proceeds is the sole solution to infrastructure funding. This initiative must be accompanied by a longer process to realign costs and revenues on public sector balance sheets to increase general fiscal capacity — together with targeted reforms in specific infrastructure markets to create better linkages between access prices and investment.

Australia is lucky in this regard, because of the benefit we will derive from the array of substantial national policy reviews that are underway.

Processes like Ian Harper’s current review of national competition policies; the committed reviews of the tax transfer system; and the Federation white paper. These major review processes look set to be very important, and many will require a high degree of community education, before implementation can become politically or practically feasible.

This is where Infrastructure Australia will play a much more substantial role over the medium term, because we are the standing agency for infrastructure reform — meaning that we will can help interpret these recommendations into a logical and ambitious reform program.

We can remain as a national champion for complex changes, long after the momentary media or political focus has moved from these reports and their complex recommendations and on to new issues.

Infrastructure Australia was designed purposefully to have two roles: the interrogation and articulation of national project priorities; and as a standing commission on the efficiency of key infrastructure sectors.

Infrastructure Australia will play an important role in distilling the recommendations across this constellation of white papers (and earlier documents like the Henry Review, with its excellent consideration of road pricing reform, for example) into an actionable program of debate, resolution, reform and policy implementation; all over the long-term.

And we will continue to advise Canberra — which has historically been viewed as remote from the practicalities of project delivery and network operation — on how the national government can evolve in its role as the true, new leader in infrastructure policy.

Indeed, our most transformative impact in Canberra will be by advising on how a smart, well-motivated national government can use its capital investment priorities and its powers to leave a lasting legacy of major project delivery.

This will be sustained through significant enabling reforms to infrastructure markets, through a sensible review of funding approaches and prioritisation methodologies; and, in the immediate term, through Infrastructure Australia being a reform partner to state and national governments.

Australia can now get beyond a talking phase — and enter an exciting period of national progress on infrastructure planning and delivery.

The broad public consensus that infrastructure solutions must be found provides powerful strength to the arm of reform-minded policymakers. And failure to reform current practices would mean that we miss the real opportunity to increase the efficiency, quality and reach of the nation’s infrastructure.

Infrastructure Australia has been asked by the Abbott government to help it and others deliver better practice and better projects. To this end, we will foster a deeper and more sophisticated public policy debate about how to secure ambitious national social and economic policy outcomes.

Our aim can be reduced down to one meaningful goal: to use infrastructure to set Australia up for a higher standard of living. It’s a goal worth getting behind.

This is an edited transcript of Mark Birrell’s address to Infrastructure Partnerships Australia annual conference on September 12 in Melbourne.

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