Action Plan for Enduring Prosperity: Fifth Column in The Australian

This opinion article by BCA Chief Executive Jennifer Westacott was published in The Australian on 7 September 2013 under the title ‘Infrastructure the Top Priority for New Government’.  It is the fifth in a series of columns exploring the Business Council of Australia’s Action Plan for Enduring Prosperity.

Of all the issues the next Australian government is going to have to deal with to get the country back on track, infrastructure is close to the top of the list. There are three core reasons for this.

Firstly, Australia’s population is growing at 1.5 per cent each year. If our cities are to be more liveable, productive and sustainable in the future, infrastructure has to keep pace by providing the transport, water, energy, communications and social services that go a long way to determining people’s quality of life. We have not done this well. Congestion and inconvenience have sapped community confidence that we can grow our economy and our population while maintaining, let alone improving, living standards.

Secondly, infrastructure is vital if we are to lift our productivity, particularly by improving our gateway transport infrastructure such as our ports, freight connections and airports.

The third reason infrastructure has climbed so high up the list of reform priorities in Australia is the urgent need to keep investment flowing and the economy growing as the construction phase of the resources boom starts to tail off.

As resources projects move to the operational phase, and as some projects drop off due to high costs and lack of competitiveness, we’re going to see a contraction in business and in jobs. This will be felt most acutely in the engineering construction sector, which is projected to experience a real, cumulative loss of spending of about $40 billion over the next three years.

But other sectors strongly connected to the resources boom, including transport, warehousing, manufacturing and business services, are also needing to adjust.

So we need to get infrastructure moving, along with both private and public investment, so we can keep our economy strong and improve our living standards.

The BCA’s Action Plan for Enduring Prosperity estimates new infrastructure investment of more than $760bn is likely to be needed over the next 10 years. That amounts to new private and public spending of at least 4 per cent of GDP a year.

We welcome the fact that infrastructure has featured strongly in the election campaign. Whoever wins government today will need to act decisively to secure the infrastructure investment Australia needs to support the country’s long-term prosperity. This should be founded on the philosophy that has underpinned policy reform over 20 years that the private sector is best placed to deliver infrastructure.

The next government needs to recognise that there’s no magic pudding for getting this done. It will take a decade of hard work to sort out how Australia prioritises, plans and pays for our current and longer-term infrastructure needs.

Governments need to engage the community in all of this and inform people about why infrastructure investments are in the local and national interest.

Providing the infrastructure that does what Australia needs it to do into the future requires the multi-faceted approach covered in our action plan. This approach must encompass the following broad actions.

1. Develop a new national infrastructure policy that clarifies the roles and responsibilities of each level of government and the private sector. That is, sort out who does what.

2. Move to private sector provision and full cost recovery with a regulatory system that allows the private sector to make an adequate return while protecting consumer interests.

3. Strengthen the independence of Infrastructure Australia and have it generate a national list of priority projects focused on lifting productivity. It needs to develop its own views, not just be a clearing house for proposals by state governments.

4.The commonwealth should work with the states to identify a rolling pipeline of high-quality public infrastructure projects, backed by cost–benefit analysis. That is, projects that are ready to go and that offer the private sector a clear incentive to invest.

5. States should produce regular 15-year infrastructure plans that provide a prioritised pipeline of projects for private investment, linked to their fiscal strategies.

6. A new federal–state infrastructure funding agreement should spell out funding responsibilities for projects and types of funding support (grants, availability payments, concessional loans, loan guarantees, etc). The priority should be for full cost recovery and user pays.

7. Federal government to lift its funding contribution by reprioritising spending in the budget and diversifying its funding sources. These monies should be placed in the Building Australia Fund and only spent on Infrastructure Australia approved projects.

8. Build expertise to find innovative ways to encourage private sector investment through better risk-sharing, particularly in the early, more volatile stages of a project. Also encourage the implementation of unsolicited proposals frameworks that encourage ideas from the private sector.

9. Privatise remaining infrastructure businesses to improve efficiencies and innovation, and to raise funds to invest in new projects.

10. Work to reduce the costs of delivering major infrastructure projects.

This last point is probably one of the most important to lock in projects already under way, bring on the next wave of investment and encourage planning for the future investments we need. Governments need to understand that if cost or policy factors lead to projects being delivered poorly or not at all, then we will not receive the revenue and productivity benefits and it will be harder to attract future investment.

This will require a focus on reducing the cost of environmental approvals, lifting workplace productivity and continuous improvement in project management. An urgent priority is to restore the Australian Building and Construction Commission.

Getting infrastructure right is not just about announcing a new list of projects. It means fixing the systems so that we are continually planning, prioritising, funding and delivering projects to meet our infrastructure needs. These are challenging issues but surmountable.

Quality infrastructure is one of the hallmarks of a prosperous society. Our action plan offers a picture of what Australia can be in the future and actions that will give us the infrastructure to support it.