With union leader Paul Howes using a recent essay in The Australian Financial Review to support the idea, it seems governments and business and community leaders are increasingly united in recognising the merits of selling publicly owned assets to unlock funding for badly needed new infrastructure.
Experience has shown that the private sector can improve service delivery and deliver quality infrastructure more cost effectively, provided standards are set and contracted.
Also contributing to a rethinking of privatisation is the opportunity to draw on superannuation funds as an alternative source of infrastructure investment.
The time has come now to put this emerging consensus into action to deliver more and better infrastructure, and real benefits to people and the economy.
By our estimate, the task to deliver on infrastructure needs across the economy over the next decade could amount to more than $760 billion in real private and public investment, or about 4 per cent of GDP annually. The private sector can shoulder the lion’s share of this responsibility but governments will continue to have a substantial funding role when it comes to non-commercial or social projects.
Infrastructure Australia has identified over $100 billion worth of equity in commercial infrastructure assets that governments can recycle. Governments should be speeding up privatisation of appropriate public assets, and hypothecating the proceeds into dedicated federal, state and territory infrastructure. We should be seeing a virtuous circle where government funds are used to get good projects started and, once the asset is mature, it is then sold to the private sector.
Recycling capital by selling mature, publicly owned infrastructure assets to the private sector would allow governments to reinvest the proceeds in new green field projects. Of course, care must be taken in any privatisation to protect the community interest in terms of cost, quality of service and expansion as demand grows.
In negotiating federal investment in state projects, the federal government should encourage the state governments to sell existing assets. Finding buyers for these assets will not be a problem. Experience has shown that diverse investors, including those from offshore, are looking to put money into infrastructure.
Significantly, the superannuation system, now worth an estimated $1.6 trillion, is hungry for more infrastructure investments, with funds under management to rise to a staggering $6 trillion by the 2030s.
Super fund investment in infrastructure makes great sense, with long-term, steady and indexed returns matching the profile required to fund future pensions.
These should be voluntary investments. There is no case for mandating super investment in infrastructure. We should not be conflating the super funds’ sole purpose test to provide long-term benefits to members upon retirement, with other social or economic policy objectives.
This is the thinking that sits behind the NSW Restart Fund, and the sale of assets such as the Desalination Plant and the ports of Botany and Kembla. The proceeds from these sales are being used to fund tangible and visible improvements in infrastructure including WestConnex and renewal projects in areas like Wollongong.
The Labor government in NSW missed a great opportunity when it dismissed Premier Iemma, who recognised the necessity of privatising electricity sector assets as the only way to generate the funds for new infrastructure. Unfortunately those assets are now worth significantly less.
Work to implement new regulatory frameworks to enable the sale of transport and water assets should be progressed through COAG.
Governments should be encouraging more private investment in green field projects by properly dealing with the problem of early market risk. There are smarter ways to use the government’s balance sheet to do this and the Treasurer has indicated the government was looking to support private investment through loan guarantees. Unlocking opportunities for infrastructure investment is an idea whose time has come. The challenge now is execution.