Speech to the Sydney Fast Rail Conference

Congratulations to Sydney Business Chamber Western Sydney and Parramatta Council for organising today’s forum.

The discussion about the prospects for improved rail connections between the Sydney and Parramatta CBDs and the new Western Sydney Airport is a very important one. 

I can certainly understand the interest of many stakeholders in whether that connection would involve high speed rail.

Shortly you are going to hear from my colleague Angus Taylor, Assistant Minister to the Prime Minister, who has specific responsibility for the cities portfolio.  Angus and I work very closely together, and I will leave it to him to articulate the broader public policy rationale for the Turnbull Government’s very strong interest in cities policy.

Clearly, though, transport infrastructure is a critical part of the effective operation of a modern city.

Today, therefore, I want to first speak about the importance of transport – particularly public transport – and the approach of the Turnbull Government.

Secondly I want to speak about Western Sydney Airport and the role of rail policy.

In the last part of my remarks, I want to touch on the challenge of funding public transport infrastructure – and to discuss the potential of value capture as a method for contributing towards this challenge.

The Turnbull Government and Public Transport

Let me turn firstly, then, to the question of why the Turnbull Government is interested in public transport.

At the outset I want to correct the simplistic argument from some that the Abbott Government was not prepared to fund public transport.

In fact, under the $4.2 billion Asset Recycling Initiative significant capital has been allocated towards public transport. 

Nearly $2 billion has been paid to the NSW Government, and of this nearly $1.6 billion will go to three rail projects that will improve the efficiency of Sydney’s urban rail system, such as the 30 kilometre Sydney Metro-City and Southwest, which will deliver a new rapid transit rail line under Sydney Harbour, through the CBD and to Bankstown.

Once it begins operation in 2024, this project will remove a major bottleneck in the city, allowing up to 60 per cent more trains every hour across the network.

The Abbott Government also provided continuing funding for passenger rail projects including $2.7 billion towards the Regional Rail Link in Victoria which was completed in June 2015 and $583 million towards the Moreton Bay Rail Link due for completion in mid-2016.

More recently, Prime Minister Turnbull has made it clear that his government will determine the funding of transport infrastructure projects on their merits, regardless of mode.  An early example was the decision in October last year to provide funding of $95 million towards stage 2 of the Gold Coast Light Rail Project.

One factor which informs our thinking is the importance of public transport to provide connectivity to densely populated areas of our cities, particularly as our economy transforms.

A key force in the Australian economy is the growth of knowledge-intensive businesses, which are increasingly concentrated in central business districts.

Sydney and Melbourne have combined CBDs of just 7.1 square kilometres in area, yet they create almost 10 per cent of the total value of Australia's goods and services.

The data suggests that the economic value generated in a geographic area is correlated to the density of people working there.

According to the Grattan Institute, in 2011-12 Sydney CBD produced $100 in value for every hour worked there; and Parramatta, as the second CBD in the Sydney conurbation, produced $68 for each hour worked.

The rate at which Australians use public transport depends very much on where they live and work.  About 70% of journeys to work in the Sydney CBD occur on public transport; in North Sydney it is over 50%. 

By contrast, those commuting to jobs in the suburbs are much less likely to use public transport.  In the outer suburbs of Perth, for example, over 80% of trips to work are by car.

If we are seeing a densification of our cities and inner city areas, and if this is linked with underlying economic trends, then providing efficient transport connections to and from these areas is increasingly important.

The data shows that ridership on trains in Australian cities is increasing strongly.  Across Australia the ‘annual passenger task’ has more than doubled for heavy rail since 1980. 

According to the publicly released business case for the Melbourne Metro project, patronage on the Melbourne network will continue to increase over the next two decades and average weekday boardings on metropolitan trains is forecast to double from 2011 levels to 1.5 million by 2031.

If public transport infrastructure is necessary to support economic growth and activity – it is also a driver of economic growth.  A good example is the Chatswood to Epping rail link in Sydney.  This was announced in 2003 and opened in 2009, with new stations at North Ryde, Macquarie Park and Macquarie University. 

According to a study commissioned by the Tourism and Transport Forum, the total economic output of Macquarie Park rose from $4,684 million in 2002 to $9,113 in 2013, with the rail connectivity being a major factor in attracting new business activity to the area.[1]

As the Turnbull Government considers future transport infrastructure projects, we are very conscious that such projects, if wisely chosen, can stimulate growth and economic activity. 

We are also conscious that globally cities are competing – and transport infrastructure is a key part of the competitive offering.  If we want to attract and retain people with global skills – so important to our competitiveness in a knowledge economy – we need cities which are attractive, liveable and vibrant.

On a recent visit to San Francisco and Silicon Valley – one of the pre-eminent urban areas in the world when it comes to the ability to attract global talent – I saw first-hand the key role public transport infrastructure is playing in regenerating large parts of the San Francisco Bay Area conurbation in which 7.5 million people live.

The $4.5 billion Transbay Redevelopment Plan and Transit Centre project brings together 11 local, regional and state-wide transit systems in a central hub.  But it is much more than just a new terminal building for rail, light rail and bus. Downtown San Francisco is being transformed by a landmark multi-modal transportation station, and new parks as a new neighbourhood, in the heart of the financial district. 

Western Sydney Airport and Western Sydney Rail

Let me turn to another huge project - Western Sydney Airport – and the future role of rail.

Developing a second airport in Sydney's west has long been acknowledged as a priority, but it has taken the Abbott and Turnbull Governments to make the commitment.

In the early years after the airport begins operations in 2025, passenger numbers are expected to be modest, at around five million a year.  This level of traffic will not be sufficient to justify a rail connection.  From the day it opens, though, the airport will have excellent road connectivity.

The $3.6 billion Western Sydney Infrastructure Plan, jointly funded with the NSW Government, is directed to achieving this objective.

In January the Werrington Arterial Road, linking the M4 Motorway and the Great Western Highway, hit the halfway point in its construction. It will provide a new connection to the M4 and help reduce congestion on the north-south corridors of Mamre Road and The Northern Road. 

Early works are also underway on Stage 1 of the $1.6 billion upgrade to The Northern Road – and works will ramp up there over the coming months.

We will also build the new M12 motorway connection, connecting the airport to the M7, in time for the opening of the airport.

As passenger numbers at the airport rise over time, the case for a rail connection will grow much stronger.  One reference point is Sydney and Brisbane Airports, which were first connected to suburban rail networks in 2000 and 2001. 

In 2012 Sydney Airport had 37 million passengers a year compared to the 5 million a year expected at Western Sydney.

Around 17 per cent of Sydney Airport users travel by train; for Brisbane Airport it is 10 per cent.  In both cases the rail link operator has struggled to make commercial returns over time. 

Of course a future rail line to Western Sydney Airport will not solely serve the airport.  Extensive new development is expected around the airport – commercial, industrial and residential – some catalysed by the airport and some reflecting existing growth drivers. 

In the next twenty years the population of Western Sydney is expected to increase by around one million people.  A new rail line will also help meet the transport needs of people travelling to and from these areas.

To weigh up all of these factors, late last year we announced the Australian and NSW Governments’ Joint Study into Western Sydney’s rail needs.

This study will consider both the Western Sydney Airport site and surrounding region as a whole, including Western Sydney's long-term rail future.

The study will investigate the best options for a rail link – the right route, when to build it and how best to fund it.

The study will look at the need, the timing and the service options for rail investment.  This will include considering different rail connections, travel speeds and types of train service.

The solutions vary in scale but could include extensions to suburban lines and metropolitan line links between the airport site and another transport hub in the Sydney basin.

I have been interested to see various parties in the media advancing ideas and options for the rail link.

Some of the options being talked about include a Leppington extension, a Sydney Metro extension and a dedicated high speed rail connection through Parramatta. 

These options will all be considered as part of the scoping study and interested parties will have an opportunity to contribute more formally to this process in the coming months.

The study is an opportunity for ideas to be captured and evaluated.  I certainly encourage anybody who has ideas to come forward and make a submission.   

On the airport site itself, we are ensuring that the airport is rail ready – by incorporating a station box and tunnels, ready to connect with a line when it is built.

The Challenge of Funding Public Transport Infrastructure

I mentioned that one of the issues the study will investigate is how the rail connection is to be funded.  This is a challenge for all public transport projects, because the capital costs are very high – and most public transport networks in Australia do not generate enough fare revenue to even cover operating costs, let alone contribute to capital costs. 

This was a topic discussed at some length in the Infrastructure Australia’s 15 year Plan which was released last month.

The Plan recommends considering broader options for public transport such as increased cost recovery and value capture. 

Infrastructure Australia’s recommendation aligns with the Principles for Innovative Financing whichI released in conjunction with the 15 Year Plan.

In these principles, the Turnbull Government sets out an expectation that at least part of the cost of infrastructure projects should be met by those who benefit most directly from the infrastructure.

Infrastructure Australia argues that state and territory governments need to be prepared to take this kind of policy action to generate funds towards the cost of their major infrastructure projects.

There is a long tradition of using value capture to fund heavy and light rail investment in many parts of the world – and an extensive literature.

The Bureau of Transport and Regional Economics looked at the issues in a 2015 paper, Transport Infrastructure and Land Value Uplift.

It defined the process as governments levying a proportion of the increase in the unimproved capital value of private land due to public transport infrastructure investment.

The Australasian Railway Association argued in a recent paper, Innovative Funding and Financing for Public Transport that governments in Australia will need to establish alternative funding sources for public transport whilst ensuring that the private sector plays its part.

One commonly cited example is Hong Kong, where MTR corporation is both a property developer and operator of the rail network.

I acknowledge that the New South Wales Government has been doing a lot of work on value sharing, to use its preferred term.

On my recent visit to the US, I was interested to learn about the various value capture techniques used to fund public transport.

In San Francisco, private developers are contributing to the cost of the new Transit Centre in the knowledge that their own properties will be more valuable in a more vibrant area – and will have first class transport connections to virtually every part of the Bay Area. This is occurring through various mechanisms such as purchasing rights to develop buildings which are higher than would otherwise be permitted, with the payments going into a fund which contributes to the cost of the new centre.

As we think about Western Sydney Airport and the challenge of funding a rail connection, it seems to me there are several reasons why value capture offers potential to assist in funding the provision of a rail connection sooner than might otherwise occur.

The first is that the land is largely greenfields – that is, it does not presently have residential or commercial development on it.

Secondly, there will be a clear path forward to the area becoming much more developed, with economic activity catalysed by the airport and by new ground transport connections. Property owners could therefore see a direct link between a contribution they made towards the cost of a rail link – and the likely increase in value of their property.

A third factor which reinforces this is the wide range of possibilities for the route of a rail connection. Hence a property owner will be able to weigh up a scenario where a station is built near to his or her property – and one where it is not.

If you have a choice between on the one hand contributing towards the cost and being close to a station, or on the other hand not, you can pretty clearly see the economic value you get.

In coming weeks the Turnbull Government will issue a discussion paper seeking feedback about value capture – and how we could encourage its use.

Some of the questions we will be asking include :

• What is value capture and why should we use it?
• Should the public sector be bolder in employing value capture and are more city level powers critical to this?
• How should public sector organisations use their own property assets to realise value uplift?
• What role can the Commonwealth play in this space?

On this last point, one possibility is the increased stamp duty or property tax revenue a state can expect to receive, or rates revenue a local council can expect to receive, over say a twenty year period, if for example a new train station sparks increased property values and densities around the station.  Is there scope for the Commonwealth to offer a loan secured over this incremental revenue stream – much as today we have offered a loan secured over toll revenues to fund WestConnex. 

Conclusion

In conclusion, thank you for the opportunity to be part of this forum.

Infrastructure has a long life. The decisions we make today will impact our economies and shape our cities well into the future.

I look forward to hearing the outcomes of today’s forum, and this group's ongoing engagement in the growth of Western Sydney and its transport infrastructure.

[1] Tourism and Transport Forum and PWC, Better Public Transport, Better Productivity: The Economic Return on Public Transport Investment