Speech to the Queensland Infrastructure Summit

It is a pleasure to join you for the Queensland Infrastructure Summit.

Queensland is a fast growing state. Its economy is large and diversified - and the potential for the future, in sectors like resources, agriculture, tourism, education and other services, is enormous.

So it is vital that we are building the infrastructure to support and catalyse economic growth - and to make sure that Queensland continues to be one of the best places in the world to live.

Today, I want to talk firstly about how growth - particularly population growth - is a big driver of infrastructure needs, in Queensland as in many other places.

Next I want to talk about the respective roles of the federal government and state governments.

In the last part of my remarks I want to talk about increasing the role of the private sector in delivering infrastructure.

 

Growth and Infrastructure

Australia’s population is growing fast - our current annual population growth rate stands at around 1.7 per cent, among the fastest rates of any OECD country[1].

And as I hardly need to tell anyone who lives in South East Queensland, some parts of Australia are growing faster than the national growth rate.

According to the most recent projections from the Queensland Government, Queensland is growing at 1.7 per cent a year, South East Queensland at 1.8 per cent and Brisbane at 1.8 per cent[2].

Now growth is a good sign. Much of Queensland’s growth comes as people choose to move here from other parts of Australia. The quality of life on offer here is very attractive.

Population growth also helps drive economic prosperity, particularly as many industries need scale to be competitive. Look for example at the University of Queensland - being based in a large city gives it a big talent pool to draw on and lets it operate at sufficient scale to carry out world class teaching and research.

But as the population of a city or a state grows, its infrastructure needs to keep pace. On a recent visit to Texas, I saw a great case study of the positive feedback loop between population growth and better infrastructure.

Texas has a population bigger than Australia, at almost 28 million people, and is growing at about the same rate, 1.7 per cent a year[3].

The Dallas Fort Worth conurbation in northern Texas has grown from around two million people in the late sixties to over seven million today[4]. That growth has been both stimulated and supported by Dallas Fort Worth Airport.

The decision to build the airport was taken in 1966; it opened in 1974; and today it has over 60 million passengers a year, making it among the world’s busiest airports.

Many people have commented on the similarities between Texas and Australia - but some of the differences are also key in understanding our unique infrastructure challenges.

The distance between Texas’ second and third largest cities is about 400 kilometres[5]. In Australia it is 1700 kilometres - and of course we are building the inland rail route to span that distance.

Physical distance is one issue; population distribution is another.

In most of our states, the bulk of the population lives in the capital city. Sydney has 65 per cent of the state’s population, Melbourne 76 per cent, Adelaide 77 per cent and Perth 79 per cent[6].

But Queensland is different. Less than half of Queenslanders live in Greater Brisbane. This is why much of the Turnbull Government’s Queensland infrastructure spend is going to regional Queensland.

For example, the Townsville area will have the largest growth outside of South East Queensland over the two decades to 2031[7].

Last December, we signed the Townsville City Deal - a 15-year partnership between all levels of government and the community. Its centrepiece is the $250 million North Queensland Stadium, which will support 750 design and construction jobs, create indigenous employment opportunities and maximise local procurement.

When the Coalition came to power in 2013, we committed to a ten year, $6.7 billion program of improvements to the Bruce Highway[8].In this year’s budget, several new projects on the Bruce were announced, including $530 million towards priority works on the Pine River to Caloundra corridor and $120 million towards the upgrade of the Deception Bay Interchange.

We are investing over $1.1 billion for the Toowoomba Second Range Crossing. This is the largest Australian Government commitment to a single regional road project in Queensland’s history.

Let me briefly mention some other projects we are funding:

• There is $914.2 million of Commonwealth funding for Gateway Upgrade North;
• $120 million for the upgrade to the Walkerston Bypass near Mackay;
• $95 million for Gold Coast Light Rail Stage 2; and
• $200 million for the Ipswich Motorway (Rocklea to Darra).

All this forms part of an enormous infrastructure investment in Queensland by the Turnbull Government. We have committed over $14 billion to fund infrastructure projects in Queensland over eight years from 2013-14 to 2020-21, including $2.1 billion in the current financial year.

 

Respective Roles of the Federal Government and State Governments

Despite these commitments, it is common to hear the Palaszczuk Government complain that the Commonwealth isn’t contributing enough to Queensland’s infrastructure.

In the 2016 election for example we promised $215 million for upgrades of the M1. Then Queensland Roads Minister Mark Bailey immediately set about arguing that the Commonwealth needed to provide more funding, saying in a media release in September last year for example:

Funding the M1 is a critical issue to Queensland and Minister Fletcher needs to explain why we’re getting short-changed. The same road just across the border in New South Wales gets an 80:20 funding split and we’re only being offered 50:50.[9]

Of course his argument failed to engage with the key difference between the NSW and Queensland Governments. Liberal governments in NSW did the hard work to win public support for a strategy of withdrawing public capital from state-owned infrastructure assets in ports and electricity.

This in turn allowed the proceeds to be reinvested in transport infrastructure such as the WestConnex motorway project, Sydney Metro City and Southwest rail project and the Parramatta Light Rail project. There is significant Commonwealth funding supporting many of these projects.

By contrast, the Queensland Labor government cancelled well-developed plans, inherited from the previous Liberal National Party government, to similarly withdraw public capital from electricity assets in that state — which unsurprisingly leaves it struggling to fund significant infrastructure projects.

We have seen similar arguments from Deputy Premier Jackie Trad concerning Cross River Rail. She has consistently argued that the Commonwealth should fund this project, on the grounds that it is the Palaszczuk Government’s highest infrastructure priority.

This kind of argument wrongly assumes the Commonwealth government has only one job when it comes to infrastructure policy: to act as a postbox, collecting taxpayers’ money and dividing it up between state and territory governments.

If you are a Labor state Premier or Minister, naturally you regard it as a splendid idea that you get free money from Canberra, with virtually no strings attached, for infrastructure projects that you can claim the credit for.

But as the Prime Minister has made clear on many occasions, the days of the Commonwealth simply being an ATM for the states is over.

Let me turn therefore to the appropriate role for a federal government when it comes to infrastructure and how we work with state governments including here in Queensland. I want to identify three key aspects of our role.

The first is to support and drive for improved planning and rigorous assessment of projects.

The second is to take the lead on national projects – which no state government could be expected to deliver.

The third is to set national policy directions on infrastructure.

If I speak first about improved planning and rigorous assessment of projects, I am sorry to say that there can sometimes be a temptation in politics to commit to infrastructure before the detailed planning work is done.

This is something former Productivity Commission head Gary Banks highlighted in a speech to Infrastructure Partnerships Australia earlier this year, wryly noting that the NBN, announced in a dramatic flourish by Kevin Rudd in 2009

…continues to affirm the wisdom of doing the numbers before announcing the policy.[10]

We are doing several things to counter this temptation. We have maintained and strengthened the role of Infrastructure Australia.

We now require that before the Australian Government commits $100 million or more to an infrastructure project the business case must be assessed by Infrastructure Australia.

Of course Infrastructure Australia works closely with the state-based infrastructure bodies. That is a good thing – and I certainly welcome the role that Building Queensland is playing.

Infrastructure Australia regularly produces the Infrastructure Priority List, which presently has 100 projects and initiatives on it. 17 of the 20 ‘high priority’ and ‘priority’ projects’ on its July 2017 list have received funding from the Turnbull Government.

Increasingly we are providing funding at the planning stage of projects. For example, the Commonwealth provided $10 million for Cross River Rail and we are funding a Joint Scoping Study with the NSW Government on the rail needs of Western Sydney and Western Sydney Airport.

In the recent Budget we committed $30 million for work to plan a rail link between the Melbourne CBD and Tullamarine Airport. We also allocated $20 million to support business case development on proposals for faster rail connections between our major capital cities and surrounding regional areas.

As well as planning, we are backing Infrastructure Australia in conducting rigorous assessments of projects – and Cross River Rail is a very good example.

After reviewing the business case, Infrastructure Australia recently announced its findings: the cost of Cross River Rail would exceed its benefits.

A key benefit claimed in the business case was travel time savings for Queenslanders, through a reduction in congestion on roads such as the M1 from the Gold Coast to Brisbane, because large numbers of people were expected to shift to commuting by rail as opposed to road.

Underpinning the calculations were estimates of the numbers of people who would use the rail network once Cross River Rail was completed. Infrastructure Australia found that these estimates were overstated, based on growth rates previously achieved in Australia, including during times of high population and economic growth.

Infrastructure Australia has also pointed out that Queensland Rail is introducing a new train signalling system. This is a good thing - it means more trains per hour can safely use the existing tracks.

But if the existing network is to gain more capacity through this measure, it weakens the immediate case for building an expensive new tunnel to provide new capacity.

The fundamental argument for Cross River Rail is that with finite capacity at the core of the rail network - because there is only one set of tracks crossing the Brisbane River – at some point a second rail crossing of the river will be needed.

Infrastructure Australia’s key finding is that this point will not come for quite some years yet.

Deputy Premier Trad has criticised Infrastructure Australia’s work, saying that it is designed to give cover to Prime Minister Turnbull not wanting to fund infrastructure in Queensland.

Given the record amounts the Turnbull Government is spending on infrastructure in Queensland this is clearly not correct.

Ms Trad is no doubt annoyed that the project she has championed has not been recommended for Commonwealth funding at this stage. But the whole point of Infrastructure Australia is to assess projects in an independent, non-political manner - so that multi-billion dollar commitments of public money are not made based on the preferences of individual politicians, but instead on an objective analysis of the benefits a project will deliver compared to its likely costs.

I would encourage the Queensland Government to rework the business case to respond to the issues that Infrastructure Australia has raised. To take one example, the new stations are likely to stimulate new urban development around them, including high density residential housing; facilities such as shops, cafes and restaurants; and office buildings and other commercial property.  But the business case does not adequately quantify the benefits of this urban regeneration.

Let me be clear that Infrastructure Australia stands ready to consider such a reworked business case – although I should also be clear that what was released last week was the same document which has already been assessed by Infrastructure Australia.

A second key role for a national government is to support national projects – ones which no individual state government could deliver. In this year’s Budget, the Australian Government committed $8.4 billion in new equity funding for the Inland Rail project.

When completed, the Inland Rail will provide a high performance freight corridor capable of moving double-stacked containers in under twenty-four hours between Melbourne and Brisbane.

Higher capacity trains, supported by higher axle loads, have the potential to unlock new export markets for Australia's strategic coal reserves. For example, it will enable additional coal exports from the Clarence-Moreton and lower Surat Basins through the Port of Brisbane.

West of the Great Dividing Range, Inland Rail traverses some of Australia's most productive agricultural and resource-rich land, including the Darling Downs. It will enable faster, more efficient market access for primary producers, especially for large-volume grain and cotton harvests.

The Australian Government is currently working with the Queensland Government to examine the future requirements for an improved rail connection to the Port of Brisbane, including Brisbane’s broader freight rail needs. The Government is also undertaking a prefeasibility study into a potential link between Inland Rail and the Port of Gladstone.

My point is that this vital project is one that could only be delivered by a national government – but it will deliver great benefits in Queensland as well as in the other states it serves.

Our third critical role is to set national policy directions for infrastructure. Of course there is much which state governments and councils will do under their own steam, without reference to the Commonwealth – and that is as it should be. After all, the state governments operate the rail networks in our capital cities, for example. But there are clearly infrastructure issues of national importance, where the Commonwealth must play a leadership role.

One such issue is the growing importance of urban passenger rail in our largest cities as they increase in population and become more dense. In the 2017 budget we made a major commitment to long term investment in urban passenger rail: the Turnbull Government will invest $10 billion over a ten year period for the National Rail Program.

Funding starts to flow from 2019-20, and the ten year commitment has been developed to allow for the long lead times typical of major rail investments. Significant planning work is required before construction can commence.

This program has been designed at a scale to allow the Australian Government to make major funding commitments to several transformational urban rail projects (including on rail connecting our big cities and their surrounding regional areas) over the next decade.

The Australian Government’s funding contributions to these projects will be provided as part of an overall package of support, alongside funding provided by the relevant state government and the direct beneficiaries of the project. We will issue guidelines for the provision of funding under the National Rail Program in coming months.

Certainly if a reworked business case for Cross River Rail comes forward and is recommended by Infrastructure Australia, it will be eligible for funding under the National Rail Program.

Another area where the Commonwealth provided national leadership was through the Coalition Government’s Asset Recycling Initiative. This worked by incentivising state and territory governments to withdraw capital from existing infrastructure and reinvest it in new projects.

Under this policy, $2.3 billion was provided for new infrastructure projects in New South Wales, the Northern Territory and the ACT, with Victoria also receiving over $1 billion to go towards regional rail projects.

Disappointingly, the Palaszczuk Government chose not to participate in this process. This meant Queensland was not eligible to receive additional funding to help meet the state’s need for new infrastructure.

Other Labor governments have recycled assets. And there is clear evidence that Queensland voters are open to asset recycling. Recently the Infrastructure Association of Queensland and Infrastructure Partnerships Australia released the results of polling they commissioned on this topic.

It showed a majority of Queensland voters support asset recycling and recognise the significant jobs boost that would result if assets were recycled and the proceeds were reinvested into new infrastructure.

To quote Brendan Lyons of IPA:

With a constrained budget and close to $80 billion in debt, the Queensland Government is relying heavily on Commonwealth contributions, and finding it difficult to fund more of the priority projects that Queensland needs. Queensland’s Parliament should give the community more credit and revisit asset recycling, because it’s clear the state needs more, better delivered infrastructure[11].

 

Increasing the Role of the Private Sector

I have spoken about the respective roles of the federal and state governments in delivering infrastructure. But the reality is that there will always be more demand for infrastructure than can be met by government expenditure alone.

That is why it is important for as many projects as possible to be funded by the private sector. There are some great examples in Queensland, including Brisbane West Wellcamp Airport in Toowoomba and the $1.35 billion new runway presently under construction at Brisbane Airport.

In other states, significant new road infrastructure is under construction, with its financing to be supported by a tolling revenue stream. These projects include WestConnex and NorthConnex in Sydney and the Westgate Tunnel in Melbourne.

Increasingly the Commonwealth Government is looking to structure its support for infrastructure projects through making a debt or equity investment. Western Sydney Airport and Inland Rail are being supported through equity investments and WestConnex through debt. In turn this facilitates the financial investment being potentially sold to private investors at a later point, allowing taxpayers’ capital to be recycled.

Another policy direction the Commonwealth champions is the use of value capture. This is the idea that one source of funding for new infrastructure projects is to tap into the increase in value which is typically experienced by property owners and businesses located along the route of new infrastructure.

This is not a panacea: even the Crossrail project in London, often cited as a paradigm case of value capture, has only sourced 30 per cent of its budget from such measures. But it does have the potential to help address the demand for investment in new transport infrastructure projects.

There is a clear limit to what can be directly funded by governments, Commonwealth or state, given all the other claims on the budget.  If value capture can provide an additional funding source to support at least part of the cost of a project, that could mean the difference between the project proceeding or not proceeding. 

We also see it as a means for the Commonwealth Government to be a more sophisticated investment partner.  This year we will provide transport infrastructure funding of nearly $9 billion around Australia.  That is a very significant amount – and we want to make sure it has the maximum possible impact. 

We are interested in leveraging this spend to attract funding from other sources – such as other levels of government, the private sector, and project beneficiaries – and we see value capture as one very important tool to do this.

Already we have issued a set of funding and financing principles that will guide the Commonwealth Government’s approach to supporting projects; the guidelines refer specifically to the need to test for value capture opportunities.

Of course there is a good example of value capture here in Queensland with Gold Coast Light Rail, where a Transport Improvement Charge levied by Gold Coast City Council partially funds stage one of the project.

 

Conclusion

I want to conclude then with the observation that Queensland has a strong infrastructure story – but it could be an even better story.

The Turnbull Government is spending at record levels on Queensland infrastructure - $14 billion over the eight years from 2013-14 to 2020-21, including $2.1 billion in the current financial year.

But more could be done if the state government in Queensland were to follow the lead of other states – to recycle assets and free up taxpayers’ capital which can be reinvested in vitally needed infrastructure projects.

The Turnbull Government stands ready to work with the Queensland Government, and the private sector - so the people of Queensland get the infrastructure they need to drive the economy and support the lifestyle of this dynamic and fast growing state.

 

[1]Average annual growth rate for the 2006 to 2016 period. Source: ABS Cat 3218.0 Regional Population Growth, Australia

[2] Queensland Government population projections, 2015 edition, medium series projections for 2016 to 2036 http://www.qgso.qld.gov.au/products/tables/proj-pop-series-sa4-qld/index.php”

[3] Between 2010 and 2016. Source: United States Census Bureau State Population Totals Tables: 2010-2016. (Australia’s rate for the comparable period is 1.6%.)

[4] United States Census Bureau Metro/Micro Area Population Totals Tables: 2010-2016

[5]406 kms, San Antonio to Dallas. City size is based on incorporated places, not the broader metro area.

Source:https://en.wikipedia.org/wiki/List_of_cities_in_Texas_by_population.

[6]ABS Cat 3218.0 Regional Population Growth, Australia, 2016

[7] Queensland Government population projections, 2015 edition: http://www.qgso.qld.gov.au/products/tables/proj-pop-series-sa4-qld/index.php. Based on medium series projections.

[8] ‘Bruce Highway Upgrade Gets Underway’ Media Release WT013/2013. See - http://minister.infrastructure.gov.au/wt/releases/2013/October/wt013_2013.aspx

[9] Former Minister for Main Roads, Road Safety and Ports and Minister for Energy, Biofuels and Water Supply
The Honourable Mark Bailey, Media Release, 7 September 2016, ‘M1 Taskforce takes funding fight to the Feds’

[10] Gary Banks 2017, Speech to Infrastructure Partnerships Australia, http://infrastructure.org.au/wp-content/uploads/2017/04/Gary-Banks-Oration-FINAL.pdf, p 6.

[11]Infrastructure Partnerships Australia and Infrastructure Association of Queensland 2017, ‘Media release: Queenslanders ‘not scared’ of asset recycling – terrified of bad infrastructure, higher taxes and debt’http://infrastructure.org.au/media-releases/