Opinion piece, published in The Australian Financial Review
Governments world-wide face enormous challenges in funding the infrastructure required to meet the needs of growing economies and populations.
As cities grow, congestion becomes an increasing drag on productivity. Infrastructure Australia estimates that without increased investment, congestion will cost Sydney and Melbourne more than $25 billion by 2031.
Economic opportunity is also increasingly dependent on the delivery of strong transport networks. The Productivity Commission has found that even minor infrastructure investment, that provides small productivity gains, can deliver huge dividends in economic growth.
Delivering the infrastructure needed for national prosperity depends on Commonwealth
involvement. Our leadership on landmark projects, and our partnership with the states, territories and private sector, will be pivotal in driving infrastructure investment across Australia’s cities and regions.
For decades, the Commonwealth has failed to be an active investor in infrastructure. The culture of successive governments has been to engage in infrastructure through grant funding. This model has only delivered a chronic infrastructure deficit.
Reform is required if we are to deliver more for the Australian public – more infrastructure, more jobs, more housing and more opportunity. Ultimately, success will depend on our ability to stretch taxpayer dollars further.
Our record $75 billion infrastructure Budget sets a long-term pipeline of investment. But most importantly, it demonstrates how a smarter approach to infrastructure investment can unlock nation-shaping projects.
Our commitment of up to $5.3 billion in equity towards delivery of the Western Sydney Airport ends decades of indecision. An additional $8.4 billion equity injection in the Australian Rail Track Corporation will take forward inland rail, delivering a high-capacity freight link between Melbourne and Brisbane.
To date, these innovative approaches to infrastructure investment have been ad hoc. It is critical that these outcomes become standard practice in the Commonwealth, supported by commercial expertise.
That is why the Prime Minister and I have established the Infrastructure and Projects Financing Agency (IPFA).
The CEO will have extensive experience with private sector financing and the ability to identify, assess and broker new opportunities.
From day one, the IPFA will fill a skills-gap, embedding corporate advisory expertise within the Commonwealth and complementing economic analysis undertaken by Infrastructure Australia.
Infrastructure Australia’s independent Priority List forms the backbone of our investment decisions and the Turnbull Government has already committed to 15 out of 18 projects on that List. But, if we are to meet the long-term infrastructure needs forecast by Infrastructure Australia, we must be smarter about how we invest.
This does not mean the Commonwealth will abandon grant funding. It means our grant funding will go where it is most needed, with more funds invested overall and more infrastructure delivered sooner.
Many infrastructure projects will continue to require grant funding. This includes projects that have no revenue stream but meet a social need or help boost the economy. But where there is an opportunity to shape projects capable of providing a commercial return, these should be delivered in partnership with the private sector.
Where projects are only marginally commercial, or where the private sector sees too great a risk, the Commonwealth can use its levers to bridge the gap.
Commonwealth levers can include policy reform, loans, direct equity, guarantees, revenue sharing, or partnering in value capture and risk sharing. For projects that have long and bankable revenues, but large upfront construction costs and risks, techniques to de-risk or accelerate private sector investment could also include construction loans or base line revenue support.
We have already identified initial projects for focus including Inland Rail terminals – where private sector involvement has the potential to add value along the entire line. The new agency will also consider Western Sydney Rail – building on our strong relationship with the NSW Government, and shared efforts to unlock growth around Western Sydney Airport.
The skills to do this are not new or unique. Australia’s commercial sector and state and territory governments have built significant capability to identify and exploit funding and financing opportunities while managing their balance sheets.
In creating a centre of expertise for innovative funding and financing, the Commonwealth will gain the ongoing capability to support this approach at a federal level.
Ultimately, the Commonwealth’s investment decisions will be better informed, as will the outcomes delivered for all Australians.