Infrastructure is fast becoming the next big thing on the national political agenda. Billions of dollars in projects are set to get under way over the next decade, with Chartered Accountants and the financial sector to play a driving role in making it all happen.
Story Tony Malkovic
You might not realise it, but when you’re stuck in your morning or evening traffic jam, it’s not just you progressing at a snail’s pace – so is our economy.
The fact is you’re part of a wider infrastructure problem that is putting the brakes on Australia’s ability to service and compete in domestic and international markets.
Think about it. Your traffic bottleneck means you’re moving very slowly to your destination.
But multiply that effect by tens of thousands of passenger cars, delivery vans and trucks a day. And then repeat it in every major city, and you realise how much time, effort and fuel is being wasted, not to mention the effects of vehicle emissions choking the environment.
And then try to work out what that gridlock costs our manufacturing, exporting and rural industries.
In fact, the figures are mind-boggling. For instance, in Sydney alone, it’s estimated that congestion will cost us $4.3 billion this year – or $11 million each and every day.
Without concerted action to address the problem, the Business Council of Australia has forecast that the economic cost of congestion in Australia will rise to around $30 billion by 2015, well and truly slowing our future economic growth.
It’s enough to make your knuckles go white as they clench the steering wheel. And it’s why clearing traffic bottlenecks in our major cities and regional centres is a key priority of Australia’s infrastructure reform.
Reform agenda
Prime Minister Kevin Rudd recently acknowledged that traffic jams and congested and poorly planned roads are limiting productivity and promised to look at ways to beat traffic bottlenecks.
It’s part of an ambitious reform agenda to modernise and replace Australia’s ailing infrastructure system that has already reached critical mass and is set to dominate federal-state relations in the coming decade.
In fact, infrastructure reform is one of the 10 critical areas to come under the microscope at the Federal Government’s Australia 2020 Summit next month. But the issue has well and truly been in the headlights of the business community for some time.
Last year, a report came out that mapped out a way of rebuilding the country’s infrastructure to meet our growing needs. Infrastructure Partnerships Australia – the country’s peak infrastructure body – released its report, Australia’s Infrastructure Priorities: Sustaining Our Prosperity.
That 48-page report identified the key projects and policy reforms needed to rebuild Australia’s urgently needed economic – and social – infrastructure. The aim is to sustain Australia’s economic growth and competitiveness, as well as our standard of living. While most people might think of infrastructure as roads, rail and ports, it’s not as simple as that.
You need to think in terms of all the services and physical assets that help us earn a living. And then multiply it by six states, two territories, and the demands of 20 million people spread across one of the world’s biggest continents.
The logistics and costs – and the efforts involved in financing them – can be enormous.
Comprehensive Blueprint
In effect, the IPA report provides a comprehensive blueprint for rebuilding Australia from the ground up.
“Key reforms in the way we plan our cities and passenger transport, expand our freight networks and plan for growth in demand for energy and water are critical to Australia’s future,” said Mark Birrell, IPA’s chairman, when the report was launched.
“The deployment of a competitive and world leading information technology infrastructure will also be vital to remaining competitive in the global economy.”
And guess what’s near the top of the list of reforms? Traffic gridlock, the slow infuriating choking of cities by a thousand traffic jams. “There is a strong need to recognise the importance of addressing urban congestion as part of the broader national challenge in increasing productivity,” says Birrell.
The IPA report says modernizing Australia’s infrastructure system requires a new relationship between federal and state governments and a new national body overseeing the task – something the Federal Government has already acted on.
The Government says that according to an OECD report, Australia ranks a poor 20th out of 25 countries when it comes to investing in public infrastructure as a proportion of national income.
Since coming to power, it’s appointed Anthony Albanese as Infrastructure Minister and announced the appointment of a national body, Infrastructure Australia, to compile an audit over the next year detailing our national infrastructure needs.
The Federal Government says it will then compile an infrastructure priority list – a sort of wish list for Australia – to guide billions of dollars of public and private investment.
The Government says it will then assess projects in terms of goals such as: - meeting water and energy needs
- saving time for commuters battling traffic congestion in our major cities
- efficiently moving freight from regional areas to our ports
- meeting the challenge of climate change.
Updating Infrastructure
It’s one thing to have a plan, but it’s another thing to pay to implement it. Updating infrastructure is an expensive long-term proposition.
To help pay for it, IPA says we need change the way governments work with each other. And it says we need to tap into the hundreds of millions of dollars we already have put aside in superannuation funds (see page 32).
“The report recognises that the delivery of projects will rely on significant private sector investment, as the sheer size of investment needed is beyond the capacity of government alone,” Birrell says.
“Australia’s retirement and superannuation savings, currently more than $1.1 trillion, highlight the potential to better tap these resources to provide local investment opportunities in infrastructure. This is an important and emerging issue in the national debate.
“The role of governments in developing the next round of nation-building infrastructure should not be defined by funding and constructing assets or delivering services.
“Government’s focus should also be on creating the frameworks and competitive markets to attract investment and innovation from the private sector.
“Government will need to keep reforming procurement practices to give greater planning certainty, to encourage investment and, importantly, to streamline the delivery of nationally significant infrastructure.” The Federal Government already seems to have taken that view on board.
Delegates at the Australia 2020 Summit next month in Canberra will be looking at ways to boost public and private investment in economic infrastructure.
The delegates – considered to include 1000 of the country’s “best and brightest brains” – will be challenged to come up with ideas to improve planning and coordination of infrastructure investment across the different levels of government and the public and private sectors.
In effect, there’s a huge task ahead of a lot of people over the next decade or so. Which means that Chartered Accountants and other members of the financial community can also expect to be very busy, helping organise and scrutinize the deals that will provide the money to pay for the reforms.
As one insider put it: “Chartered Accountants and the financial sector are going to be just as important – possibly more so – than the people who’ll actually be building our next generation of infrastructure.” The IPA report says the challenge for Australia is to sustain our annual 3-4 per cent GDP growth for the next two decades. And it proposes six main areas of reform: investing in our people
urban livability
freight and transport network expansion
energy security
sustainable water
strengthening the country’s communications backbone. Investing in Our People
Infrastructure is generally considered to be about roads, buildings and ports. But the IPA report says one of the biggest investments Australia can make is in people. It says that since 1990, our economy has consistently outperformed that of comparable countries and we’ve now got one of the lowest unemployment rates ever.
But the flipside of these good times is an across-the-board shortage of skilled and semi-skilled labour to satisfy demand. It doesn’t matter whether the shortages involve Chartered Accountants, teachers, builders or skilled mining workers, the pressure is on to find people to do the job. IPA says there’s a need for industry-wide strategies to retain skilled workers and establish career paths for school leavers and graduates.
Affordable housing, such as new land releases in areas of demand and providing affordable housing, should also be a priority. The report makes the point that often physical infrastructure can complement the social infrastructure.
For instance, the construction of a highspeed rail link from Warnervale to Sydney’s CBD would make Newcastle and the Hunter region’s more affordable housing an attractive and realistic option for workers to service the Sydney jobs market.
Urban Livability
Another key to improving infrastructure is investing and revitalising our cities. The reason is simple: they are the engine room of our economy, the key driver of national economic growth and development.
Between 2000 and 2006, our eight capital cities provided a staggering 78 per cent of national economic growth. This is why Infrastructure Partnerships Australia has been calling on the Federal Government to make investment in our cities the same priority as investment in non-urban infrastructure.
The provision of top quality health facilities is one of the most urgent challenges in maintaining and increasing the livability of Australia’s cities. But you need to add to that other crucial factors such as forwardthinking urban design, world-class schools
and universities, sufficient police stations and community support facilities to ensure people have an adequate standard of living.
Freight and Transport
Just as our congested cities need better road and transport systems, so do our regions – but for a different reason. Australia needs to streamline its freight networks
SHOW US THE MONEY…
Reforming Australia’s infrastructure requirements is a big job that will take years and billions of dollars.
The push is already gathering momentum. And is likely to whet the appetites of not just the nation’s engineers, construction companies and urban planners, but also the nation’s financial sectors, all of whom will be rolling up their sleeves to get on with the job.
Several states have already committed to boosting the amounts to be spent on infrastructure: - NSW – is increasing expenditure to $50 billion over four years
- Victoria – is increasing expenditure to $13 billion over four years
- Queensland – is increasing expenditure to $14.1 billion in the current financial year
- Western Australia, which is spending a record $5.8 billion on infrastructure in 2007-08, and $21.6 billion over the next four years.
Such spending is considered agood investment.
For instance, a 2005 study by the Committee for Economic Development of Australia (CEDA) found that with needed infrastructure in place, Australia’s GDP would be 0.8 per cent — or $6 billion — higher each year.
But the trick is, how to get the money to pay for the big-ticket infrastructure projects.
Well, according to a recent study undertaken by the Allen Consulting Group and Melbourne University, public private partnerships (PPPs) – a combination of private and public funds and expertise – are the best method of delivering large, complex and expensive infrastructure projects.
The study found that PPPs deliver significant savings in time and cost while also providing better quality assets for the community.
The report suggests that PPPs could even save governments some $6 billion over the next decade by simply maintaining the level of PPPs at current levels of 15 per cent of total infrastructure procurement.
The study looked at 21 PPP projects and 33 traditional projects around the nation and found that PPPs deliver significant cost and time savings over traditional methods, where governments design and construct infrastructure assets themselves.
The study – Performance of Public Private Partnerships and Traditional Procurement in Australia – was commissioned by Infrastructure Partnerships Australia to spark debate on the best procurement models to build our next round of national infrastructure.
This report found that PPPs demonstrate cost savings over traditional government projects of more than 30 per cent from project announcement to final completion.
So if PPPs provide the vehicle for infrastructure reform, there’s only one other thing needed: the money to drive them.
Pools of Funds
And the IPA has already identified a potential huge pool of funds to help pay for the infrastructure reforms – the nation’s superannuation funds.
It says according to Australian Bureau of Statistics (ABS) figures, our total assets of superannuation funds reached $1.1 trillion in the December quarter of 2006.
These funds are the fourth largest pool of managed funds in the world, with only the United States, Luxembourg and France having larger pools of funds than Australia. And it says analysts estimate those funds will grow to more than $2 trillion by 2020. “The growth of superannuation savings and availability of infrastructure investment opportunities in Australia is an emerging issue,” the report says.
“Australia is in a unique position as an exporter of managed funds abroad and contrasts with the urgent need to provide local investment opportunities so that these funds can assist to build and reinvigorate local communities.
“While recognising the need for any prudent investment portfolio to include an international component, Australia must be cognisant of the breadth of opportunities to use local savings to fund important economic and social infrastructure.
“The risk and return profile of long term assets such as infrastructure provide a hand-in-glove fit to the rapidly expanding pool of superannuation savings
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