Coalition Senators' Minority Report
The Nation-Building Funds Bill 2008 and the Nation-Building Funds
(Consequential Amendments) Bill
The Nation-Building Funds Bill 2008 and the Nation-Building
Funds (Consequential Amendments) Bill 2008 purport to establish the Building
Australia Fund, the Education Investment Fund, and the Health and Hospitals
Fund. It is intended that at their inception on 1 January 2009, the three funds will have a total of $26.3 billion, rising to $41 billion by 1 July 2009, as announced in the May 2008 Budget.
Responsibility for the management of the investment of these
funds lies with the Future Fund Board and the Future Fund Management Agency,
which operate under the Future Funds Act. The Board is required to make
its investment policies public and published on the internet, with all payments
from the funds requiring authorisation by the Finance Minister.
The funds' initial value of $26.3 billion on 1 January will
consist in the main part of funds from the 2007-08 Budget surplus left to the
new Labor Government after the 2007 elections. Funds from the last Coalition
budget will provide $7.5 billion, $2.5 billion and $5 billion to the Building
Australia Fund, the Education Investment Fund, and the Health and Hospitals
Fund respectively. The remaining $5.1 billion for the Building Australia Fund
will consist of $2.7 billion from the proceeds of the T3 sale and $2.4 billion
from the closure of the Communications Fund established by the Coalition in 2007.
The Education Investment Fund will see its remaining $6.2 billion of funds come
from the closure of the Higher Education Endowment Fund which was also
established by the Coalition.
Full funding
While the initial funding pool of $26.3 billion has been
secured through the previous Coalition Government’s budget surplus and funds,
the full $41 billion in funds announced in the 2008-09 Budget will require a
further $14.7 billion. Coalition Senators hold concerns about the Government’s
ability to source these funds given the current economic downturn and the
Government’s decision to spend most of the anticipated surplus. With the option
of a budget deficit being discussed heavily in the media, Coalition Senators
feel it would be a great disappointment for the Rudd Government to drag
Australians back into debt after the previous Coalition Government worked so
hard to not only pay off the $96 billion in debt left to it by the previous
Labor Government but to also leave a healthy surplus which is permitting the
current government to create the funds such as those discussed in this report.
The Coalition Senators also question the integrity of the
numbers associated with the funds by reason that these figures were booked in
the MYEFO statement which does not include the substantial changes that have occurred
with the national and global economy. We note that between the release of the
MYEFO statement and where we currently sit, the stock market has since
decreased by a significant amount, and during the committee hearings there was
a complete paucity in information to ascertain what the balance of those funds
are now. The investment process that secures these funds was also unable to be
ascertained, and this should be of some concern in regard to the capacity of
these funds to fulfil their objectives.
Funding adequacy
During the second reading speeches in the lower house from
ALP members, the argument put forward is that the funds established by these
bills will serve as a panacea for Australia’s needs in the areas of
infrastructure, education and resultant skills provision, and health. While
Coalition Senators agree that investment in all three areas is laudable, a more
realistic view on what these moneys can achieve should be taken, particularly
in light of previous Coalition spending in these areas.
To begin with, the $12.6 billion in the Labor Government’s
Building Australia Fund is less than a third of the $38 billion in
infrastructure investment the Coalition Government made in Auslink 1 and
Auslink 2 alone. Infrastructure investment was taken very seriously by the
Coalition Government during its term in government when it took infrastructure
spending from 2.9 per cent of GDP when it started to 5.4 per cent at the last
election.
As Mark Butler, the Member for Adelaide, noted in his second
reading speech on these bills:
...iron ore and coal exports will require the equivalent of eight
new 50 million tonne ports by 2015 at an estimated cost of $16 billion.[1]
If members of the Government are aware that $16 billion is
needed in ports for just the iron ore and coal export industries alone, then
Coalition Senators feel that any Government claims that a $12.6 billion
infrastructure fund will solve Australia’s capacity restraints should be viewed
with suspicion. In addition, current demand for immediate national infrastructure
funding will be around ten times the amount being offered in the funds, further
highlighting the inadequacies of the Labor Government’s policies in addressing
our real nation-building needs.
'Whole of life' costs
One of the concerns held by Coalition Senators is that the
real costs of the projects established through these funds are not being taken
into consideration. Once the initial construction phases of projects have been
completed ongoing costs must be addressed such as ongoing maintenance,
replacement, and service costs. By not sourcing the money needed for ongoing
costs from the funds, the Government will be able to announce more projects
than would otherwise be the case. While this will mean more photo opportunities
for the Government, it is misleading to the public by simply transferring the
real costs of these projects to a time in the future and possibly to another
government.
As stated in the bill’s Explanatory Memorandum:
...where specific projects have an ongoing cost component, it is
intended that such funding would be sourced through other means. This could
include direct funding from the budget (outside the BAF), or funding by the
States or Territories in relation to proposals that are brought forward as part
of the COAG reform agenda.[2]
Examples of how such a short sighted approach to public
policy carries on-going consequences can be found in Labor's 'Computers in
Schools' policy. This policy, like the bills covered in this report, does not
take into account the 'whole of life' costs which occur after the initial
capital investment. What this means is that while the Government was able to
announce an apparently beneficial policy, the exclusion of installation,
maintenance and training costs meant that rather than benefiting, many schools
were burdened with additional and recurrent costs at two to three times the
initial cost of the computer. With such a dubious history of inadequate policy
development, the claim that spending by these funds will be preceded by
rigorous cost benefit analysis provides no assurance of the final benefits to
the public.
State infrastructure spending
Just as the announced increase in the First Home Owners
Grant saw many first home buyers wait for the extra funds before their
purchase, so have these funds seen State infrastructure spending be put on
hold. The possibility of transferring the costs of infrastructure development
to the Federal Government has created an incentive for State Governments to
cancel State funded infrastructure plans and instead bid for federal funds.
One such example of this comes from the Rees Government’s
recent mini-budget for NSW. The State Government had previously highlighted
four 'priority projects' for infrastructure investment which, in the week prior
to releasing the mini-budget, were to be completely funded by the State
Government. However, the mini-budget states that the four projects had been
submitted to Infrastructure Australia and that they 'will only proceed before
2012 if they are substantially funded by the Commonwealth'. Coalition Senators
are of the view that cost shifting of projects from States to the Commonwealth
is counterproductive in light of the country’s infrastructure needs and will
only serve to further reduce the impact of an already deficient funding pool.
Funding decision transparency
Coalition Senators note that, as they stand, the bills allow
for funding decisions to be made without disclosure of the basis for the
decisions to the public. The reasoning for this, as claimed by the Finance
Department, is that such a move would constitute a breach of commercial
confidentiality. Despite this reasoning, such disclosure is standard practice
in other countries, e.g. USA and the Scandinavian countries, where not only is
the information made public but, in the case of Senate and House Congressional
Committees in the USA, companies are required to discuss their bids publicly.
Given the Rudd Government’s record on policy decisions and
the immediate and ongoing importance of these decisions to the Australian public,
transparency regarding how decisions arrived at becomes essential, and
Coalition Senators would like to see full disclosure on the Government’s final
decisions on which projects are chosen and rejected including all data,
assumptions and models used.
Slush funds
While the potential coinciding of funding announcements with
the next federal election has been met with scepticism from the public and the
media, Coalition Senators note that along with inadequate transparency, the
funds run a real risk of becoming ‘slush funds’ which deliver political
outcomes rather than public goods. Investment in the areas of infrastructure,
education, and health, carry long term consequences for Australia and media
claims that Minister Albanese pulled the original legislation 'because it gave
him insufficient ministerial discretion over how the money would be allocated'[3]
only serve to fuel concerns that these funds will used for political advantage
in spite of the country’s actual needs.
The bills and the accompanying explanatory memorandum are
lacking in specificity in the definitions of where the funds can be spent and
although the generic headings seem suitable, there is little to stop these
funds from being spent by any means seen fit by the minister including projects
of dubious intent and questionable outcomes as to the prudent infrastructure
requirements of our nation.
Coalition Senators would like to see the Government address
the previously mentioned transparency issues to help allay these concerns and
protect against any temptation that may exist for the current Government to
abuse the budget surplus that had accumulated during the Coalition’s term in
government.
The long term nature of infrastructure projects
The Rudd Government’s claim these funds will act as a further
stimulus in support of the already announced stimulus package shows a
politically driven interpretation of the needs of Australians and the
Australian economy. During the Supplementary Budget Estimates some concerning
aspects of the decisions behind the Government’s stimulus package came to
light. When asked who decided on the final amount of $10.4 billion, Minister
Conroy stated:
...ultimately the size of the stimulus package was a decision for
government.[4]
When Senator Brandis raised concerns about the depth of
analysis that was used to develop the stimulus package, the Minister's response
was unconcerned:
Senator BRANDIS—Dr Gruen, Senator Joyce seems to have exposed
the fact that half of the nation’s surplus was spent without any modelling.
Would it shock you to learn, if you are not already aware of it, that the
Finance estimates were told yesterday afternoon that the costings for the
expenditure of half of the nation’s surplus were arrived at in the course of a
few hours, between Saturday afternoon, 11 October and Monday morning, 13
October, by five public servants?
Senator Conroy—What an excellent job they did.[5]
The Rudd Government’s track record for economical decision
making has proven disappointing and claims that infrastructure projects will
bolster the stimulus package further show lack of forethought. The nature of
infrastructure projects means that they take many years to plan and complete
making them inappropriate vehicles to deliver the short and medium term
stimulus that the economy really needs. It is difficult to reconcile the
Government’s claims that these funds are long-term in nature yet appropriate
for short-term stimulus. As stated by the Prime Minister in his speech to the
Local Governments’ Meeting:
Infrastructure takes time to build, infrastructure takes time to
plan, infrastructure takes time to design and all that hinges on first-class
planning.[6]
Public spending squeezing out the market
Any time government policy requires spending there is a
consequential competition between government funds and private funds for the
limited resources that exist in the market. Any decision by government to spend
large amounts of large scale projects should take into consideration the
capacity constraints that already exist in the market if any such spending is
to avoid creating inflation as private business is squeezed out by public
funds. The Government is very aware of levels of capital expenditure in Australia
with the Prime Minister commenting last month on an ABS report that showed
planned increases in capital expenditure by Australian businesses in 2008-09.
The Australian Bureau of Statistics has released the Private New Capital
Expenditure and Expected Expenditure report for the September quarter 2008
which showed private capital expenditure rose 2.9 per cent in the September
quarter compared to the June quarter, and expectations of expenditure for
2008-09 are 1.6 per cent higher than in the July/August survey estimate.
With market conditions as they are, Coalition Senators are
of the view that the Government spending that will come from these funds be
preceded by careful consideration of their potentially negative impact on
private investment.
Communications Fund
Coalition Senators also note that one of the consequences of
these funds is the abolishment of the Communications Fund which the Coalition
had set up to ensure that the communication needs of rural and regional
Australians would not be forgotten. It is with regret that this fund has been
taken away from those who are so often forgotten by Labor, and little
consolation can be taken from the Government’s ad hoc development of a
national broadband network. Coalition Senators strongly argue that despite the
Government’s overwhelmingly metropolitan focus to date, rural and regional Australia
forms an important part of this country and that the needs of people who do
live outside of our cities should not be forgotten.
Conclusion
During its 12 years in government, the Coalition’s record of
strong investment in infrastructure, education, and health stands as a
testimony to our dedication to the long-term well being of Australia.
Accordingly, the Coalition supports these bills and their intended outcomes
however there is a need to address the concerns raised in this minority report
and consequently the Coalition will be seeking appropriate amendments in the
Senate.
Senator Alan Eggleston
Deputy Chair
David Bushby
Barnaby Joyce
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