Chapter 2
Benefits of infrastructure and responsibility for delivery
2.1
This chapter outlines the benefits of investing in public
infrastructure; the responsibilities for planning and delivering public
infrastructure in Australia; and the roles of key government bodies and
agencies.
Benefits of investing
2.2
The Australian Academy of Technological Sciences and Engineering (ATSE)
2014 policy statement outlined the broad benefits of investing in
infrastructure:
[Infrastructure] underpins productivity growth, supports a
growing population, sustains industry growth, boosts competitiveness, enhances
societal wellbeing and connects rural and urban environments.[1]
Economic benefits
2.3
The 2014 Productivity Commission (PC) report highlighted that
infrastructure investment directly affects the level of economic activity. The
PC commented on the central importance to the economy of delivering and
maintaining public infrastructure:
Efficient public infrastructure plays a key role in a
competitive and productive economy and the ongoing funding and financing of
infrastructure development in Australia is therefore of critical importance.[2]
2.4
Investment in infrastructure is seen as central to Australia's economic
wellbeing, as outlined by the Department of Infrastructure and Regional
Development (DIRD):
Investing in high-quality infrastructure has the capacity to
stimulate and enhance the productivity of the economy in both the short and
long term. It is an investment that has a multiplier effect throughout the
economy, generating lasting economic, social and environmental benefits.[3]
2.5
The economic benefits of infrastructure were also recognised by Standard
& Poor's Ratings Services:
Investing in high-quality infrastructure can create jobs,
generate demand, and enhance efficiency, lowering costs for businesses and
governments, and generating a so-called "multiplier effect" on GDP growth.[4]
2.6
The PC also observed that improved public infrastructure can create
benefits in related markets including:
-
transport infrastructure that provides business with access to new port
facilities can promote competition in stevedoring services and shipping
-
communication networks increase the opportunity for collaboration and
innovation
-
ports and airports provide access to international markets and the
benefits of international trade in goods and services
-
rail systems built in the nineteenth and twentieth centuries established
patterns of urban settlement on Australia's east coast that are highly valued
today in the housing market
-
urban roads, public transport and telecommunication networks can improve
the amenity of cities and improve economies of agglomeration and contribute to
innovation.[5]
Productivity
2.7
Mr Philip Lowe, Deputy Governor, Reserve Bank of Australia, commented in
a 2013 speech that investment in transport infrastructure could open new
business opportunities:
One of the less obvious benefits [of investment in transport
infrastructure] is what economists sometimes call agglomeration spillovers.
Effective transportation networks deepen markets. They bring consumers closer
to more businesses, and they bring workers in contact with more opportunities.
These deeper markets and connections promote competition. They promote greater
specialisation by both firms and workers. And they promote innovation and a
more dynamic economy. While the internet has some of these same effects, person-to-person
contact remains an essential part of business, education and innovation. Poor
transportation makes this contact difficult and hurts our national
productivity.[6]
2.8
Mr Saul Eslake, Economist, advised that despite the challenges involved,
well-chosen infrastructure projects can enhance productivity growth[7]
and added:
This would be a good time to undertake infrastructure
spending that both meets economic or social needs, can pass and be shown to
pass reasonable cost-benefit tests, and which would put to work labour and
capital that is currently lying idle.[8]
2.9
Ms Jane McGill, Senior Policy Adviser Infrastructure, Industry Super
Australia also spoke about the contribution of infrastructure to productivity:
Obviously there are some very useful things that flow from
infrastructure in terms of the broader economy. When we invest in
infrastructure we do achieve productivity gains in the economy. As the
population ages and as the workforce participation decreases, productivity is
the only way that we are going to be able to sustain living standards, and
there is certainly plenty of evidence of the link between infrastructure and
productivity.[9]
Social benefits
2.10
The PC noted the benefits social infrastructure such as schools and
hospitals can have:
...important direct benefits to individuals and can also have
broader economic implications. For example, improved education and health
outcomes can lead to increased workforces participation and labour
productivity.[10]
2.11
Standard & Poor's Ratings Services recognised that investment in
social infrastructure would benefit future generations:
Any discussion on future infrastructure planning should take
into account our growing social infrastructure needs. Lifting more people out
of poverty and entrenched disadvantage would likely be good for the economy.
Too much inequality can be a drag on long-run economic growth.
Encouraging the development of the nascent social impact
investment sector may increase efficiency, effectiveness and innovation to
solve entrenched social issues, and attract a broader spectrum of investors
over time to scale up proven ideas.[11]
Responsibility for delivery
2.12
In its 2014 report, the PC explained that Australian governments have
historically taken responsibility for most aspects of public infrastructure
provision, noting:
In part, this was due to a desire to ensure equitable access
to services across the community and because there is a range of 'market
failures' that would lead to inadequate provision if decisions were left
entirely to the private sector.[12]
2.13
In more recent decades, private investment in public infrastructure has
grown, principally as a result of the privatisation of formerly government
owned assets and services.[13]
2.14
Nonetheless, government remains primarily responsible for planning and
delivering public infrastructure.[14]
Table 1 outlines the de facto allocation of responsibility for the
planning and delivery of infrastructure across the three tiers of government.[15]
Table 1: Responsibility for
infrastructure by level of government[16]
|
Level of government
|
Economic infrastructure
|
Social infrastructure
|
|
Commonwealth
|
Aviation services (air navigation etc)
Telecommunications
Postal services
National roads (shared)
Local roads (shared)
Railways (shared)
|
Tertiary education
Public housing (shared)
Health facilities (shared)
|
|
State
|
Roads (urban, rural, local) (shared)
Railways (shared)
Ports and sea navigation
Aviation (some regional airports)
Electricity supply
Dams, water and sewerage systems
Public transport (train, bus)
|
Educational institutions (primary,
secondary and technical) (shared)
Childcare facilities
Community health services (base
hospitals, small district hospitals, and nursing homes) (shared)
Public housing (shared)
Sport, recreation and cultural
facilities
Libraries
Public order and safety (courts,
police stations, traffic signals etc)
|
|
Local
|
Roads ( local) (shared)
Sewerage treatment, water and drainage
supply
Aviation (local airports)
Electricity supply
Public transport (bus)
|
Childcare centres
Libraries
Community centres and nursing homes
Recreation facilities, parks and open
spaces
|
2.15
Irrespective of the responsibilities at different levels of government,
due to the vertical fiscal imbalance,[17]
the Commonwealth is the major source of infrastructure funding for the states
and territories.
2.16
Mr Eslake, told the committee that even though the Commonwealth may have
greater capacity to finance and fund infrastructure projects, the bulk of
public sector infrastructure delivery rests with state, territory and local governments:
On average, over the past decade state and territory
governments have accounted for 61 per cent of total public sector gross fixed
capital formation, local government 16 per cent and the Commonwealth
19 per cent, much of which is in defence equipment purchases. This is
despite the fact that the Commonwealth has significantly greater capacity to
finance infrastructure spending both from its own recurrent revenues and via
its borrowing capacity.[18]
2.17
This point was reinforced by Mr Raymond Tame, Chief Executive Officer,
City of Armadale:
If you compare the taxation revenue capability of the
different levels of government, federal collects 82 per cent of the tax and
provides about eight per cent of the infrastructure. The state government
collects 15 per cent of the tax and looks after about 56 per cent. Of course,
that is understandable; states should be providing the heavy infrastructure.
Local government capability is three per cent of the taxation base but we are
looking after 36 per cent of the infrastructure.[19]
Local government
2.18
The committee heard submissions from local government representatives
detailing a shift in responsibility for infrastructure to local government. Councillor
Deidre Flint, Chair of Infrastructure of the Southern Tasmanian Council
Authority, explained that state governments had transferred the cost of
maintaining several infrastructure assets to local government:
The state government handed us 103 bridges back, in the 80s,
without any consultation, which we now have to maintain. Since 2002, we have
been replacing two to four wooden bridges a year, which is an enormous cost for
us, and we have another two that we have to do. That does not mean the
maintenance stops. We still have to do that as well.[20]
2.19
The Western Australian Local Government Association (WALGA) in its
submission argued that local governments have substantial infrastructure
responsibilities but limited capacity to raise revenue:
This is particularly evident when one considers that the only
form of taxation employed by Local Governments is property rates, whereas the
State and Commonwealth Governments are able to use a range of taxes.[21]
2.20
WALGA outlined the exponential rise in responsibility for non-financial
assets, such as parks and recreational areas. In the 2013-14 financial year WA
local governments had responsibility for $27.6 billion in non-financial assets:
The value of this stock of non-financial assets has grown at
a rate of 8.9 percent per annum over the last ten years.[22]
2.21
The (former) House Standing Committee on Economics, Finance and Public
Administration inquired into local government and cost shifting. In its report,
the committee concluded that:
The assessment of the true extent of cost shifting from other
spheres of government to local government is extremely complex. There is no
clear definition of cost shifting, so most representatives of local government
were careful not to provide an estimate of the extent of cost shifting.[23]
Key
government bodies and agencies
Council of Australian Governments
(COAG)
2.22
In December 2013, COAG established the Transport and Infrastructure
Council (the Council) bringing together the Commonwealth, state, territory and
New Zealand ministers with responsibility for transport and infrastructure
along with the Australian Local Government Association. The policy
responsibilities of the Council include:
-
surface transport;
-
transport safety and security;
-
promotion of more efficient and environmentally conscious
transport, including through vehicle emission standards and national cycling
promotion;
-
infrastructure policy and investment, including road, rail and
ports; and
-
infrastructure and related land use planning.[24]
2.23
The objective of the Council is to:
...achieve a co-ordinated and integrated national transport and
infrastructure system that is efficient, safe, sustainable, accessible and
competitive. Achieving this objective will support and enhance Australia's
economic development and social and environmental well-being.[25]
Commonwealth agencies
2.24
The key Commonwealth agencies involved in infrastructure planning and
funding are Infrastructure Australia (IA) and the Department of Infrastructure
and Regional Development (DIRD).
Infrastructure Australia
2.25
IA is an independent statutory body established in 2008 to assist all
levels of government in identifying and prioritising funding for nationally
significant infrastructure projects. IA is expected to provide 'high quality
advice on Australia's requirements for nationally significant infrastructure'.[26]
As outlined in the 2015 Statement of Expectations by the Minister for
Territories, Local Government and Major Projects:
The Australian Government expects Infrastructure Australia to
contribute to the efforts of all levels of government to build a strong and
prosperous economy by providing robust, independent and evidence-based advice
on Australia's future infrastructure needs. This includes identifying gaps in
Australia's infrastructure as well as creating a priority list, based on robust
analysis and strategic long term planning, of nationally significant
infrastructure proposals.[27]
2.26
In May 2015, IA released the first audit of the nation's infrastructure.
It provides:
...a top-down assessment of the value-add, or Direct Economic
Contribution of infrastructure; considers the future demand for infrastructure
over the next 15 years, and delivers an evidence base for further gap analysis,
long term planning and future investment priorities.[28]
2.27
On 17 February 2016 IA released its first 15 year Australian
Infrastructure Plan. The Plan sets out 78 recommendations to address current
infrastructure gaps and emerging infrastructure challenges. The Plan explores:
...the infrastructure challenges and opportunities Australia
faces over the next 15 years and the solutions required to drive productivity
growth, maintain and enhance our standard of living, and ensures our cities
remain world class.[29]
2.28
At the time the Plan was released IA also released a reinvigorated
Infrastructure Priority List, which identifies potential infrastructure solutions
for investment over the next 15 years and will be updated regularly throughout
each year.[30]
The list does not indicate a commitment by government to fund the construction
of the listed projects.[31]
2.29
Mr Philip Davies, Chief Executive Officer, IA, clarified the division of
responsibilities between IA and the Department of Infrastructure and Regional
Development:
We are not involved in the funding of the projects. Our role
really goes up to the point where we assess projects and put them on the
priority list. At that point the federal government, with state and territory
governments, chooses what to fund, and that is done through the Department of
Infrastructure and Regional Development. From that point onwards the Department
of Infrastructure and Regional Development oversees the funding and delivery of
those investments.[32]
Department of Infrastructure and
Regional Development
2.30
DIRD has responsibility for the 'design and implementation of the
Australian Government's infrastructure, transport and regional development
policies and programs'.[33]
2.31
In 2012 the DIRD launched the National Infrastructure Construction
Schedule (NICS). The NICS is a Commonwealth, state, territory and local
government collaboration. The NICS provides industry and investors a public
pipeline of infrastructure projects for development or investment.[34]
The NICS includes construction projects valued from $50 million for larger
states, and $20 million for smaller states, territories, local governments and
councils. All projects are subject to planning and feasibility studies to test
the project's validity prior to funding.[35]
The NICS website lists upcoming government asset sales and feasibility studies
to inform future investment.[36]
2.32
The DIRD also coordinates a number of infrastructure investment and
grants programs. One of the more recent grant programs established is the
National Stronger Regions Fund (NSRF) which commenced in 2015 and provides $1
billion of funding over 5 years to enhance infrastructure in regional
communities. The NSRF is designed to assist disadvantaged regions or areas of
disadvantage within a region by awarding infrastructure grants.[37]
The grant must be matched on at least a dollar for dollar basis. The funded
projects must deliver an economic benefit to the region beyond its construction.[38]
State agencies
2.33
Most states appear to plan and manage infrastructure projects within a
department.[39]
However, some states have or are in the process of establishing
infrastructure-specific agencies.
Infrastructure NSW
2.34
Infrastructure NSW (INSW) was established in July 2011 under the Infrastructure
NSW Act.[40]
INSW works as an independent decision-making authority[41]
with a board of leading business people with expertise in infrastructure and
the state's senior public servants. INSW was established to:
...bring real change to the way infrastructure is delivered,
and put infrastructure planning and decision-making where it should be, in the
hands of experts.
And where politicians now or in the future decide to reject
the advice of experts, it will be up to them to account for their decisions and
actions. This bill lays the foundation for what's been missing for more than 10
years: Coordinated infrastructure planning across the whole of government,
using the most efficient and effective funding mechanisms to deliver the best
results. [42]
2.35
INSW is linked to NSW's Department of Treasury. INSW requires state
government projects that seek funding in excess of $100 million or projects
nominated by the Premier as a 'special project', to go through INSW. INSW
utilises skills of experts such as Dr James McIntosh, Director of Land Use and
Transport Integration Consulting:
We review the project against a set of criteria and
guidelines and we make our recommendations. As it goes through, the project
gets steered through the Infrastructure New South Wales review—their
guidelines—to make sure that it is achieving what they want.[43]
Infrastructure Tasmania
2.36
In 2015, the Tasmanian Department of State Growth established
Infrastructure Tasmania to:
...assess, prioritise, and review major economic infrastructure
proposals, including the coordination of all infrastructure funding submissions
to both the State and Federal Governments.[44]
2.37
The new CEO, Mr Allan Garcia's role will be to:
...ensure the effective coordination, planning and assessment
of all major infrastructure proposals in Tasmania, including rail, major roads,
energy, ports and water and sewerage.[45]
2.38
Mr Brenton West, CEO of the Southern Tasmanian Councils Authority
described the work undertaken to date to set up this new body:
They have appointed a CEO. There is a
body of work. He has set out a work plan that he is working towards. You
can see all of that. I think it is in its infancy. We would be hopeful that
this body would be a positive outcome. He has set a time line. He wants to
develop a pipeline list of projects.[46]
Infrastructure Victoria
2.39
On 3 September 2015, the Infrastructure
Victoria Bill 2015 was passed to establish Infrastructure
Victoria which will:
...promote rigorous and transparent decision-making and improve
public debate and build consensus for priority infrastructure projects. We will
work with the community and stakeholders to develop a 30-year infrastructure
strategy that identifies the infrastructure needed to support improved social,
economic and environmental outcomes for Victoria.[47]
2.40
The Infrastructure Victoria website indicates that its priorities
include:
-
preparing a 30 year Infrastructure Strategy to identify
Victoria's infrastructure needs and how they can be met;
-
providing advice to the government on infrastructure matters; and
-
publishing research on infrastructure matters.[48]
2.41
The Victorian Minister of Transport's second reading speech acknowledged
the need for greater transparency around decision making:
...Government must prioritise and select the projects and
reforms that deliver the highest public net benefit. These decisions are not
easy, but they should always be based on evidence and robust, transparent
analysis.
Transparency must underpin infrastructure decision-making
because the community cannot, and should not, accept such decisions without
being properly informed and involved. [49]
Other bodies
Global Infrastructure Hub
2.42
Following an agreement by G20 leaders, the Global Infrastructure Hub was
established in Sydney in November 2014 with Mr Chris Heathcote, the inaugural
CEO. The website indicates the mandate of the hub is to:
...drive progress on its infrastructure agenda and to move
engagement with the private sector beyond business as usual.
The Hub will work to address data gaps, lower barriers to investment,
increase the availability of investment-ready projects, help match potential
investors with projects and improve policy delivery.
The Hub will report to the G20 and work collaboratively with
governments, the private sector, development banks and international
organisations. According to the B20, the Hub could help unlock an additional $2
trillion in global infrastructure capacity to 2030.[50]
2.43
Mr John Fraser, Treasury Secretary, spoke about the Global
Infrastructure Hub at a 2015 estimates hearing:
One of the key objectives of the Global Infrastructure Hub is
to bring together a regimen for putting projects together so that, if a country
or a state or indeed a local government, or even people from the private
sector, want to design an infrastructure project, they will get the benefit of
international experience—things on literally how to set up a contract; dispute
resolution procedures; how to market it—and that is
very much a supply-side effort.[51]
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