Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Hansard source

I am pleased to speak on the Asset Recycling Fund Bill 2014. This very important bill will establish the Asset Recycling Fund, which is a dedicated vehicle to facilitate investment in new infrastructure. It will operate by providing financial incentives to state and territory governments to sell existing assets and to reinvest the sale proceeds into additional infrastructure. I want to cover three points in the time available to me tonight. Firstly, Australia's infrastructure has significant deficiencies, and there is a backlog of projects which need to be commenced. Secondly, these deficiencies are of considerable public policy importance and, thirdly, this bill establishes a mechanism which will help to facilitate investment in new infrastructure.

If I turn firstly to the proposition that we have a significant deficiency in the state of our infrastructure in Australia it is no exaggeration to say that this is one of the common themes of public policy commentary in Australia today. We can look at numerous sources of data; for example, the World Economic Forum's 2010-11 Global Competitiveness Index ranks Australian infrastructure at 22nd out of 139 countries. However, as Infrastructure Australia pointed out, when you look at the measures that are more relevant to Australia, our ranking is in the 30s and 40s. Our total capital stock expressed as a proportion of our GDP is below the average of OECD countries, and the position has been getting worse with public investment in infrastructure as a proportion of our GDP declining in recent years. These figures confirm the anecdotal impressions that many of us would get as we go through the shiny new airports in many Asian countries. We are being eclipsed in Australia by the infrastructure spending of many developing countries, such as China and the Middle East. All of us, I am sure, have had the experience of travelling through a modern, large, well-planned airport in Asia—I can mention Hong Kong airport opened in 1998, Bangkok opened in 2006, Singapore's Changi or numerous airports in China.

It is somewhat depressing to return to Australia and disembark at Kingsford Smith Airport with its rabbit warren of successively-added gates and the unedifying experience of being forced through the duty-free perfume and cigarettes before reaching the overcrowded immigration control area. The unflattering comparisons do not stop at airports, as anyone who has used either urban or long-distance railways in Japan or China or Singapore knows only too well. According to a 2010 report by the OECD,

Australia faces a shortfall in infrastructure which could worsen with the demand pressures exerted by the mining boom, population growth and environmental concerns.

Similar conclusions were reached by Engineers Australia, an organisation which prepares a comprehensive annual scorecard of Australia's infrastructure position. Its 2010 report card ranks some critical sectors as 'poor' and the overall position in Australia as merely 'adequate'. A report a couple of years ago by Infrastructure Partnerships Australia cites estimates of Australia's 'infrastructure investment task' as ranging from $455 billion in a 2008 report by ABN Amro to $770 billion estimated by Citigroup. The recent Productivity Commission draft report into public infrastructure, issued earlier this year, cites a range of other estimates, including a $300 billion estimate by Infrastructure Australia in 2013. So it is clear that there is a range of bodies opining that Australia has a significant infrastructure shortfall. There appears to be a broad consensus that this shortfall has arisen over quite a number of years, due to continued under-investment.

Let me turn next to the proposition that this is a matter of considerable public policy importance and something that government and, indeed, the community ought to be very concerned about. The consequences of this under-investment are being felt in many areas of our economy and our society: the growth in exports from Australia is placing strain on our ports; there is congestion in our cities exacerbated by population growth and changing demographics; our electricity infrastructure is under pressure; and there is continuing investment needed to support key industries, including mining. There are a range of other reasons for the lack of investment in infrastructure and, therefore, the deficiencies in infrastructure are putting increasing pressure on our economic performance and on our social wellbeing.

There is a clear and direct link between infrastructure and our national productivity performance. One of the best historical examples to explain the connection between infrastructure and productivity is the investment made by the US government in the interstate freeway system in the 1950s. This was originally justified as a defence measure, but it had huge productivity benefits, because it reduced the delivery times for goods and expanded the geographic area within which any one company could cost effectively supply customers, and therefore increased the intensity of competition to the benefit of consumers and to the benefit of overall economic efficiency. There is quite a considerable economic literature on the productivity spin-offs from the US interstate freeway system.

Sir Rod Eddington in 2011, as the chair of Infrastructure Australia, noted that:

Productivity has slowed as a direct result of infrastructure shortfalls—time lost in travel, delay at ports, lost production due to water restrictions.

So the economic case for increased investment in infrastructure is a very strong one, but there is also a strong equity and quality of life case to be made. John Kenneth Galbraith, the well-known US economist—actually born in Canada, for the pointy heads—in the 1950s coined the term 'Private Affluence, Public Squalor' to convey the idea of a rich society which under-invests in its public infrastructure. His point was that this harms social cohesion and results in a society which fails to reach its full potential. If congested roads mean that you face a longer travel time to work, you are wasting time sitting in traffic, rather than being with your family or in pursuing other activities meaningful to you. That wasted time obviously has a substantial economic cost, particularly when multiplied by the millions of people in the same position, but it has a very real social cost as well. Therefore one of the most important things governments can do to improve the quality of life of the people they serve is to deliver good quality infrastructure.

Let me turn therefore to the proposition that this bill lays out an effective mechanism to facilitate investment in new infrastructure. It is an effective mechanism which recognises that much of the day to day work of planning and, indeed, funding major infrastructure projects occurs at state government level but that there is an important role for the federal government in supporting the states in the work that they do. It is the mechanism contained in this bill to address that issue and to support and encourage the states which is a particularly noteworthy piece of public policy innovation.

The measures in this bill and the scheme which will be established are, in my view, very much in the tradition of some of ideas argued by the well-known Yale University economist Robert Shiller, who a few years ago wrote a book called Finance and the Good Society. His argument, essentially, was that the reputation of finance as a sector has not been that good following the 2008 financial crisis; but that, in fact, on reflection, the role of the finance sector is of the first importance in delivering economic and social welfare. To quote from one particular book review which summarised the argument, the reviewer noted that Shiller:

… makes a powerful case for recognizing that finance … is one of the most powerful tools we have for solving our common problems and increasing the general well-being.

One of the examples that Shiller gives is the importance of mortgages—the fact that through the invention of this financial instrument it becomes possible for most people to afford a home, even though very few of us are in a position to pay the full capital cost of a home when we first we want to buy. I would argue that, consistent with the notion that clever financial thinking can deliver important social benefits, the essence of this bill is to establish a fund which will be used to offer incentives to the states to recycle their assets. It recognises that the states—all of them—have significant assets on their balance sheets, many of which can be sold. At the same time, the states and, indeed, the nation face a very large task in funding all of the new infrastructure that is required. Therefore, if we can recycle the existing assets, if we can monetise those existing assets, and take the proceeds to fund the provision of new infrastructure assets there is a very significant social welfare benefit to follow as a consequence. The mechanism set out in this bill to achieve that public policy objective is to establish the Asset Recycling Fund, and this will be a dedicated investment vehicle with a focus on providing financial incentives to the states and territories to create new infrastructure.

The Asset Recycling Fund will be managed by the Future Fund Board of Guardians. It is important to note that this board of guardians has a proven track record in managing investment portfolios in the public interest. It has been responsible for the management of the Future Fund. In 2006, the balance in that fund stood at $64 billion and, as at 31 March this year, it stood at $97 billion. So it is a significant achievement in managing that particular fund, and that expertise is now to be deployed to manage the moneys that will make up the Asset Recycling Fund. The initial balance of this fund will be $5.9 billion and there will be further credits to come into the fund in the future. It will be used to help fund investment that expedites nationally significant infrastructure; it will also fund payments to local and territory governments under the Roads to Recovery program. This is a mechanism to unlock the balance sheets of the states to target investment in productive economic infrastructure. It is consistent with and facilitates the delivery of the government's Infrastructure Growth Package announced in the 2014-15 budget.

The Abbott government has come to power with strong commitments in relation to infrastructure, and this bill lays out a specific and effective public policy measure to give effect to the policy commitments that we have made. On this side of the House, we believe that delivering modern infrastructure is a crucial part of the government's Economic Action Strategy to boost economic growth and prosperity, increase productivity and create thousands of new jobs.

The Asset Recycling Fund will be seeded with $2.4 billion from the Building Australia Fund and $3.5 billion from the Education Investment Fund. Over time, it is likely that there will be sources for additional funds to come into the Asset Recycling Fund—for example, should there be Commonwealth assets which are privatised. The consequence of the moneys being put into this fund is that they will then be available to be paid to state governments under incentive arrangements, which will in turn encourage the states to look for opportunities to monetise existing assets and to take the proceeds from those assets and reinvest them in vitally needed infrastructure—infrastructure in road, in rail and in other areas. This can in turn deliver not only the economic efficiency and productivity benefits that I have spoken about and for which infrastructure is so important but also those vital social benefits, because people are required to spend less time in their car and so have more time left to spend with their family or doing other things of importance to them.

I conclude with the observation that the question of refreshing and renewing Australia's infrastructure is very much on the national public policy agenda. There is widespread agreement that our infrastructure is deficient and there is a backlog of projects which needs to be commenced. The Abbott government is getting on with that work, and this bill establishes an additional public policy mechanism to underpin that work by establishing a significant fund which will allow moneys to flow to infrastructure priorities to improve productivity and generate economic growth. There are great economic and social benefits to be captured for our nation if we can find the best ways to fund and build the world-class infrastructure we need, and the mechanism set out in this bill is an important way of achieving that public policy objective.

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