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

I am very pleased to rise to speak on the Asian Infrastructure Investment Bank Bill 2015, an important bill which will enable Australia to become a founding member of the Asian Infrastructure Investment Bank. In the time available to me this evening I would like to focus on three key issues. Firstly, I want to make the point that infrastructure is a priority for governments of every nation. Secondly, I want to speak about some of the challenges involved in financing infrastructure. Thirdly, I want to speak to the way in which the establishment of the Asian Infrastructure Investment Bank will help to address some of these issues facing nations across the Asian region.

Let me turn first to the proposition that infrastructure is a key priority for governments in every country. It is certainly a key priority for the Abbott government here in Australia. For example, the Abbot government has made a $50 billion commitment to improving Australia's road and rail network. That commitment involves a range of projects all across the country with new roads in most Australian states and territories, bridge upgrades, and a new freight rail link in Western Australia. Major work has commenced on the $3 billion NorthConnex project, which is expected to create 8,700 jobs for New South Wales—the second missing link to be started by this government after the M5 West widening. Early works on WestConnex also commenced this year, a project which is expected to deliver $20 billion in economic benefits and create around 10,000 jobs. We have also seen planning for the Western Sydney airport at Badgerys Creek commencing, and that reflects and follows a decision made by this government after the important issue of Sydney's second airport was kicked down the road by a succession of governments.

The Abbott government has established the $5 billion Northern Australia Infrastructure Facility that will be available for major infrastructure projects like ports, railways, pipelines and electricity generation. In addition to our plans announced to invest in Australia's north, the government has other programs to develop regional Australia, including through the $1 billion National Stronger Regions Fund. The Asset Recycling Initiative is freeing up states to invest in a range of productive infrastructure. Two agreements have been signed so far—with the governments of New South Wales and the Australian Capital Territory—and these are expected to generate more than $15 billion of additional infrastructure activity. There are a range of infrastructure priorities for the Australian government, as there are for governments throughout our region.

Another important infrastructure priority is the National Broadband Network, which is being delivered by the Abbott government more quickly and at less cost to taxpayers than the Rudd-Gillard-Rudd government. Since September 2013 the NBN has more than tripled the number of homes and businesses that can receive a service. As at the election date, the NBN was available to some 275,000 premises. By September 2016 it is expected that the NBN will have passed or construction will have commenced in a very substantial number of areas. We are already at over one million premises which are now able to connect to the NBN fixed line network.

These points illustrate the policy importance of infrastructure here in Australia and the policy importance of infrastructure in countries around the world and certainly throughout Asia. It is worth reflecting for a moment on why infrastructure is so important. There is a clear connection between the quality of a nation's infrastructure and the economic and productivity spin-offs from that infrastructure. Indeed, the link between infrastructure and productivity has been very well studied within economic literature and is very well understood.

One of the classic examples which is often quoted is the investment made by the US government in the interstate freeway system in the 1950s. That was justified at the time on the grounds of responding to defence and national security challenges, but it had an enormous economic benefit. The productivity spin-off was very substantial. For example, it reduced delivery times and increased the geographic area within which any one company could effectively supply customers, in turn increasing the intensity of competition and increasing the efficiency with which companies in the economy supplied their customers.

The same economic logic applies to the infrastructure of many times. That is why it is a policy priority for the Abbott government, as it is for governments in many countries, to support the construction of infrastructure as a means of, in turn, supporting economic growth, creating jobs and assisting businesses to link with their customers and to supply markets around the country and, in turn, internationally.

As well as the economic justification for infrastructure, there are also very important equity and quality-of-life justifications for investment in infrastructure. The US economist John Kenneth Galbraith—he was, in fact, born in Canada but carried out most of his career in the US—in the 1950s coined the term 'private affluence, public squalor' to convey the idea of a rich society which underinvests in its public infrastructure. He was the ambassador to India in the 1950s in the Kennedy administration. He was notorious for sending long memos full of advice to President John F. Kennedy. There is some suspicion that many of those memos went unread. But I will return to the essential subject of the remarks I want to make this evening. He was responsible for coming up with the notion of 'private affluence, public squalor' to convey the idea of a rich society which underinvests in its public infrastructure. The point that Galbraith was making was that this harms social cohesion and results in a society which fails to meet its full potential.

If congested roads mean you face a longer travel time to work, you are wasting time sitting in traffic rather than being with your family or pursuing other activities meaningful to you. Certainly that wasted time 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. One of the most important things governments can do to improve the quality of life of the people they serve is deliver or facilitate the delivery of good, quality infrastructure.

That brings me to my second point, which is the challenge of financing infrastructure. Asia is estimated to face an infrastructure financing gap of some $8 trillion over the current decade—an enormous challenge and one which the Asian Infrastructure Investment Bank, which is the subject of the bill before the House this evening, is designed to help address. Similarly, here in Australia there is a strong need for infrastructure financing. As I have mentioned, the Abbott government is working to address that need with our $50 billion infrastructure package.

There are a number of factors which underpin the challenge of financing infrastructure. First, infrastructure is by its very nature capital-intensive. It is very, very expensive. The benefits are realised over many decades but the costs are incurred over a few years. This creates a challenge. In Australia we have the further complexity that it tends to be state governments which are responsible for most infrastructure, and state governments often face fiscal challenges. They have only a limited capacity to raise their own revenue and much of what they spend is dependent upon transfers from the federal government. They also face ever-growing claims on expenditure.

There are a number of levers that a government, at least conceptually, can pull when looking at funding infrastructure. Options include: increasing public debt; increasing taxes; requiring a 'user pays' approach—for example, tolls to fund roads; and selling poorly performing public assets to the private sector where they might be run more efficiently and, in turn, using those proceeds to fund other infrastructure. This latter approach and certainly the notion of asset recycling has very much come to the fore in Australia in recent years. The Premier of New South Wales, Mike Baird, and the federal Treasurer, the member for North Sydney, have been strong advocates of this approach. It is certainly delivering some significant returns and benefits.

It is fair to say that, over the years, some progress has been made in Australia towards having the private sector take on more of the infrastructure task. Private sector investment in infrastructure has risen as a proportion of GDP. This is in part due to privatisation over a number of decades, in part due to the competition reform process which commenced in the 1990s and in part due to the growth of privately funded infrastructure associated with the resources boom, such as railways.

A particular public policy challenge in Australia when it comes to financing infrastructure is how we might better tap into the superannuation savings pool. As many have observed, the characteristics of returns on economic infrastructure projects—long-term, stable returns at reasonable rather than spectacular rates—are in many ways attractive to those saving to provide for their retirement. Nevertheless, the proportion of the Australian superannuation savings pool which is invested in infrastructure is quite low. One of the paradoxes is that it tends to be pension funds and superannuation funds from other markets which are more prominent investors in infrastructure in Australia than Australian based superannuation funds.

Yale University economics professor Robert Shiller has written extensively about the social value of economic and financial innovation. For example, he argues that there should be a market in futures contracts tied to an index of house prices, as this would allow people who did not own a house to hedge against the risk of house prices jumping sharply, locking them out of the market. More broadly, he has argued about the social benefits of financial innovation. In my view those arguments carry weight when it comes to the question of how best infrastructure ought to be financed. The public policy pay-off from financial innovation in the financing of infrastructure could be very significant.

I turn to the specific nature of the measures in the bill before the House this evening, which is to authorise the participation by Australia in the Asian Infrastructure Investment Bank. I would make the case that when we take a perspective across Asia, there is certainly a need for greater financial innovation in the area of financing infrastructure. I think the Asian Infrastructure Investment Bank is a good example of precisely the kind of innovation which ought to be encouraged. It is of course proposed to be a multilateral development bank and is expected to become operational from later this year. Australia will contribute some $932 million in capital over five years towards the expected authorised capital base of the Asian Infrastructure Investment Bank of US$100 billion.

The measures in this bill provide an appropriation for the payment of Australia's capital contribution to the Asian Infrastructure Investment Bank. Importantly, as the sixth largest shareholder, Australia will be well positioned to influence the bank's decisions and strategic direction. There is also a broader economic benefit in which our nation will share if there is to be improved infrastructure throughout the Asian region, which in turn will provide greater opportunities for Australian businesses and increase demand for our services and commodity exports.

New ports and railways in countries like India, Indonesia and Korea will mean that Australia's exports have new opportunities to reach new markets or expand existing markets. Australian firms will be well placed to benefit from infrastructure projects which are funded in whole or in part by the Asian Infrastructure Investment Bank. These projects could lead to work for Australian engineering businesses and construction management businesses and could lead to opportunities for Australian providers of finance, consultancy services and so on. The benefits of the Asian Infrastructure Investment Bank for Australian business look promising. The Asian Infrastructure Investment Bank also looks to be a promising vehicle to stimulate much-needed infrastructure across Asia, in turn stimulating economic growth and productivity in the nations of Asia. As a nation which is part of the Asian region, we clearly have an interest in greater prosperity throughout Asia and we therefore clearly have an interest in participating in the Asian Infrastructure Investment Bank as a policy tool designed to stimulate the achievement of that greater prosperity.

As I have argued, infrastructure is a key priority for governments in every country. Certainly here in Australia the Abbott government is delivering a number of major projects around the nation as part of a policy emphasis on stimulating improvements to our infrastructure. In the broader Asian region there is a very significant infrastructure financing task. The measures contained in the bill before the House this evening authorising Australia's participation in the Asian Infrastructure Investment Bank form part of the suite of policy responses which will help to meet the need for infrastructure in Asia to the benefit of the Asian region, to the benefit of countries in Asia and to the benefit of Australia.

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