Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Joint Committee of Public Accounts and Audit, I present the committee's report entitled, Report 462: Commonwealth infrastructure spending: Inquiry based on Auditor-General's reports 14 (2015-16) and 38 (2016-17). I ask leave of the House to make a short statement in connection with the report.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—This important inquiry examined Commonwealth infrastructure spending, including the findings and recommendations of the Auditor-General's reports on the approval that administration of funding contributed towards two major road projects. These were not insignificant sums of money. The first was East West Link in Melbourne; the second was WestConnex in Sydney. The Commonwealth contributed $1.5 billion in payments towards the construction of each of the projects, as well as a concessional loan of up to $2 billion to WestConnex.

The committee noted the importance of the assessment processes undertaken by Infrastructure Australia, and that the government acted in contravention of its own election policy, as full business cases were not provided or assessed before funds were committed and paid. The government's decision—and it was the government's decision—to depart from full Infrastructure Australia assessments reduced the evidence basis for decision-making and also meant that key documents relevant to administrative activities were unavailable at key points in the process. The committee concluded that this approach is best avoided given the scale of public funding and risks involved in infrastructure projects. It was put in plain English that the government should follow its own election commitments. Advice was provided by the Department of Infrastructure and Regional Development to inform funding decisions for the projects. It advised the government of incomplete documentation, assessments, matching payments to funding needs and risk of advanced payments, and deficiencies were identified.

The committee recommended that future advice to ministers, firstly, should explicitly outline whether the requirements of land transport legislation had been met when recommending they approve projects. They, simply, were not met in some instances. Secondly, and importantly, it recommended that advice to ministers should identify any additional costs and risks to taxpayers, such as additional interest charges that may arise when advanced payments are proposed.

With regard to advanced payments, the committee noted that payments totalling $2 billion were made to the East West link and WestConnex projects in advance of project need. That is rather polite bureaucratic code for saying the government shoved $2 billion out the door on 30 June, 2014. It also noted that this provided 'budget presentation benefits'—and they are the audit office's words—in the form of a larger budget deficit in 2013-14, and resulted in extra interest costs of around $70 million.

I quote from the committee's report, which was signed off by government members. It states:

The Committee was not presented with any material that it considers provides a proper basis for these advance payments and the Committee noted the payments were not required to progress either project at that time.

The Government’s decision to make these payments resulted in significant extra costs to the taxpayer in terms of interest costs on borrowings. These costs were estimated as being around $70 million at the time the … audits were completed …

And since then the wasted money will have run well over $100 million. The committee noted that such advance payments are undesirable.

The committee also examined how funding conditions may be enforced for infrastructure projects. The committee recommended that the department review its approach to drafting these instruments to limit risks to the Commonwealth. The committee also recommended that Treasury review the operation of funding recovery provisions in the Federal Financial Relations Act, particularly around the uncertainty about recovering interest that may have been accrued by states and territories on advance payments. The report also noted that this problem does not arise if you do not make advance payments that are not needed.

A significant concern also to the committee in this inquiry was the lack of consideration given by the Department of Infrastructure and Regional Development to a large range of relevant issues when formulating a concessional loan of $2 billion for the WestConnex project. The committee was also concerned that the department agreed on key terms and conditions of the loan quite soon after the funding decision and, with only one exception, in advance of engaging advisers. This approach limited the department's capacity to identify risks and negotiate favourable terms.

The committee made one loan related recommendation—to require loan proponents to identify alternative funding strategies and to justify in their advice why a Commonwealth loan would be the best funding option. The remainder of these learnings are addressed in the recommendation made by the Auditor-General in his WestConnex audit project. The committee recommended that the Auditor-General consider an audit of whether these learnings had been applied to a subsequent loan made to the Sunshine Coast Airport expansion project. That of course is a matter for the Auditor-General, given his independence, but we think that would be worthwhile.

Moving towards the end, the management of milestones also remains an area of focus for the committee across a range of government grant payments, including those related to infrastructure projects. The committee noted that the Department of Infrastructure and Regional Development did not effectively manage milestones for the WestConnex project. There is a pattern here. Some milestones were agreed to after milestone events had occurred and others were amended before payment when milestones were not met. So you enter into a payment schedule and you enter into milestones but when the milestones are not met you change the milestones so you can still push the money out the door, even when it is not needed by the project. Again it runs up Commonwealth debt and wastes interest.

The committee noted that reducing deliverables simply to meet existing payment dates could weaken future incentives for funding recipients, state governments, to meet agreed milestones and could also heighten the Commonwealth's risk exposure if payments are made too far in advance of need and delivery. The committee considered that the department should identify a strong rationale for any changes and clearly record any new information; however, the committee reinforced through a recommendation the broader principle that the department should only make significant payments when they are required by a project and meet agreed milestones.

In closing I want to emphasise one final point that is very important for us as parliamentarians. The committee noted:

There is significant room for improvements in reporting so that the Parliament is able to look at expenditure figures with confidence and know whether construction has actually occurred.

The report also states:

… the ANAO’s advice that the reporting of expenditure usually reflects the amount of Commonwealth funding passed on to states/territories and paid on to their related agencies.

…    …   …

The practical result of this is that when very significant sums of public money are publicly reported to the Commonwealth Parliament as having been ‘spent’—

and we hear in question time the minister say, 'We have spent that'—

it does not necessarily mean that any actual works have been undertaken, or that transport or economic stimulus objectives have been achieved.

So when we hear the word 'spent' it just means that money has been paid to the states. The committee, therefore, recommended that the department conduct a system review to improve reporting.

In conclusion, I would like to extend my thanks to all members of the committee for their consideration of this inquiry and their ongoing efforts in scrutinising the efficiency and accountability of government administered programs. I commend the report to the House and I move:

That the House take note of the report.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned. The resumption of the debate will be made an order of the day for the next day of sitting.