NATIONAL AFFAIRS: by Ken AldredNews Weekly
Building infrastructure for Australia's future prosperity
, August 31, 2013
The key national issue that is not receiving the attention it merits in this federal election campaign is the state of Australia’s infrastructure.
The National Infrastructure Plan, published by the Commonwealth government’s Infrastructure Australia in June 2013, highlights the two main pressures that will bear on Australia’s infrastructure in the decades to come.
Externally, the pressure will come from the extraordinary growth of Asia, which by 2050 will be producing over half of all global output.
Between 2009 and 2030, the population of the Asia-Pacific region will increase significantly, resulting in the largest regional market in the world. Rising living standards will be accelerated by rapid urbanisation, so that by 2050 average Asian incomes will be equal to the European incomes of today.
This growing Asian middle-class will fuel demand for Australia’s mineral resources, education service exports, agricultural produce and tourism. Mineral exports have already tripled in the decade up to 2011. Education service exports doubled every five years to $18 billion in the 2009/10 financial year. By 2050 our agricultural exports are predicted to have expanded by 140 per cent. Tourism should also benefit significantly.
As a result of all this, Infrastructure Australia says in its report, “International trade will contribute to an expected doubling of the road freight task, tripling of the shipping task and quadrupling of the rail and air freight task into the future” (p.9).
The second pressure on our infrastructure will be domestic, coming from a growing and ageing population, declining productivity growth and, according to the Commonwealth government’s report, climate change.
By 2050 Australia will have a 50 per cent larger population at 36 million people. Equally significant will be the halving of the proportion of working-age people. For every Australian over the age of 65, the number of working-age people supporting them will drop from the 2010 level of five to 2.7 by 2050.
This growing and ageing population will push up demand for goods, services and personal transport, as well as for housing, energy and water. Meeting this demand, while in parallel tax revenues are languishing, will squeeze government finances like never before.
The way out of this is to keep the economy growing and lift living standards while Australia’s population ages and workforce participation declines. This can only be ensured by building solid productivity growth.
As Infrastructure Australia has pointed out, if national productivity increased by 2 per cent a year to 2050, every Australian by then would be $16,000 a year better off in today’s dollars. Regrettably, however, annual productivity growth is forecast to fall to 1.4 per in the coming decade compared to 2.1 per cent in the 1990s.
Yet the right infrastructure and its efficient use can turn around declining productivity. This especially applies to the energy, water and telecommunications infrastructure needed for production, and the transport infrastructure required to move product to market.
The Infrastructure Report Card 2010 by Engineers Australia demonstrates in great detail that the current state of Australia’s infrastructure is a long way short of being able to cope with these two major pressures. The Report Card rates our infrastructure by sector and by state or territory, according to the following grades (p.1):
A (very good): Infrastructure is fit for its current and anticipated purposes.
B (good): Minor changes are required to enable infrastructure to be fit for its current and anticipated future purposes.
C (adequate): Major changes are required to enable infrastructure to be fit for its current and anticipated future purposes.
D (poor): Critical changes are required to enable infrastructure to be fit for its current and anticipated future purposes.
F (inadequate): Inadequate for current and anticipated future purposes.
If we apply this scale to evaluate Australia’s national infrastructure sector by sector, we find the following:
Generally roads are rating at C, national roads being C+, state roads at C and local roads D+. Therefore, the condition of our roads ranges from being adequate to poor.
It is contended that road traffic needs to be reduced by moving commuters onto improved public transport, shifting freight load from road to rail, improving both road-asset utilisation and long-term strategic planning, and increasing funding for local roads especially.
Rail infrastructure scores badly with a D+ rating. The evaluation includes metropolitan networks, freight and regional passenger services, grain lines, the interstate networks and private railways. Central to this lower rating is the incapacity of urban rail networks to cope with demand. A decade of investment will be required to reverse this situation.
It has also been argued by Engineers Australia that priority needs to be given to establishing a high-speed rail network down Australia’s east coast to ease airport congestion.
Airports fare significantly better with a B- rating. Generally, they are in good condition, but need improvements to cope with future demand. To this end Engineers Australia welcomes the second new parallel runway for Brisbane airport, which was approved by the Commonwealth government in 2007, but says the issue of a second major airport in or near Sydney needs to be resolved. It adds that infrastructure expansion will be needed at Darwin, Melbourne and Perth airports.
As with airports, port infrastructure is rated B-. That is, they are in good condition. However, Engineers Australia warns that, in general, Australia’s ports need significant infrastructure investment to meet future container growth.
Like airports and ports, drinkable water is given a B- rating, with good infrastructure that requires only minor changes to meet current and future demand.
Engineers Australia warns against complacency from the recent heavy rain years, which have weakened water-usage discipline from the drought years of 2001-2008.
Wastewater and stormwater
Wastewater and stormwater infrastructure are respectively rated at B- and C. In respect of the former, more work needs to be done on the use of recycled water; while the latter requires more work on flood prevention.
Australia’s irrigation infrastructure, which is used to supply water to cultivated land or to open space for the growth of vegetation or crops, is rated at C.
Given that the National Water Commission estimates that 30 per cent less water could be available for irrigation application in northern Victoria in the years to come, that means more work will need to be done to reduce water over-extraction and excessive irrigation causing land degradation.
Engineers Australia gives electricity a C+ rating, meaning that major changes are required before infrastructure will be capable of meeting present and future demands. Unfortunately, a generation of investment has been deferred, leaving ageing infrastructure in need of major improvements in distribution and transmission. In addition, progress on a renewable energy sector has been slower than originally envisaged.
Overall, gas infrastructure is in good condition and enjoys a B- rating. A critical issue is managing security of supply, with a key need being better risk-management to handle any loss of supply. Distribution network investment has slowed, leaving the Queensland, Tasmanian, Northern Territory and Western Australian networks with severe limitations.
Telecommunications in Australia is a major problem area with Engineers Australia rating its infrastructure at C. There is no doubt that the decades-old Telstra copper network is in a serious state of deterioration and disrepair.
The current federal Labor Government is tackling this issue through its National Broadband Network (NBN), and the laying of optic fibre as the transition medium has been underway for some months.
Engineers Australia has expressed concern about the prohibitive costs of the NBN, and the opposition Coalition has been effectively promising a modified, and supposedly cheaper, version.
We will have to wait until after the September 7 federal election to see what subsequent government decisions in this area are likely to be.
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You can clearly see from the Engineers Australia’s Report Card that Australia has a huge infrastructure backlog. Nicholas Reece, of the University of Melbourne’s Centre for Public Policy, stated recently in the Melbourne Age that it constitutes between 40 and 50 per cent of our country’s gross domestic product (The Age, August 17, 2013).
This is utterly beyond the current parameters for funding and financing policy, which is why former Victorian Liberal Premier Jeff Kennett has forcibly argued that the public needs to be educated about the legitimacy of debt to fund infrastructure (The Age, August 12).
In its National Infrastructure Plan of June 2013, the Commonwealth government body, Infrastructure Australia, has also recommended seven major reforms needed to help overcome our massive infrastructure backlog (p.93). All are important, but the last three of them are particularly noteworthy:
Reform 5: Reduce layers of government.
Nearly 600 different local, state and territory governments, along with the Commonwealth government, fund and plan infrastructure.
An integrated infrastructure planning process is needed which details which level of government funds and delivers which projects.
In respect of major federal projects a single lead agency is needed, as is already done in Canada.
Reform 6: Be world leaders in project governance.
Infrastructure Australia points out that resource projects in Australia are 40 per cent more expensive than in the United States and require 35 per cent more labour input.
Best practice project governance is something Australia should aim to achieve, with the Victorian government having already set the example with its assessment framework for “high-value, high-risk projects”.
Reform 7: Smarter, leaner infrastructure procurement.
To achieve this, improved project procurement processes should be put in place, so as to manage rising cost structures, support project feasibility and attract private sector investment. A start was made in 2012 when project contractors, financiers, government infrastructure agencies and treasuries from around Australia agreed on best-practice benchmarks for the procurement of major infrastructure.
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In conclusion, Australia needs a bold new approach to improving its national infrastructure. This must be done both for the well-being of our own people and so that we can take full advantage of the tremendous opportunities awaiting us, owing to our fortunate proximity to the world’s most dynamic region.
Ken Aldred is a former federal Liberal member from Victoria.
Australian Infrastructure Report Card 2010 (Canberra: Engineers Australia, November 2010).
Australian IRC Report.pdf
National Infrastructure Plan (Canberra: Infrastructure Australia, Commonwealth of Australia, June 2013).
Royce Millar, “Borrow to build rail network: Kennett”, The Age (Melbourne), August 12, 2013).
Nicholas Reece, “How to build (and finance) a bigger and better Australia”, The Age (Melbourne), August 17, 2013).