The increasing private sector ownership of infrastructure

As Liberals we believe strongly in the private sector.

We believe that private sector businesses run more efficiently and cost-effectively than public sector organisations, they are more innovative, and they are better at customer service.

This is one of the strongest reasons why, over the last forty years, in many Western democracies enterprises that were previously government owned have been transferred into private ownership.

 

When it comes to infrastructure policy, a priority for the Turnbull Government is increasing the role of the private sector.

By contrast, Labor Governments, state and federal, have a strong appetite for infrastructure to remain in public hands – which often leads to services being delivered less efficiently and reliably than under private ownership.

Over the last twenty years in Australia we have seen plenty of evidence of the benefits when infrastructure is transferred into private hands.  Let me give two examples: telecommunications and aviation.

In 1991 the government issued new licences to Telstra, Optus and Vodafone to operate mobile networks using the new GSM digital technology.

The result has been spectacular growth in the mobile market. In June 1996 there were 3.6 million mobile services, while today there are well over 30 million mobile services in operation. And in the 15 years from 1997 to 2012, the cost of mobile calls fell by half.

Competition in turn has driven the rapid introduction of new technology: GSM to CDMA to 3G to 4G in less than 20 years.

 

The aviation sector offers another case study of customer-led innovation.

Prior to deregulation, Government officials decided which airlines were permitted to operate – and even what type of aircraft they could own. The policy for many years was a domestic duopoly, made up of TAA and Ansett – and one flag carrier, Qantas.

Since deregulation in the nineties, there has been a remarkable degree of change.

Airfares are much cheaper. The Australian Government’s Bureau of Infrastructure, Transport and Regional Economics maintains an index of the ‘best discount fare’ on key routes across Australia. In August 2016, this index stood at less than half its level in 1992 in real terms.

In turn, the drop in prices has seen very sharp increases in the number of Australians travelling. In 1990 there were 14.6 million domestic trips taken by airline passengers in Australia. By 2015 it was 57.1 million – almost a fourfold increase in twenty-five years.

Part of the deregulation process in aviation resulted in the Commonwealth Government ceasing to own and operate airports. Instead, Australia’s big airports are now owned and operated privately (strictly, under long term leases).

One such private operator is Brisbane Airport Corporation which operates Brisbane airport. The company is in the process of developing a New Parallel Runway which will significantly improve the airport’s capacity. This vital new facility is being funded exclusively with private capital.

 

In recent years, there have been other important reasons why a federal Coalition Government has been moving to stimulate infrastructure being transferred into private ownership.

The first is so that the proceeds of the transfer – be it a sale or a long term lease – can be redeployed for other vitally needed infrastructure assets.  This was the rationale for the Asset Recycling Initiative announced in the 2014 Budget.  Under this policy the Commonwealth has struck agreements worth $2 billion with the NSW, ACT, and Northern Territory Governments – under which those governments raised capital by transferring assets into private sector ownership, and received a 15 per cent ‘uplift’ on the proceeds of the transaction from the Commonwealth, allowing an increased amount to be redeployed into vitally needed new infrastructure.  For example, under the Asset Recycling Initiative there is a $1.7 billion contribution from the Commonwealth towards the Sydney Metro City and Southwest project – a 30.5 kilometre metro style railway line planned to open in 2024, which will run from Chatswood to North Sydney, under the Harbour to Barangaroo and Martin Place, and then on to Bankstown.

Another feature of the Turnbull Government’s approach to infrastructure policy is to move away from simply providing grants to state governments, and increasingly to use debt or equity investment. Western Sydney Airport and Inland Rail are being supported through equity investments and WestConnex through debt. One benefit of this approach is that it facilitates the government’s investment stake being potentially sold to private investors at a later point, allowing taxpayers’ capital to be recycled.

A third reason to stimulate private sector ownership of infrastructure is because there will always be more demand for infrastructure than can be met by government expenditure alone.

 

This makes it important for as many projects as possible to be funded by the private sector.

Sydney is a good example of this challenge; with a population expected to reach over 8 million by 2050 there is a strong demand for new infrastructure to meet the growing transport needs of the city and surrounding areas.

That is why the Commonwealth has entered into partnership with the NSW State Government and Transurban to construct and operate the 9km NorthConnex tunnel project connecting the M1 and M2 from Wahroonga to Pennant Hills. Not only will this project deliver real economic benefits when it is completed in terms of reduced travel times and more reliable journeys for the 5,000 heavy vehicles that travel along the route each day and over 8,700 jobs for NSW, it is also delivering over 1,500 jobs in the construction phase across 11 different worksites.

Like a number of other significant new road infrastructure under construction, financing for NorthConnex will be supported by a tolling revenue stream.  The total cost of the project is nearly $3 billion, but the total public funding is $824 million (coming 50:50 from the Commonwealth and NSW Governments), with the balance coming from private investors, to be recouped through the tolling revenue stream.  This means less government funding is needed for the project – leaving more available for other infrastructure projects and for other priorities of government.

 

There is a real difference between Liberal and Labor Governments when it comes to infrastructure.  Labor thinks government should own everything; as Liberals we believe maximising the role of the private sector delivers better value for taxpayers and better outcomes for those who will use the infrastructure.

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