INFRASTRUCTURE
PARTNERSHIPS
AUSTRALIA
Figure 5: Commonwealth and states/territories fiscal balance (per cent of GDP)
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Reform of the scale needed over the coming decade is very obviously in the national interest - but it is also
in the direct fiscal interest of the Commonwealth. Canberra is demonstrably unable to balance its budget or
sustain its AAA credit rating without being able to reform the cost and value of health, education or welfare.
A series of independent reports have outlined the non-discretionary need to restructure the Federation,
public service and infrastructure services markets. However, these reforms have proven difficult to achieve
for national policymakers.
The extreme political sensitivity- and Australia's own history and experience of reform - shows the practical
reality that the Commonwealth needs more than independent reports about hard reforms in the national
interest, which then must be implemented consistently by sovereign states.
In practice, the Commonwealth will need a large hook to engage the states on consistent national reforms
in these areas.
7.
OUR REFORM HISTORY SHOWS THAT THE STATES WILL REACT TO FUNDING
INCENTIVES
Figure 6 shows the brownfield privatisation pipeline in Australia, overlaid with the period of the National
Competition Policy Payments (1994-95 to 2005-06) and the ARI (2014-15 to 2016-17).
8
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Suite 3.03 Level 3, 95 Pitt Street, Sydney NSW 2000
PO Box R1771, Royal Exchange NSW 1225
T +61 29152 6000 F +61 29152 6005 E [email protected] wwwJnfrastructuce.0,9.au
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This is compelling evidence that reforms that are in the national interest are best achieved when the
Commonwealth Government is prepared to back those reforms with funding incentives.
This creates both political cover - and identifiable reward - for the reforming state governments.
Figure 6: Brownfield Privatisation Pipeline
$60,000
National Competition Policy
25
ARI
$50,000
20
$40,000
15
$30,000
10
$20,000
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Source: IPA
8.
A $20 BILLION REFORM FUND - PROPERLY DONE - WOULD PUT UPWARD, NOT
DOWNWARD PRESSURE ON THE RATING
For the Commonwealth Government to attain long-term stability of its AAA credit rating, states must
be encouraged to play their proper role in national policies to improve productivity, economic growth
and budget sustainability for the public sector.
For that reason, we recommend a $20 billion Commonwealth reform fund, available to reward states
for implementing agreed national reforms - beyond just asset recycling. We deliberately recommend
9
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Suite 3.03 Level 3, 95 Pitt Street, Sydney NSW 2000
PO Box R1771, Royal Exchange NSW 1225
T +61 29152 6000 F +61 29152 6005 E oontact@infrastmct,ce.ocg a, wwwJntra,tmotuce.ocg.a,
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that the proposed fund is firmly linked to observed reform at a state level - and be sequestered from
ordinary grants or political allocations.
Obviously, additional budget expenditures will increase the debt metric calculations by the sovereign
rating agencies - however, properly done, a reform fund should in fact provide upward pressure on the
rating.
According to S&P Global's credit rating methodology for sovereign governments, a primary factor taken
into account is the country's institutional and economic profile, which reflects "the resilience of a
country's economy, the strength and stability of its institutions, and the effectiveness of its
policymaking". 1
Australia's credit rating is not on a negative outlook for a downgrade because we have too much debt.
Australia's sovereign debt remains very low by global standards. Instead, it is a lack of confidence that
Australia will be able to address its current deficits - or other areas of microeconomic and fiscal reform
- that see us teetering on the edge of a downgrade.
We therefore submit that a strong policy framework which drives microeconomic reform and which adds
to the resilience and predictability of policymaking and institutions throughout the Federation - if properly
done - will have an overwhelmingly positive impact on Australia's credit rating.
9.
CONCLUSION
Australia's productivity, competitiveness, and the community's cost of living and urban liveability; and the
environmental and economic sustainability of Australia itself; these each rely on effective infrastructure,
provided at an efficient cost.
In other words, the national interest requires more and better infrastructure, to meet the need of a growing
community, and developing economy.
This sees a situation where the national interest can only be met effectively through consistent national
reforms to infrastructure markets and the fiscal settings of the states - but where these changes must
necessarily be implemented by sovereign state governments.
Both the Competition Policy Payments from the 1990s and the success of your Government's contemporary
ARI neatly evidence that consistent national reform is best achieved where the Commonwealth Government
has a clear strategy for change; and where that strategy is backed with funding rewards to drive adoption.
Thank you for your consideration of this submission. We hope that this submission is of assistance to the
Commonwealth Government in framing its 2017-18 budget.
1 S&P Global Ratings, Sovereign Rating Methodology, Sovereign Governments Criteria, Section C, 24 December
2014
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Suite 3.03 Level 3, 95 Pitt Street, Sydney NSW 2000
PO Box R1771, Royal Exchange NSW 1225
T +61 2 9152 6000 F +61 2 9152 6005 E cootacl@;ofrnstcoctoce.0<g.au wwwJnfrastmctuce.ocg.ao
10
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Yours sincerely,
ENDAN LYON
Chief Executive Officer
cc: The Hon Malcolm Turnbull MP, Prime Minister
The Hon Barnaby Joyce MP, Deputy Prime Minister, Leader of the National Party
The Hon Julie Bishop, Deputy Leader of the Liberal Party
Senator The Hon Fiona Nash, Deputy Leader of the Nationals
The Hon Darren Chester MP, Minister for Infrastructure and Transport
Senator The Hon Mathias Cormann, Minister for Finance
The Hon Paul Fletcher MP, Minister for Urban Infrastructure
Dr Martin Parkinson AC PSM, Secretary, Department of Prime Minister and Cabinet
Mr John Fraser, Secretary, the Australian Treasury
Mr Mike Mrdak AO, Secretary, Department of Infrastructure & Regional Development
Ms Rosemary Huxtable PSM, Secretary, Department of Finance
11
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Suite 3.03 Level 3, 95 Pitt Street, Sydney NSW 2000
PO Box R1771, Royal Exchange NSW 1225
T +61 29152 6000 F +61 29152 6005 E [email protected],g.a, wwwjnfrastn,ctm,.o,g.ao