Thank you to the Australian Davos Connection for this opportunity to speak today on the nation's infrastructure challenge.
Your invitation led me to reflect on the enormous distance this country has travelled towards a sensible appreciation of the role of government (and of its limits).
It's estimated that as late as the 1920s governments owned approximately half the total fixed capital of Australia (excluding land). Surviving into the inter-war years were a multitude of small state enterprises - from coal mines and brick works, to butchers' shops and tobacconists.
This legacy led W.K. Hancock, in his classic short history of Australia published 75 years ago, to describe a society which had 'come to look upon the state as a vast public utility'.
Over time, the tide would turn. One of the underestimated achievements of the Menzies years was to steer Australia decisively away from the cul-de-sac of industry nationalisation. We avoided the nationalised nightmares that so characterised Britain's economic decline until the Thatcher reforms.
And yet only about thirty years ago some of Australia's potentially biggest infrastructure decisions appeared to rest on little more than the statist dreams of a Rex Connor.
There are still those who associate the demise of Connorism with the passing of a certain style of visionary government and the triumph of the bean-counters. In truth, it should be seen as a hard-won victory for good government in a more economically literate society - the triumph of the grown-ups.
A stronger appreciation of the power and potential of markets in areas once considered the natural and exclusive domain of government has been central to Australia's economic turnaround in the late twentieth century.
Remembering this helps us to think clearly about Australia's infrastructure challenge in 2005, to place this debate on solid foundations and to see it in a longer term perspective.
There are, I know, different views about the dimensions of Australia's infrastructure challenge. But there is also broad agreement on many points.
No-one disputes that Australia's progress depends critically on our economic and social infrastructure.
No-one disputes that we need infrastructure policies which will extend our strong economic performance well into the future.
No-one disputes that we must increase our infrastructure investment if our national productivity, and hence our future living standards, are to rise further.
And no-one disputes that better coordination across different levels of government is an important part of getting the right environment for that investment.
Do we face a national infrastructure 'crisis', as some have asserted?
Nothing that I have seen as Prime Minister leads me to conclude that the answer to that question is yes. Nor, I might add, was this the view of State and Territory leaders when we discussed this issue at the Council of Australian Governments (COAG) meeting in June.
Put simply, I am yet to be convinced that there is a shortage of funds for infrastructure investment in Australia.
Before embracing the language of 'crisis' - the line of least resistance for vested interests, parliamentary oppositions and the more excitable sections of the media - governments need clear evidence of a problem and that properly-regulated market institutions are unable to solve it.
We know that, as a rule, Australian governments are quite good at spending money. But we also know when it comes to infrastructure that it is not enough to simply spend more.
It is the government's role as regulator - not owner - of physical infrastructure that enables us to ensure quality, price and competition standards are adequate.
We need to make sure that investors are in a position to make quality investment decisions, and that users can gain access to infrastructure on reasonable terms.
Appropriate pricing remains a critical component of any strategy to develop long-term sustainable infrastructure solutions, especially where the private sector is to play a significant role.
And we must overcome regulatory problems that may encumber infrastructure investment, especially infrastructure used by Australia's export industries.
Commonwealth role and priorities
The key to Australia meeting the infrastructure challenges of today and tomorrow is an economic climate conducive to investment.
This will demand continued low inflation and low interest rates and the maintenance of a strong fiscal position. It will also involve further structural reform to improve the efficiency of our markets.
In recent years, reforms including privatisation, contracting out of service provision to the private sector and the development of more competitive markets under National Competition Policy have led to a significant shift in the relative roles of the public and private sectors.
Governments have moved away from the ownership of physical infrastructure. The private sector is now actively involved in the provision of roads, electricity generation capacity, natural gas reticulation facilities and telecommunications infrastructure.
This does not diminish the importance of government funding and provision of physical infrastructure to support a strong economy and a fair society. The Commonwealth has a particular role to engineer a quantum improvement in the level or standard of infrastructure, or to encourage development that would otherwise not occur.
We will, in some areas, set a genuinely national framework for future investment, as is the case for example with the National Water Initiative and last year's Energy White Paper.
We are also committed to developing a consistent national system for regulating Australia's major ports and other export-related infrastructure. Industries that compete internationally deserve a world-class regulatory framework, with simple tests and time limits on decision-making.
In some cases, we will use our leverage to drive wider structural reform of the economy. A good example is our determination to further reform industrial practices in the building and construction industry through a new National Code of Practice which applies to federally-funded capital projects.
But it is important to recognise the need for an effective partnership across jurisdictions when it comes to Australia's infrastructure.
Much of the responsibility for infrastructure provision lies with State and Territory governments, local government and the private sector. As the Government's National Commission of Audit in 1996 noted, the Commonwealth accounted for only about one quarter of the stock of public infrastructure.
We're all aware of the limits of central planning and the varied infrastructure needs across this vast continent. I do not believe that Canberra should set itself up as the principal arbiter of infrastructure decisions from suburban Melbourne to remote mining communities in Western Australia.
The Commonwealth's role is about ensuring the market works by getting the regulatory framework right, providing information, and removing impediments to investment in infrastructure, and only getting involved in funding the physical infrastructure where there is a clear need for a national perspective.
Roads
In the case of roads, for example, our involvement recognises that there is a national interest in road development that goes beyond local considerations and that the benefits of major arterial road development often accrue beyond the boundaries of individual states.
In June last year, after extensive consultation with States, Territories, local government and the private sector, we announced AusLink - the most significant change since Federation in the way we tackle the national transport task.
While the $12.7 billion we have committed to fund AusLink over five years is no trifling amount, it is the new approach to planning that I believe is the most significant aspect of this initiative.
Under the principle of shared responsibility with the States and Territories, AusLink will make available funding for road, rail and technology-based projects. Collaborative planning will help us identify the best way of meeting the likely transport needs of each major corridor.
While AusLink offers a more effective approach to addressing the land transport task, some States are yet to commit to bilateral funding agreements. The time for delay and parochial politics on AusLink is passed and I urge all States to sign up in the national interest.
Water
Few dispute that water is this country's largest conservation challenge or one of our largest infrastructure challenges. As such, the Commonwealth has made a significant investment in more efficient and sustainable water management.
We led the development of the National Water Initiative, a blueprint for water reform over the next decade and beyond. Full implementation will result in a national framework for managing surface and groundwater resources for both rural and urban use.
We are investing $2 billion in water infrastructure and better practices in the stewardship of our water resources through the Australian Government Water Fund.
The largest component of the Fund, the Water Smart Australia programme administered by the National Water Commission, will invest $1.6 billion to accelerate the development and uptake of smart technologies and practices in water use across Australia, including investment in water infrastructure.
Solving Australia's water problem is one of the great national challenges of our time, demanding coordinated action and large resources. And I do not pretend that Australian governments have yet done all that is necessary to secure this resource for our future prosperity and quality of life.
Telecommunications
In telecommunications, the Government is addressing the needs of all Australians to have access to the best-possible telecommunications services, while implementing our long-promised commitment to free our largest company from public ownership.
The full sale of Telstra will liberate the company from the shackles of government ownership. It will remove our conflict of interest as both owner and regulator. And it will diversify the Government's investments.
We recognise that it may be uneconomic for a private company to provide telecommunications services to some locations. That is why we recently committed $1 billion to ensure that rural and regional telecommunications services are delivered on a competitive and technologically-neutral basis.
The creation of the $2 billion Communications Fund will also support the government's response to future reviews of telecommunications. Earnings from the Fund will be available to respond to market failure in the provision of additional telecommunications services in regional, rural and remote areas.
State responsibilities
These are just some examples of the Australian Government's infrastructure investment. Yet the provision of key economic and social infrastructure in our Federation, such as roads, rail, public transport, housing and schools remains largely a State responsibility.
It is important that the States take this responsibility seriously as poor investment decisions or under-investment can adversely affect Australia's overall economic growth and living standards.
Tax reform has played a significant role in improving the capacity of the States to invest in infrastructure. Over the next five years, the States are projected to receive a further $207 billion in GST revenue, money that they can spend according to their own responsibilities and budgetary priorities.
I am pleased that a number of States have announced significant infrastructure investments in their 2005-06 Budgets. Plans for around $20 billion in infrastructure spending this financial year include key areas of transport and power generation.
But again the challenge is to increase the quality of governance, not just the quantum of investment.
The role of the private sector
Economic reform has opened up significant opportunities for the private sector to take a leading role in investing in and developing infrastructure facilities.
The private sector has been able to achieve significant cost savings, introduce new investment, and bring a sharper customer and commercial focus to infrastructure businesses.
The private sector is often better positioned to manage the risks associated with financing, constructing and operating economic infrastructure. Private sector involvement allows governments to focus on delivering core services or capability.
To ensure that tax considerations do not drive particular financing structures for infrastructure investment, the Government recently introduced changes to the provisions relating to tax-exempt asset financing.
The most important change will remove the punitive impact of section 51AD of the Tax Act, which has long been cited as an impediment to the efficient structuring of public-private partnerships (PPPs).
A heated debate on the role of PPPs has arisen in recent weeks, especially due to the controversy over Sydney's Cross City Tunnel. I remain strongly in support of PPPs, provided private financial interests are not unreasonably preferred at the expense of the public and taxpayers.
Indeed, I can announce that Cabinet has decided to further explore the scope for public-private partnerships at the Commonwealth level beginning with the budget process in 2006-07.
In future, we have asked that when departments or agencies are seeking funding for new investments, or advising Cabinet of new spending funded from existing appropriations, they should consider the full range of financing and ownership options, including PPPs.
Particular attention should be given to opportunities with potential for long-term contracts involving asset-based procurement with a whole-of-life cost in excess of $100 million.
In cases where there is good reason to believe that a PPP-type arrangement may offer better value for money over traditional financing and ownership options, this option must be considered and Cabinet given a detailed explanation where it is rejected.
PPPs can help governments to harness the innovation, financing and marketing skills of the private sector. Of course, any large project involves some degree of risk and governments have an obligation to make sure the risks are balanced appropriately between the public and private sectors.
National reform priorities
I mentioned at the outset that there is a diversity of views about whether our existing infrastructure is adequate.
The Exports and Infrastructure Taskforce which I established earlier this year highlighted some underlying weaknesses that must be addressed to prevent future bottlenecks developing. Following the June COAG meeting, Commonwealth and State officials are now developing proposals to implement a number of the Taskforce recommendations.
In a particularly useful development, all governments - Federal, State and Territory - agreed to deliver comprehensive infrastructure reports to COAG every five years. Ideally, they will provide a basis for assessing the condition of existing infrastructure, emerging bottlenecks and the investment challenges associated with particular sectors.
On the basis of discussions, I am confident that the first comprehensive set of reports will be completed by the end of next year.
We also agreed on the need for a consistent national approach to regulating Australia's major ports and other export-related infrastructure. This will be undertaken as part of the broader Review of National Competition Policy which COAG will consider in early 2006.
The Commonwealth is strongly committed to initiating a new set of productivity-enhancing reforms to build on the successes of National Competition Policy. This agenda will focus primarily on infrastructure reforms, particularly in the transport and energy sectors, and infrastructure regulation, as well as reducing red tape confronting business.
The Australian Government is also determined to reduce the general burden of regulation on business. Last week, Peter Costello and I announced a new Taskforce to identify practical options for alleviating this compliance burden.
It will focus on areas that are predominantly the responsibility of the Commonwealth Government, but also identify key areas in which the regulatory burden arises from overlaps with State and Territory legislation.
Along with other reforms, not least to our workplace relations laws, this will strengthen the performance of the Australian economy, increase market confidence and enhance the climate for continued investment in Australia, including in the infrastructure sector.
Conclusion
Meeting the infrastructure challenge is not just about spending money - it's about getting the policy framework right and removing impediments to investment.
There are different views about Australia's future infrastructure needs. That is hardly surprising in an economy now in the 15th year of economic expansion. In fact, it would be strange if this was not a topic of lively debate.
But there is also significant agreement, especially about the need for continued structural reform to deliver the right price signals and to ensure that our regulatory regimes are not unnecessarily burdensome.
A commitment to ongoing reform - in a stable, self-confident and entrepreneurial society - remains this nation's permanent challenge if we are to secure the productivity growth on which our future prosperity will rest.
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