Following the announcement of last night’s 2014-2015 Budget by Treasurer Joe Hockey, it is clear that the Government will be relying heavily on infrastructure development and investment to underpin growth across the nation.
Infrastructure activity has increased significantly over the past three years, with investors showing a strong appetite to acquire high-quality long-term infrastructure assets such as Port Botany, Port Kembla, Port of Brisbane, NSW Desalination, and recently Queensland Motorways and the Port of Newcastle.
From our work with our infrastructure clients on all of these projects, we believe that additional opportunities to invest in mature infrastructure assets and the initiatives in the Budget will be well received.
The Budget provides for two initiatives that provide direct assistance to the development of new transport infrastructure projects as well as support for the recycling of infrastructure assets so as to release funds to further development productivity enhancing infrastructure.
Initiatives announced last night include $11.6 billion to support its infrastructure growth package, including $6.6 billion in new investments and $5.0 billion to support the asset recycling initiative.
The direct commitments by the Government will also have a flow on effect to the State and Territory budgets and asset recycling programs. The asset recycling initiative will help unlock funding for new public infrastructure projects through reinvestment of the sale proceeds from existing government-owned assets.
Privatisations by the Government and an enabler for State privatisations
The Government has already announced the sale of Medibank, but it also stated that it will “continue selling assets where no compelling reason for government ownership exists with scoping studies to be undertaken into the ownership of Australian Hearing, Defence Housing Australia, the ASIC Registry Function and the Royal Australian Mint.”
In addition to its own initiatives, it has provided a platform for the States and Territories to examine their asset portfolio for potential recycling. Under the asset recycling initiative where the States or Territories privatise mature assets and invest the proceeds into productivity enhancing infrastructure, the Government has agreed to provide incentive payments of 15% of the sale price. The funding program is capped at $5 billion.
If you take, for example, Port Botany and Port Kembla, where the sale proceeds were $5.07 billion, the NSW Government would have received both $5.07 billion from the investors who acquired the asset, plus an additional $760 million from the Federal Government, resulting in almost $6 billion of proceeds for investment into NSW productivity-enhancing infrastructure.
$6.6 billion commitment to high-priority transport infrastructure
The Budget also provides a commitment of $6.6 billion from the Government to high-priority transport infrastructure which will enhance national productivity and support local jobs and economic growth.
This will assist in the startup of infrastructure projects across the nation by making funding contributions to many projects including:
- Inland freight rail – Queensland to Victoria
- NorthConnex – New South Wales
- WestConnex - New South Wales
- Western Sydney Infrastructure Plan - New South Wales
- Pacific Highway - New South Wales
- East West Link - Victoria
- Bruce Highway - Queensland
- Gateway Motorway North - Queensland
- Toowoomba Second Range Crossing - Queensland
- North-South Road Corridor – South Australia
- Perth Airport Gateway - West Australia
- Perth Freight Link - West Australia
- Swan Valley Bypass - West Australia
- Midland Highway - Tasmania
A key announcement that we believe is vital to unlocking funding for Australia’s infrastructure needs is the alternative financing initiative. Under this inititative, the Government has supported the use of its balance sheet to use alternative financing to complement traditional grant funding.
It states that alternative financing arrangements could include “the provision of loans, guarantees and/or equity. In cases where the project is supported by user charging, such arrangements can be used to help mitigate risks, for example, uncertainty regarding likely toll revenues, which might otherwise impede private sector investment.”
The Government notes that it has requested the Productivity Commission provide advice on the use of alternative financing as part of its current inquiry into public infrastructure and that the advice will help inform the Government on the further expansion of alternative financing to infrastructure projects in the future. This is also being considered in the Financial Systems Inquiry where our King & Wood Mallesons submission offers some methodologies that could be used as a platform for alternative financing to enable more superannuation investment into greenfield infrastructure and it is pleasing to see that the Government is considering this initiative further.