SENATOR THE HON BRIDGET McKENZIE
SHADOW MINISTER FOR INFRASTRUCTURE, TRANSPORT AND REGIONAL DEVELOPMENT
LEADER OF THE NATIONALS IN THE SENATE
AUSTRALIAN FINANCIAL REVIEW INFRASTRUCTURE SUMMIT 2022
HILTON HOTEL, SYDNEY
MONDAY 22 NOVEMBER
CHECK AGAINST DELIVERY
Thank you Jenny Wiggins for the introduction and your great work on the infrastructure beat.
I too acknowledge the traditional owners, past and present.
Great civilisations build great things.
Not merely for utility or the forethought that is required for inter-generational survival, but because the human condition dictates it.
Among our proudest achievements as a human race are physical constructions that are testimonies to our extraordinary collective potential, think the Roman roads and viaducts, the London Underground, the Panama Canal, the Snowy Hydro Scheme, or the 500 metres span of arched steel – the largest such construction in the world – just down the end of the street.
Iconic constructions that speak not only to our imagination, our ingenuity and capability, but to our fierce determination as a race to build our own future.
This AFR Summit, which I am very proud to be invited to address today, deals a lot with the prosaic – the problems and challenges of now, and the political, bureaucratic and material restraints that are impeding progress.
Rest assured I will be spending time here making my contributions to these as well.
But it is also worth putting on the record that each of you who are here today, whether it be in financing, in planning, in designing or in building projects, are here because you too are participants in building our future as a nation.
And that is a very noble life’s work.
My new role as shadow infrastructure minister is one that I take very seriously.
As former Coalition Government Minister and participant on the Expenditure Review Committee I am proud of the record infrastructure investment that we secured as a government.
The former Liberal and Nationals Government developed a rolling 10-year infrastructure pipeline that in the March 2022 Budget was lifted to $120 billion, giving confidence to industry, and providing the necessary runway for the complex design, funding, and planning that these nation-building projects entail.
Signature projects like the new Western Sydney International Airport, the 1,700 km Brisbane to Melbourne Inland Rail, and Snowy 2.0 are well underway.
Funding was provided for faster rail projects including the Melbourne to Geelong line, the Brisbane to the Sunshine Coast and the Gold Coast, and for Sydney to Newcastle, as well as funding for major public transport in our cities.
During our period in government more than 35,000 projects were delivered, and more than 10,400 kilometres of roads were constructed, including the upgrading of key freight routes through the Roads of Strategic Importance initiative.
Of course, the delivery of many big infrastructure projects will not only outlive the average shelf life of a minister but some of governments as well, which is why a framework of continuity in national infrastructure goals is so important.
I therefore seek to be very constructive about construction but also will not take a backward step in calling out delivery, decision-making or policy failure.
Clearly, my job as shadow infrastructure minister is to devise policies that will strengthen the nation and help put our parties back in government, but I do so within a spirit of bipartisanship of longer-term planning that will make our country stronger, safer, more prosperous, and more sustainable.
Infrastructure as a percentage of GDP is approximately 4.4 per cent.
For every million dollars that is invested in Australia’s heavy and civil engineering industry, $2.95 million of output is contributed to the Australian economy.
It is therefore a key economic driver, a key component of national productivity, and a key jobs multiplier.
Decisions made in this area are critical, particularly at this juncture with the economic headwinds we know we are facing.
For our economy to grow we need efficient and reliable infrastructure to connect supply chains and move goods and services to market.
We need to continue to invest in transport infrastructure that connects households to higher quality opportunities, to employment, to education and healthcare.
In short, our economy depends on the investment and infrastructure pipeline of which everyone here is making their own contribution.
The recent Budget was a disappointment in that regard, with important projects dumped and many put on ice indefinitely to the tune of more than $17 billion of projects taken off the table.
Instead of working with state and territory governments on how to drive productivity and project delivery while maintaining investment, Labor chose to cut funding.
Instead of engaging with industry to find solutions to capacity constraints and supply chain issues, Labor chose to indefinitely defer funding.
The Government’s first Budget chose to find savings in the very area we should be investing in – because project delays are merely going to add dramatically to costs later on, delaying the efficiencies of moving things faster.
In the meantime, the Budget’s lack of transparency over delays of much-needed projects creates ongoing uncertainty and disruption to businesses who were banking on these investments, and for everyday Australians who will have to live with the inconvenience and opportunity cost of congested roads or regional roads that are falling apart.
Yesterday we heard from the new Minister Catherine King who has changed her tune somewhat from pre-Government mantra of “no more delays”, to a fresh warning about not contributing to overheating the economy, justifying the need to reprofile projects.
While I acknowledge that market capacity constraints are applying pressure in the construction market and I will address these today, it is important to remember that these constraints are not necessarily uniform across all geographic locations and across all tiers.
For example, the industry is not at full capacity among small to mid-tier contractors, with a recent industry survey undertaken by the Civil Contractors Federation finding that a large proportion of companies could take on additional work.
It found more than three quarters of companies could ‘scale up’ to meet additional work within six months, but their ability to do so effectively would be impacted by contract size.
One of the keys to activating this capacity is bringing to market a greater number of small to mid-sized infrastructure projects. In other words ‘rescale, not reduce’ the spend.
Challenges to the industry include, but are not exclusive to, poor productivity; inefficient, costly, and differing procurement policies; skills shortages and the rising cost of labour and materials; and disruptive international supply chains.
We need to tackle the bottlenecks at the end points of major road and rail projects, known as the “first and last mile”.
The Inland Rail link between Melbourne to Brisbane, for example, will necessitate decisions on whether to route long coal wagons train through suburban Brisbane to the port of Brisbane, or via a tunnel under suburban Brisbane to the Port of Brisbane.
When in Government we committed to a business case to explore enhancing this project by extending the rail line to the Port of Gladstone. If this business case demonstrated this project would be economically beneficial, we were prepared to commit the additional funding to make it happen. Incidentally, Labor have kept the business case, but not the commitment to the extension.
Furthermore, it is not much use having great last mile infrastructure to get product to port if the last metre of that journey is held up by industrial disputes at the wharves.
A siloed approach to policy reform, whether it is in skills, infrastructure planning or industrial relations, will result in different arms of government working in disaccord with the other.
Productivity in the construction industry has been in the doldrums for too long.
Since the peak of the resources boom in 2014, construction industry productivity has declined in the order of 16.5 per cent, whilst wages have grown consistently.
This falling away in productivity, has set us back as a nation to late 1990s productivity performance.
In fact, construction productivity is 1.8 per cent lower in financial year 2021 than it was in financial year 1990, at an opportunity cost to the country of around $47 billion annually.
The human toll to this alone is enormous.
More businesses fail in construction than any other industry, and the pressures mean construction workers are six times more likely to die from suicide than a workplace accident.
Yet there are potential ways to ameliorate the problems.
I have long been a proponent of using procurement policies to achieve good policy outcomes from the beginning of my time as a Senator more than a decade ago, working with Senator Nick Xenophon to advocate for government procurement policies that specifically aided Australian companies.
According to peak bodies such as the Civil Contractors Federation and the Australian Constructors Association the greatest opportunities to improve productivity lie in procurement and delivery of projects – essentially white-collar activities.
The current system is weighted toward Tier One Contractors.
Having successfully bid on a project, work is undertaken by smaller sub-contractors, who are forced to work on thin margins that when other factors come into play such as industrial disputes or soaring materials costs, ultimately create instability in the sub-contractor sector.
In turn, this limits the Tier 2 and 3 contractors’ ability to invest with confidence in their people and in skills, while encouraging the practise of poaching in a highly competitive market.
We cannot expect or demand businesses to invest in skills and capability with a “race to the bottom” culture at the tender box, whereby the lowest up-front cost option always wins.
Undeniably, the system works for bureaucrats both at a state and federal level because it defrays their risk, but it is not in the national strategic interest and dampens productivity.
An alternative is to break down mega projects and contracts into smaller packages that allow instead Tier 2 and Tier 3 companies to launch bids in their own right, or to collaborate, or form alliances or partnership models.
This would help these business to grow and build greater capacity and more resilience and shared risk.
How would we do this as a Federal Government?
Given that the Federal Government hands over 50 per cent of funds to state government for agreed projects and in the case of regional road projects 80 per cent, we could demand alternative improved procurement policies as a condition for stumping up the cash.
We could insist that value be determined by other factors as well including value generated to the community and the health of the industry throughout the build and life of an asset.
We have national objectives too.
As the former Emergency Management Minister, I understand the importance of planning for resilience when constructing infrastructure. Australia has always been a land of droughts and flooding rains and it is important – to help prevent families and communities from being cut off in disasters – to plan and build infrastructure to handle the extremes of our conditions.
Where the Commonwealth is investing in state infrastructure, we should ask these questions.
As a nation, post Covid-19 and living in an unpredictable world, we have woken up to the need for sovereign capability – the capacity to build things here – for national sovereignty and geopolitical reasons.
The House of Representatives Standing Committee on Infrastructure, Transport and Cities 2022 report: “Government Procurement: A Sovereign Security Imperative” concluded that increasing the access of Tier 2 and 3 companies and related Australian small and medium enterprises, to projects as key to enhancing Australia’s sovereign industry capacity.
And finally, we need a strong construction industry to give confidence to investors because in the end most projects are a partnership between government and the private sector.
If the Commonwealth wants to maximise value for money, support local infrastructure providers and suppliers and ultimately secure well-paid jobs, we must stop being passive investors.
We need to be more hands on with the States over infrastructure arrangements through the National Partnership Agreements.
Now having a Federal Labor Government, the Federal Minister may have better luck in getting recalcitrant Labor states, particularly Queensland and Victoria, to co-operate on national infrastructure projects.
And that includes stopping the Queensland Government from compulsorily inserting the CMMFEU in construction deals, via the so-called Best Practise Industry Conditions agreement.
Such agreements, which will give the CMMFEU greater input in the civil construction of roads, rail and tunnels (mind you ahead of the traditional remit of the AWU), to put it mildly blurs the lines between a big party donor and financial benefit to that donor.
I genuinely wish the Minister the best in this regard.
This fortnight the Labor Government is also preparing to drag us back to a 1980s industrial relations system without ever having a mandate to do so.
Construction and transport are two industries that are most vulnerable to these proposed changes.
We need a modern and flexible industrial relations system which works for our competitive, global and productive economy.
Multi-employer bargaining, as proposed in this Bill, will not achieve this and will sadly see a return to industry-wide pattern deals and entrench sector-wide strike action which will damage workplaces.
It takes the ‘enterprise’ and ‘agreement’ from enterprise bargaining agreements.
This comes at a time when construction employees have internationally competitive wages and wages growth.
After a period of relative calm and certainty we are heading backwards to an uncertain future.
Strikes. Lockouts. Industrial warfare.
Witness our wharves last week as a precursor.
The greatest threats to this industry right now are inflation and lack of supplies caused by global supply chain constrictions.
The industrial relations laws, which are designed to encourage a return to industrial disputation can only exacerbate these problems
The former Coalition Government used its federal powers to enforce the rule of law on construction sites via the Australia Building and Construction Commission.
This has resulted in a period of industrial stability since 2016, while construction wages have risen faster than other industries in the order of 4 per cent.
Private sector investment in infrastructure is critical, and that is largely based on investment return, predictability, and stability.
Investors, including the super funds that have union dominance on their boards, also need a solid return on investment for their members.
If we return to the battlefield days then we run the risk of investors and fund managers seeking better, safer returns elsewhere.
The ABCC had other benefits as well and taking the cop off the beat of the construction industry will mean there will also be no one there to look after unpaid or late payments to sub-contractors.
The ABCC has, on behalf of small contractors, recouped around $897 million in such payments.
As you know one of the first big events of the new Labor Government was its Jobs and Skills Summit, with the general acknowledgement that the skills shortage in the construction industry was urgent.
In fact, the biggest threat to the delivery of construction projects in every state and territory is the lack of skilled trades people and professionals.
Yet the Australian and New Zealand Standard Classification of Occupations does not recognise occupations in the civil construction industry as a “formal trade” and therefore they are not eligible to take part in the Australian Apprenticeships Incentive Scheme for wage subsidies or direct payments to apprentices in priority occupations.
When will the Australian Bureau of Statistics start work on this anomaly?
Not for two years.
If the Labor Government is actually serious about skills shortages in this area, as Shadow Minister, I call upon the Assistant Treasurer Stephen Jones to stop being beholden to his CMMFEU mates, and not wait another 24 months, but pick up the phone to the ABS today.
Finally, I want to touch on the challenges of climate policy to the build task.
My position on climate policy has been consistent for a very long time.
I’m trained in scientific thinking and have never engaged in the pointless polemics of the so-called ‘deniers’ versus the ‘catastrophists’.
What I have done is argued strongly on behalf of those communities that are likely to be most affected by the coming changes and will continue to do so because it is a myth that this transformation of the economy will occur without people or regions being affected.
To enable these communities to take advantage of the opportunities and meet the challenges of what under the new Labor Government is an accelerated pathway to Net Zero.
I also fundamentally maintain, and my position is backed by strong evidence, that decentralisation is one of the most important things we can do to reduce emissions.
A climate policy that has no policy for population growth is short-sighted and a better balance of population distribution is essential.
It is fair to say that most players in the infrastructure industry see the coming transition to a decarbonised economy as an opportunity for their businesses.
According to Infrastructure Partnerships Australia’s Decarbonising Australia report, energy projects have been added to the Australia New Zealand Infrastructure Pipeline at record pace, with 100 renewable energy projects at an estimated total cost of $254 billion now under development or construction across Australia.
Under Labor’s plan to increase the share of renewables in the National Electricity Market to 82 per cent by 2030 will require 28,000 kilometres of green energy transmission lines to be built.
Though we have no visibility of how many farms or national parks these new lines will have to cross.
Has the Government even considered the impact of land acquisition required for these projects?
Labor’s is yet to comprehend, or more likely doesn’t care to comprehend, that fixing one problem has unintended consequences for others.
Every major infrastructure project is seeking to find ways to embed into their practises either low-carbon or zero-carbon projects that enhance national infrastructure capacity and capability, future proofing older technologies, while creating a more resilient economy.
The Labor Government also has an ambitious timetable also on the rollout of EVs for Australia.
But the $11.2 billion question remains if the common road user charge currently in place disappears as the federal fuel excise drops, who pays for the roads, the bridges and the freeways?
A growing leakage from the fuel tax revenue base is a policy conundrum for the Government and involves serious equity issues for motorists who cannot afford an expensive EV but will be paying for those who can.
Or if EV users do pay via a crude user-pay charge per kilometre system, will equity considerations be included between capital cities and regional areas?
And what will be the outcome for people who can’t access the charging infrastructure? And how will our roads budget be paid for by those who use it least?
All governments of all persuasions have their takes on planning and the process requires investor confidence.
Australia benefits from a system of intricate national and state planning in collaboration with the private sector.
Unlike China which has the power to compulsorily relocate more than a million people to build its Three Gorges Dams project, and unlike the United States where historically railroads were led, surveyed, and constructed largely by the private sector, Australia’s national development operates differently.
Your industry is fundamental to the growth our economy and the decisions we make at a Federal level can have a positive or deleterious effect on that outcome.
The Liberals and Nations remain steadfast in our commitment to ensuring the Federal Government invests in infrastructure projects that create jobs, drive economic growth and keep commuters and freight safe and moving.
I pledge to play my part as Shadow Minister that the new Government be held to account to maintain the record infrastructure investment of the former Government. And that they work with industry to find solutions to the current market challenges to deliver the projects Australians need.
I congratulate you once again, particularly in the continuum of work done during the Pandemic, and I hope to work with your industry in building our future as a nation.