Respected leaders | panel discussion

L–R: Adrian Dwyer, Alan Stockdale AO, Tony Shepherd AO, Sir Bill English and Dr Kerry Schott AO

Respected leaders

Key points:

• national leadership and sound policy are essential to micro-economic reform • politicians need to treat the public with respect and understand that trust is a finite commodity, and • the asset recycling programme provides a benchmark for explaining reform.

Panellists:

► Rt Hon Sir Bill English, Former Prime Minister of New Zealand ► Dr Kerry Schott AO, Patron, Infrastructure

Partnerships Australia ► Tony Shepherd AO, Patron, Infrastructure

Partnerships Australia ► Hon Alan Stockdale AO, Former Victorian

Treasurer, Non-Executive Director

Moderator

► Adrian Dwyer, Chief Executive Officer,

Infrastructure Partnerships Australia

Adrian Dwyer (AD): We see survey after survey in Australia saying that trust is declining in institutions and in government. Does it matter that trust is declining? Can we get reform done without trust?

Tony Shepherd AO (TS): There’s no doubt that the surveys are accurate. Trust is declining and there are many causes of that. Frequent political leadership changes do nothing for creating trust and a feeling of confidence in the political system. Social media has turbo-charged criticism and has tended to oversimplify the policy debate. But there’s been a lack of leadership, too.

The courage of the 1980s, 90s and 2000s saw big things done, like serious economic reform and the introduction of a GST. That courage and capacity to get out there and bring the community with you by actively selling quite difficult policies that are not popular with the community seems to be missing. It is lacking in the current environment, and that is the challenge for our political leaders. By the way, that’s a bipartisan comment.

Alan Stockdale AO (AS): Currently, I think Australia is virtually ungovernable. For a long time, the Senate has been destructive of good government and good policy, and that hasn’t improved. I think New Zealand, Germany and a whole lot of other places have rules that unless you get five per

WestConnex. Source – Sydney Motorway Corporation

cent of the vote, you can’t be represented in the Parliament. I think we should introduce a rule of that kind so that we don’t have all these people who are accountable to nobody and very rarely elected because of any sophisticated policy agenda. In recent times, we’ve aggravated the instability in the Senate by electing knife-edge majorities in the House of Representatives, and I don’t know how you deal with that. I mean, it’s the outer workings of democracy.

The electorate is very evenly split between the major parties, and the minor parties are very seldom represented in the House of Representatives. However, I think the reason that we’ve had a succession of unpopular Prime Ministers defeated by their own party room is largely a government’s inability to deliver through a knife-edge balanced Parliament. In this environment, it’s just so difficult to drive anything other than platitudes.

AD: Sir Bill, is rising populism affecting the balance of politics in Australia? What are your reflections on that trust and populism question?

Sir Bill English (BE): Cheer up a bit, you’re doing pretty well. You just heard a politician here talk about the size and scale of the infrastructure investment. These are large, sophisticated projects that are being carried out under much more intense scrutiny than the sort of nation-building projects of the past where they just went in with the bulldozers and did it. Everyone thought it was pretty good. Australia is getting an awful lot done. The worry for people like myself, who’ve come out of politics, is that politicians don’t actually seem that relevant in Australia. I mean, you just keep pumping along. Back in New Zealand, we’re very pleased about that. We just can’t afford to be like that ourselves. We must have a good government, or we drop off the end of the Earth.

You guys can afford a lot of messy politics and in that sense, you should be a bit more optimistic than the mood is here. Don’t listen to the chirpers, anti-business, so-called populist stuff. I mean, some of it is just genuine opinion but some of it is just the dominance of a small, noisy group of people. When you look at trust surveys in Australia, the institution people trust the most after nurses and firefighters is their employer. That’s not anti-business, so you’ve got to keep it in perspective.

AD: We’ll come back to that question around trust in business later. Kerry, is trust the reason behind the lack of policy focus on some of the big reform issues or is there something else driving it?

Dr Kerry Schott AO (KS): I think trust is really important at a business level. I think with infrastructure projects and particular industries there is a lot of trust, but not with all of them. Light rail being a case in point in Sydney.

NBN had a lot of trouble with its rollout and people went through a phase of hating us, and it was in a bit of a parallel universe with ads about how terrific we were. Meanwhile, everybody was struggling with having their garden dug up and couldn’t get through to their garage. There was a complete mess on the communications front.

We’ve really worked very hard at fixing that and we’re getting trust back again, and our stats are all going the right way. But once you lose trust, it’s really hard getting it back and that’s true politically too.

AD: Tony, I want to come back to this point about trust in business. Sir Bill said that people trust their employers, but trust is declining for business as a whole. How are things like the Banking Royal Commission and other issues affecting broader trust in business? Is trust something that businesses need to better deal with?

TS: Business needs to have a serious look at itself, because the Banking Royal Commission has come out with some behaviour that is frankly disgraceful. In many cases, the behaviour has been illegal and certainly unethical.

You’ve got to put those things in perspective. To take a leaf out of Bill’s book, we sailed through the global financial crisis (GFC) better than any other country in the Organisation for Economic Co-operation and Development (OECD), and continue to grow as an economy. Our finance sector actually stood up in the GFC. The finance sector does billions of transactions a year. I

“Business in Australia needs to lift its game.

I think Australian businesses – and there are some notable exceptions – as a whole, are not customer focused

Alan Stockdale AO

don’t know what the exact number is, but it’s got to be billions, and a very small proportion of them are dodgy. We should deal with those dodgy incidents, and we should deal with them firmly and harshly. That’s why we’ve got regulators.

We’ve got more regulators in the finance sector than any other country in the world. They should just do their job. Get in there and enforce. It’s a pity we needed a Royal Commission to blow all that stuff up. It shouldn’t have happened, given the degree of regulation that the sector has. The regulators should’ve been in there investigating and enforcing. That’s the failure. Business in Australia needs to lift its game. I think Australian businesses – and there are some notable exceptions – as a whole, are not customer focused.

Our oligopolies and our monopolies, on top of our remoteness, makes us complacent in dealing with the customer. Dealing with the customer properly is more than a friendly voice telling you ‘no’ over the telephone. It’s about really engaging when dealing with the customer’s needs. I’ve spent a lot of time offshore and I think the customer focus in Australia, certainly in big business, is not as strong as it should be. We’ve seen that in the energy sector, we’ve seen that in the finance sector, and we’ve seen that in other sectors like retail and telecommunications. So, if it’s just a cheery voice from the Philippines telling you that they can’t fix that problem for you, or somebody from the same company calls you half an hour later to ask if you’d do a customer survey, that’s not customer service. Frankly, that approach typifies a lot of Australian business now – certainly big business. That approach does reduce trust in business. However, it’s comforting that surveys show that most people trust their employer virtually more than any other institution.

AD: Sir Bill, you’ve spoken about this kind of customer service not just in the private sector but in the public sector, too. Can you offer any reflections on whether this is a pervasive challenge?

BE: A lot of what’s called populism is just normal people who disagree with the media and political class. And it just happens that they’ve got more votes going and they’ve thrown a few people out. We’re still a democracy. Populism’s now become a word for ‘democratic results I did not like’. People out in northern New South Wales or the Midwest in the United States have had to put up with a lot of democratic results they didn’t like for a long time.

In an economy where you’ve had a lot of growth for a long time, it is easy for businesses to lose grip, and the banks certainly did. Even though New Zealand was a customer of Australian banks, they used to treat us pretty badly, and we’re a country. The attitude when I first became New Zealand’s Minister of Finance was a bit like someone from the outer edge of the empire turning up in the head office in Rome to pledge allegiance. That’s changed, thank goodness, but that’s how it was when I first became the Finance Minister.

That attitude is shifting and that’s a good thing. I’m fortunate to be part of the Wesfarmers board. Wesfarmers has nine million customers and I can tell you, it knows it must be relentlessly customer-focused. Where it’s relevant, I think, to a group like this is in the planning process. It’s clear to me that the planning process has had no customer focus whatsoever and that’s one of the reasons for the discontent. The policy establishment has let the public down on its biggest single cost, and that’s housing, because planning has been wilfully non-economic, and it’s been driven by planner preferences, not by customer preferences.

More broadly, I think the sector needs to start thinking about who uses the infrastructure and the reasons for it. We’ve seen some great innovation here in Australia along those lines, but it needs a continued focus on it to help make infrastructure more acceptable and easier to roll out.

AD: Is getting reform done just about how we communicate? Is it about telling the right stories, or is there something more fundamental we need to do?

Dr Kerry Schott AO and Sir Bill English Tony Shepherd AO

AS: Could I suggest two things I think should happen? We are in a policy freeze out. No-one is developing good national policy at the moment, and you can’t provide leadership if you haven’t got solutions to issues. New Zealand’s a great example of where it is happening. The Business Roundtable in New Zealand has been an enormously successful contributor to the public policy debate.

I believe that the Business Council of Australia has the resources and the interest to be the foremost policy developer in this country. I’ve urged it before to go out, search the world, find the best think tank leader, then recruit good people and start participating in the development of national policy. If we can’t get a first-rate taxation reform proposal out of the Business Council, then who’s going to do it? The Council represents an enormous proportion of the Australian economy. Jointly, it has more interest in it than anybody else.

Secondly, our national government must stop focusing on itself and start developing policy and providing leadership. If you look back at the 1990s, we had a very successful period of micro-economic reform. The Commonwealth took a lead and provided financial incentives for the states to introduce a programme of micro-economic reform. Unfortunately, they paid some governments, like New South Wales, who didn’t complete the reform agenda. I think we need another round of microeconomic reform backed by the incentives needed to do it.

We need a real effort to harness more resources in the community to come up with the agenda for reform and then the Commonwealth has to do three things. One, provide leadership through the Council of Australian Governments (COAG) and through other multi-jurisdictional resources. Second, spell out the agenda. Third, provide financial incentives for the states to actually deliver it. You need the carrot and the stick. I would also have the Grants Commission review the progress of each state every year in implementing the reform agenda. The Commission would penalise states that lag behind with reductions in their grants, and reward states who accelerate the programme.

We’re not going to get anywhere until somebody puts a premium on the development and implementation of policy. If our national government and our national business leaders aren’t doing that, then I think it’s whistling in the wind to think other people are going to do it.

AD: Speaking of the pre-conditions for reform, Kerry, the stars almost aligned on the National Energy Guarantee (NEG). It got pretty close, but ultimately fell through, at least with that title. Where to from here?

KS: The stars did align and the sad thing is that the leadership at the national level just couldn’t take the final step. I think what will happen going forward is that the reliability obligation part of the NEG will probably get support. We’ll have to wait for the rest of it.

The sad thing is that the drop in prices that would’ve occurred in the wholesale market will be less than what would have been with the NEG. The other sad thing is that there’s a flavour of more market intervention rather than just stepping back and letting industry and the states get on with it. I think that’s the biggest risk now.

AD: How do we have a sensible conversation with the public about energy prices?

TS: That’s a big issue. The public has been burnt and they’re understandably upset. Electricity prices have effectively doubled in the last 10 years. Wholesale prices in the last 18 years have gone up by a factor of four in most states. So, people are upset, and this has again created a lack of trust.

The NEG must be taken to the people and explained in more detail so that they can have more confidence in the results. I went around the community and business when the NEG was on the table, and I couldn’t find many people that understood how it would work. I know it’s complicated, but it can be simplified without losing its true meaning and taken to the consumer with a lot more clarity. That’s what is really required, so we can get people comfortable and confident with the predicted outcomes.

AS: Governments over the last 20 years have created massive uncertainty about future prices, the reliability of the system, and the effectiveness of the market. That is hindering the investment we most need. Right now, we need more dispatchable power. Renewables are not the answer. They don’t necessarily run when we need the power. We need baseload power, and to close down coal-fi red power stations without a plan as to how you would replace that baseload verges on insanity. Due to the uncertainty, we’re not getting investment where we need it, so the Government needs to take the initiative.

The Commonwealth should call in every one of the states and tell them they’ll provide government-guaranteed debt for one renewable project and one dispatchable power project. It

WestConnex. Source – Sydney Motorway Corporation L–R: Adrian Dwyer, Alan Stockdale AO, Tony Shepherd AO, Sir Bill English and Dr Kerry Schott AO

won’t be coal in all probability, simply because the lead times are too long and because of the politics of it. However, combined cycle gas and other technologies should be considered. I think we should also launch an inquiry, as de-politicised as you can, into whether part of the long-term solution is nuclear power. Then, use that inquiry to educate the community about the risks and the advantages of having or not having nuclear power. There are lots of nuclear power stations around the world that haven’t had accidents and haven’t had problems.

Germany has a substantial proportion of its power coming from nuclear stations and it’s never had a problem. We should be having a sensible discussion about whether that’s part of the mix. But the immediate solution is to increase baseload power.

AD: Sir Bill, we have a lot of people saying that what we need is a good crisis. Can you talk everybody out of the need for a crisis to reform?

BE: Yeah. You don’t need one, only because it would be bad for New Zealand. The NEG is a good example of what you do instead of a crisis and you treat voters with respect. That is, the respect of believing that their opinion matters and that they’re capable of understanding most things.

One of the things that’s noticeable out of Australian politics is how little time the politicians spend on policy. They can tell you an awful lot about what was on Sky or ABC, but are not that clear about what they think should happen in the world. The GST change was the best example, because we’ve gone down a different track than Australia. By the time we went to put the GST rate up to 15 per cent, there was no controversy. That’s because we started the process with a very straightforward argument. Stuff we like we’ll tax less – that’s work and savings. Stuff we don’t – like consumption and property – we’ll tax more. It was a very transparent and open process where people could see the logic. We’ll put up your GST and cut your income tax. So, you can work harder if you like, and if you spend a bit less, you’ll be a lot better off. If there isn’t a way that a family can understand it, then it’s probably not that well thought through.

WestConnex. Source – Sydney Motorway Corporation

Basically, treat voters with respect, and provide them with arguments that they can understand. I don’t mean slogans and ad campaigns. I mean treat them as thoughtful participants in the process.

AD: So, in some ways it’s about telling a good story. We saw that with asset recycling, where it became about the thing that was being bought, rather than the thing that was being sold.

TS: Yeah. Asset recycling was one of the great policy initiatives of the last 10 years and it’s a policy that New South Wales pioneered. Mike Baird won an election on the policy and it did happen. They sold assets and invested the proceeds into new infrastructure. Now they’re doing that cycle continuously, with the partial sale of WestConnex. That sale will enable them to invest in other infrastructure projects, and the community has bought into that approach. They relentlessly sold the concept to the public and put it in layperson’s vernacular. They didn’t wrap it up in complex economic equations. They just very clearly said, ‘We’re selling that asset, and we’re going to put the money into A, B, C and D’, and it’s working.

BE: In the political environment, when you’re saying you’re going to sell an argument, people are immediately suspicious, but they explained it. I’m a firm believer in the power of explanation and most voters can understand things if you go to the trouble.

TS: Yes, they do. I think we vastly underestimate the common sense of the average Australian.

AS: At the risk of being repetitive, we do have a marketing problem. We lack people who can identify the problem, and then explain the solution. Why is the Government doing what it’s doing and what will it produce?

The problem for Australia at the moment is not just marketing. All the marketing in the world won’t help if we don’t have soundly developed policy and we don’t have people who are providing leadership for that policy. I’ve always believed that nothing worthwhile happens without a champion. We don’t have a champion for anything. We need leadership.

I’ve been very critical, for example, of Commonwealth governments of both political persuasions and their privatisation of Telstra. They didn’t bother looking at the experience of the rest of the world as we did with electricity reform. They just went ahead and did what they thought would work. They had a view that if you deregulate, the competitors will just come. It didn’t happen, and we still have a massively dominant organisation that has never recovered from being a public monopoly.

We need to forget about marketing for the moment. We need to focus on the fundamental problem, which is that we’re not developing sound public policy. There’s no way you can explain something on one of those crazy shouting matches on Sky or on social media. You’ve got to have good policy to begin with and we don’t.

TS: I agree totally.

AD: In closing, if there was one area where we could have some good policy developed and bipartisan support, what would each of you choose?

TS: I have to pick two. One is micro-economic reform and the other is energy.

AS: Mine would be micro-economic reform, because I think it has just fallen off the agenda, so I’d say that is a top priority. Energy would be a close second.

BE: One is the structural separation of Telstra and resolving that with the NBN. Another one I’d watch out for is public accounting rules. You need a pretty big upgrade in public asset management, because there is a vast pool of capital-intensive assets coming online across the east coast of Australia. The operating cost of these assets will place a major burden on state treasuries. If it’s not managed properly, five to 10 years down the track, it could be a recipe for large write-offs, ruined government budgets and poor service. Your Treasuries should be accounting for that now.

AD: Kerry?

KS: I think I’d probably have a good look at the boring old chestnut of Commonwealth–state relations. The Commonwealth has increasingly been getting into spaces where it really doesn’t have either the responsibility or the capability to operate, and it is mucking things up hugely.

Rt Hon Sir Bill English – Former Prime Minister of New Zealand

Sir Bill English was Minister of Finance and Deputy Prime Minister from October 2008 to December 2016, and Prime Minister of New Zealand until the change of government in October 2017. He retired from politics in March 2018.

Sir Bill guided the New Zealand economy through the global financial crisis to be one of the faster-growing developed economies with sustainable government surpluses.

Sir Bill also focused on public sector reform and balance sheet management, and led the development and implementation of Social Investment, a worldleading policy innovation for large-scale social services. He oversaw significant investment in digitalising government and improving the customer experience of public services.

Sir Bill is now a consultant with commercial government and not-for-profit clients. He is a director of Wesfarmers and was recently appointed to the Commonwealth APS Review reference group.

Dr Kerry Schott AO – Patron, Infrastructure Partnerships Australia

Dr Kerry Schott is Chair of the Energy Security Board, Chair of Moorebank Intermodal Company, a Director of NBN, and a Director of TCorp NSW. She also Chairs the Assurance Board for Sydney Metro, and is a member of the Advisory Board for City and SouthEast Light Rail.

Dr Schott was Managing Director and CEO of Sydney Water from 2006 to 2011. Before that, she spent 15 years as an investment banker, including as Managing Director of Deutsche Bank and Executive Vice President of Bankers Trust Australia. During this time, she specialised in privatisation, restructuring, and infrastructure provision. Prior to becoming an investment banker, Dr Schott was a public servant and an academic. Dr Schott holds a doctorate from Oxford University, a Masters of Arts from the University of British Columbia, Vancouver, and a Bachelor of Arts (first class Honours) from the University of New England.

She was recently awarded an Order of Australia and Honorary Doctorates from the University of Sydney and the University of Western Sydney.

Dr Schott is also a Patron of Infrastructure Partnerships Australia.

Tony Shepherd AO – Patron, Infrastructure Partnerships Australia

Mr Shepherd is Chairman of Macquarie Specialised Management (a global infrastructure fund), the Sydney Cricket Ground Trust and the AFL GWS Giants. He is also a Director of Menzies Research Centre, Virgin Australia International Holdings and Racing NSW. He is an adviser to Bank of Tokyo Mitsubishi UFJ, a member of the ASIC External Advisory Panel and the Pacific Leadership and Governance Precinct Executive Advisory Board.

Mr Shepherd has had an extensive career in Australia, and overseas in the private and public sectors. He pioneered private infrastructure with projects such as the Sydney Harbour Tunnel, Melbourne City Link and East Link. He was also the inaugural Chairman of WestConnex.

Mr Shepherd oversaw the listing of Transurban, Transfield Services and Connect East, and was President of the Business Council of Australia, Chairman of the National Commission of Audit and Chairman of ASTRA (the subscription TV Association).

Mr Shepherd is also a Patron of Infrastructure Partnerships Australia.

The Hon Alan Stockdale AO – Former Victorian Treasurer, Non-Executive Director

Alan Stockdale has extensive business and government experience. Elected to the Victorian Parliament in 1985, he was Shadow Treasurer from 1985–1992, and then Treasurer (1992–1999) and Minister for IT and Multimedia (1996–1999) in Victoria’s Kennett Government.

As Treasurer, he implemented one of the most far-reaching reform programs in the world, including more than A$30 billion of privatisations, restoring the Government finances of Victoria, reducing Government debt and regaining Victoria’s AAA rating.

He was a key Minister in the Government team responsible for the reform of Victoria’s public infrastructure and the development of major projects. In 1999, the prestigious ‘Privatisation International’ named him its Privatisation Minister of the Year.

After leaving Government in 1999, Mr Stockdale worked as an investment banker with Macquarie Bank for seven years, specialising in infrastructure projects, and developed a career as a company Chairman, Director and consultant.

Mr Stockdale was Federal President of the Liberal Party from 2008 to 2015 and a member of the Party’s Federal Executive from 2008 until 2017. He is currently Chairman of the Medical Research Commercialisation Fund (MRCF) and KNOSYS, a consultant to Maddocks Lawyers and Metro Trains Australia, and a member of the Advisory Board of Lazard Australia.

Adrian Dwyer – Chief Executive Officer, Infrastructure Partnerships Australia

Adrian Dwyer is the Chief Executive Officer of Infrastructure Partnerships Australia – the nation’s leading public and private sector infrastructure think tank.

Mr Dwyer served as Infrastructure Partnerships Australia’s Head of Policy from 2011 until 2015, where he led major studies on road pricing reform, contracting and financing models, among others.

In 2015, Mr Dwyer left Infrastructure Partnerships Australia to serve as the Executive Director of Policy and Research at Infrastructure Australia – the Commonwealth Government’s statutory infrastructure body.

He was appointed as Infrastructure Partnerships Australia’s Chief Executive Officer in March 2018.

Our new city is connecting Australia to the future

The new Maroochydore CBD is set to become the landing point for an international subsea broadband cable, paving the way for the Sunshine Coast region to become a global innovation hub.

The fibre-optic cable will enable the Maroochydore City Centre and the broader Sunshine Coast region to deliver Australia’s fastest telecommunications connection to Asia, stimulating investment and business growth, and generating jobs.

Located 100 kilometres north of Brisbane, the new Maroochydore CBD is a unique development being constructed on a 53-hectare greenfield site.

With no legacy infrastructure to remove or upgrade, the company overseeing design and delivery of the new city centre, SunCentral Maroochydore, has a once-in-a-lifetime opportunity to create an entire CBD from the ground up.

Apart from commercial, retail, residential and public precincts, the new city centre will be one of the most digitally advanced CBDs in the country, and promises to set a new benchmark for technological integration and innovation in Australia.

Laying the groundwork

More than $10 million in underground infrastructure has been laid beneath the streets of the new Maroochydore CBD, providing a smart city framework capable of delivering cutting-edge urban design and innovation.

The development is the first in Australia to include a CBD-wide underground automated waste collection system that will make wheelie bins obsolete throughout the city centre. Instead, waste will be transported at up to 70 kilometres per hour through a network of underground vacuum pipes to a central collection point.

A smart city wi-fi system will operate throughout the CBD’s public realm, enabling smart signage, lighting, security, parking and traffic management systems to make life easier and safer for visitors, residents and workers.

In his report ‘The Activated City: Imagining the Sunshine Coast in 2040’, leading Australian commentator Bernard Salt found national technology, construction and professional services companies will have head offices on the Sunshine Coast by 2040, luring a wave of young families, universityeducated millennials and ‘secondgeneration’ CEOs.

Salt predicts the region will see a rise in tech-savvy young people, as well as baby boomers who retire to the Sunshine Coast and kick off new startup businesses.

Claiming a stake

More than 90 per cent of the core commercial precinct of the new CBD is under commercial or contract negotiations, with interest strong across the health, education and technology sectors.

Local company Evans Long has unveiled plans to develop premium commercial buildings in the city centre and the Sunshine Coast Regional Council has confirmed its intention to relocate its headquarters to the new Maroochydore CBD.

SunCentral Maroochydore Chief Executive Officer John Knaggs says the expansion of the Sunshine Coast Airport

to allow direct flights from Asia by 2020; a new $1.8-billion hospital and health precinct; the growth of the University of the Sunshine Coast; and plans for a light rail in the region would combine with the new CBD to have a transformative effect.

‘The economic opportunities to arise from this infrastructure investment, along with its coastal lifestyle and connectivity, make the new CBD compelling to large, national firms as well as small businesses and entrepreneurial startups,’ Knaggs says.

Construction is expected to start on the first buildings in 2019.

Building a legacy

Hundreds of trees and thousands of shrubs have been planted alongside the CBD’s first city streets, bringing the Sunshine Coast’s new urban heart to life.

Tree-lined boulevards and a 2800-square-metre public park are also taking shape with more than 40 per cent of the new CBD devoted to waterways, parks and plazas.

Street names in the core commercial precinct have been selected to honour the site’s cultural history, as well as people and events that have played significant roles in the region over time. For instance, Fairway Drive acknowledges that the site was once the home of a golf course, while Festival Parade reflects the creative events that will take place in the new CBD.

The new city centre will ultimately include 150,000 square metres of prime commercial office space; 65,000 square metres of retail gross floor area, convention and exhibition facilities; a premium hotel and recreational spaces, and 2000 residential apartments.

The development is expected to create more than 15,000 jobs in this rapidly growing region and provide a $4.4-billion boost to the local economy.

Looking to the future

Sunshine Coast Regional Council has long recognised that developing a modern city centre would be essential to cater to the region’s future.

Maroochydore was identified as the Sunshine Coast’s Principal Regional Activity Centre in the ‘South East Queensland Regional Plan 2005–2026’. The Queensland Government declared the 53-hectare site a Priority Development Area in 2013. The Maroochydore City Centre Priority Development Area (PDA) scheme was gazetted in 2014.

SunCentral Maroochydore Pty Ltd was subsequently created to oversee the design and delivery of a new city centre to meet the demands of future workers, residents and visitors, with the population of the Sunshine Coast expected to surge from 330,000 to more than 500,000 by 2040.

Knaggs says the total construction cost of the 20-year project was estimated at $2.1 billion (in 2015 dollars).

‘This isn’t just a construction project,’ Knaggs says. ‘It’s about building a new heart for the community – a city centre that will ultimately shape the lives of hundreds of thousands of people.

‘The future has never looked brighter for Maroochydore and the Sunshine Coast.’ ♦

To find out more about the Maroochydore City Centre development, call the head office on 07 5452 7274 or visit maroochydore-city.com.au. You can register for regular project updates via the website.

The other side of the infrastructure boom

By Daniel Gradwell, Senior Economist, ANZ Australia’s $120 billion in construction projects is a boon for the economy, but rising cost pressures are a real risk.

The Australian economy has done a solid job of transitioning away from the mining sector. Though mining investment has fallen to its lowest level in a number of years, the overall investment story has been positive on the back of a tremendous upswing in infrastructure spending.

This picture has been clear for several years now, and the past 12 months have seen a number of additional commitments that have added to the already-strong pipeline of major projects. The strength in construction activity is good news for Australia’s economy, but the strong competition for labour, resources and equipment carries the risk of rising cost pressures.

Nationwide, there is nearly A$120 billion in housing, commercial property and engineering construction (excluding mining) work in the pipeline.

The housing sector was the largest component of this number for several years, driven by the boom in high-rise apartments across Sydney, Melbourne and Brisbane. More recently, engineering construction has taken the mantle, supported by the many road and rail projects now under construction. To top it off, the backlog of commercial property construction is now also at a record high.

Work yet to be done by sector

The outlook for infrastructure spending has further improved over the past year on the back of greater cooperation among various levels of government. Projects such as the Melbourne Airport rail link and North East Link road (Victoria) and Badgerys Creek airport rail link (New South Wales) will involve contributions at both state and federal levels.

Further ahead, the scale of the road and rail works provides unusually clear visibility of the pipeline right through to the early 2020s.

60 140

50

AUDbn 40

30

20 120

100

80 AUDbn

60

40

10 20

0

* ex mining engineering

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Residential Non-residential building Engineering construction* Total (RHS)

Source: ABS, ANZ Research

Major infrastructure projects

With this strong pipeline of work, employment in the construction sector has been the second-highest job creator over the past three years, only behind healthcare. In addition, the rate of capacity utilisation in the construction sector is now at the highest levels since the financial crisis.

The Reserve Bank of Australia (RBA) has noted in several recent publications that the volume of work taking place is posing challenges.

The RBA’s Statement on Monetary Policy August 2018 warned, ‘Capacity constraints in the building industry, especially in Sydney, are likely to limit the pace at which this pipeline can be worked through’.

Mixed impact

This rising rate of capacity utilisation has had a mixed impact on costs to date. Wages in the construction sector remain subdued, but there are several examples of rising construction costs.

Nationwide building construction costs are up 2.4 per cent year on year, but the divergence across the states is noteworthy. New South Wales and Victoria are seeing the strongest growth in costs, up 3.4 per cent and 3.9 per cent respectively in line with their strong levels of work.

This story is true across different types of construction. New South Wales and Victoria housing construction costs are up 4.3 per cent and 6.2 per cent year on year, while road and bridge construction costs are up 3.4 per cent and 10.6 per cent. Keep in mind that

these figures are coming at the same time as overall consumer price index (CPI) inflation is running at just 2.1 per cent.

At this stage, the impact of these cost and capacity increases has been fairly limited, but it is worth watching closely given the experience of the construction industry in New Zealand.

Capacity utilisation in Australia and New Zealand

New Zealand’s construction sector has been struggling to keep up with demand in the face of capacity constraints. While there is plenty of work taking place, profitability has been squeezed as a result of cost pressures and delays. A BDO survey also found that many construction firms and subcontractors are operating on unsustainable margins.

As a result of these pressures, a growing number of companies has been forced into receivership or posted material losses. Perhaps the most noteworthy example is Fletcher Building, which has lost almost NZ$1 billion over the past two years on large construction projects, and posted a loss of NZ$190 million in 2017–2018 – its first annual loss since the GFC.

This is not to say that Australia is inevitably heading down a similar path. There are several important differences across the two countries.

Capacity utilisation began to accelerate in New Zealand much earlier, prompted by the 2011 Canterbury earthquakes, meaning that spare capacity has been lower for longer than in Australia.

Australia’s construction capacity was ramped up during the mining boom. It’s likely the interstate migration of workers away from the mining sector in Queensland and Western Australia toward the housing and infrastructure sectors in Sydney and Melbourne has helped to relieve pressure on labour availability. Labour availability has been a significant constraint in New Zealand.

This is reflected in wages growth, which, in New Zealand, has seen construction wages rising faster than the industry average for almost every period since 2011. In Australia, construction wages have been below the industry average since 2014.

In New Zealand, housing construction costs have been rising at 5.3 per cent year on year for the past five years, which is significantly above average inflation of just 1.1 per cent. Australian housing construction costs have also been running ahead of inflation, but the difference over the last five years (2.6 per cent versus 1.9 per cent) is much smaller.

At the national level, we are not seeing much evidence of cost pressures in Australia. But the details across New South Wales and Victoria, as well as anecdotes from ANZ clients, confirm that this story is worth keeping a close eye on. ♦

24

22

20

18

16

AUDbn 14

12

10

8

6

4

Cross River Rail (QLD) Sydney Metro West (NSW) Badgerys Creek Airport Rail (NSW) Melbourne Airport Rail North East Link (VIC) Melbourne-Brisbane Inland Rail Snowy Hydro Expansion Badgerys Creek Airport (NSW) Metronet (WA) Pacific Highway - Woolgoolga to Ballina (NSW) Airport Link (WA) Melbourne Metro (VIC) Level Crossing Removals (VIC) West Gate Tunnel (VIC) Cranbourne-Pakenham Rail (VIC) Western Harbour Tunnel (NSW) Sydney Metro City and Southwest (NSW) CBD and South East Light Rail (NSW) NorthConnex (NSW) Sydney Metro Northwest (NSW) WestConnex (NSW) NBN

2

0

2011-12 2013-14 2015-16 2017-18 2019-20 2021-22 2023-24

Source: BREE, company reports, Deloitte Access Economics, state government budget papers, ANZ Research

96 90

94

92

Capacity utilisation 90

88

86

84

82 88

86

84

82

80

78

76 Capacity utilisation

74

72

80

01 03 05 07 09 11 13 15 17

New Zealand - Builders Australia - Construction (RHS) 70

Source: NAB, NZIER, ANZ Research

Adapting to an everchanging environment

The TRILITY group of companies is an Australian environmental services provider with extensive remote, rural and regional operations, and servicing capabilities across Australia and New Zealand. Since its inception, the group has been involved in the delivery of hundreds of water infrastructure projects currently servicing more than 600 facilities, and has extensive operations spanning from far south to the northernmost tip of the country.

TasWater project, transporting a modular plant into position

TasWater Project – L-R: Hydramet Project Manager; Francois Gouws, TRILITY Managing Director; Mike Brewster, TasWater CEO

Hydramet Western Australia, internals of a mining site packaged treatment plant Providing adequate, secure and safe potable water in rural and remote regions is a major challenge for all Australian states. This is why TRILITY works in collaboration with state and local governments to provide the essential services required to deliver safe, reliable water.

Securing such diverse work in such varied locations is a clear testament to the group’s impressive capabilities.

More than a year ago, the group invested in Tasmania with the opening of an office in Launceston. The following year, the first project, a $13-million contract with TasWater, was successfully completed whereby eight new water treatment plants were delivered in regional towns and communities across the state.

TRILITY Managing Director Francois Gouws says that being part of such a successful project was an honour. ‘It was the innovative and collaborative approach taken by TasWater that ensured the project’s success,’ he says.

‘And it’s not only a success for TasWater, but a great outcome for Tasmania overall.’

TRILITY, along with subsidiary Hydramet, built the modular treatment plants in a factory in Launceston while civil works were completed on site using local contractors. The streamlined process of centralising the workforce in a factory, avoiding weather delays and the logistics of isolated building sites around the state, proved to be much quicker and more effective than traditional construction.

Once completed, the treatment plants were transported to each site and positioned prior to in-field commissioning and stringent testing overseen by the Tasmanian Department of Health to ensure that the water met the Australian drinking water guidelines.

These plants are now supplying fully treated water to Herrick, Gladstone, Mathinna, Cornwall, Rossarden, Conara, Bronte Park and Wayatinah. TRILITY will continue to support TasWater with the operations and maintenance of these sites during the defects liability period. This marks a historic achievement for TRILITY and Hydramet, along with our client, TasWater, and the Tasmanian community, providing long-term infrastructure improvement and underpinning public health for generations to come.

Moving to the far north region of Australia, the group works in conjunction with the Department of Infrastructure, Local Government and Planning (DILGP), and Northern Peninsula Area Regional Council (NPARC), where the company provides operational and maintenance services for five Indigenous communities. These communities are located approximately 1000 kilometres north of Cairns, adjacent to the Jardine River National Park at the northern tip of Cape York.

Redcliffe Wastewater Treatment Plant – view of the top of the new inlet works

The contract involves operating and maintaining a raw water collection and transfer station, a membrane water treatment plant, and a treated water distribution system. Most of TRILITY’s staff members working on the project are local, representing an important employment and training opportunity.

Furthermore, through Hydramet, the company provides vital service support to numerous councils and communities in Far North Queensland, including Mareeba Shire, Carpentaria Shire, Pormpuraaw, Mapoon, Isaac and Whitsunday Regional councils, and it services all of Mackay Regional Council’s chemical dosing, gas chlorination and instrumentation assets across 26 sites over 762 square kilometres.

Established in 1991, TRILITY continues to work with statutory authorities and companies around Australia to upgrade and manage critical water assets, to design and construct water infrastructure, and to finance and own water assets and projects.

The company operates and maintains more than 46 plants and schemes, as well as hundreds of kilometres of irrigation pipeline networks across the country, and Australia’s largest biosolids facility in Geelong. TRILITY is responsible for assets that provide water for millions of Australians in urban, rural, regional and remote areas.

‘At TRILITY, we are passionate about what we do – helping to protect and direct our precious water resources for Australia’s economic and environmental future.’

TRILITY is an Australian-run company with strong international links through its Hong Kong–listed shareholder, Beijing Enterprises Water Group (BEWG) Limited, which is principally engaged in global water businesses. TRILITY brings with it outstanding global expertise and a wealth of local knowledge developed over two decades.

With some of its contracts stretching back more than 20 years, TRILITY has developed strong relationships with water authorities, government departments and industry bodies.

Indeed, this capacity to successfully partner with government and industry is reflected in its operating projects: 32 water treatment and desalination plants; 15 wastewater treatment and reuse plants/schemes; two irrigation schemes; more than 600 service sites; and Australia’s largest thermal biosolids facility at Geelong.

In South East Queensland, TRILITY was selected to design, build, operate and maintain the Redcliffe Sewage Treatment Plant upgrade, which is near completion. In Western Australia, TRILITY is part of the Helena Water consortium, which delivered the $300-million Mundaring Water Treatment Plant. Through Hydramet, we service a number of major mine sites across Western Australia, providing clean, safe water using custom-designed packaged water treatment plants. In regional Victoria and South Australia, TRILITY is the operator of numerous water treatment plants and has a footprint in New Zealand.

‘TRILITY has an incredible workforce that is very passionate about water and the environment. We continue to invest heavily in staff and systems, and a core part of my role is to maintain and enhance our exceptional culture,’ Gouws says.

‘We also pride ourselves on being innovative, nimble and adaptable. ‘Water is a vital resource, and change is a certainty that creates exciting opportunities. Community and industry need change and so does the environment – so at TRILITY, we’re focused on adapting so that we can continue to make an important contribution to Australia’s future.’

For everyone at TRILITY, ongoing improvement is a driving force. ♦

Hydramet Western Australia remote package chloramination plant

Redcliffe Wastewater Treatment Plant – odour control facility