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Balancing act key to Queensland’s infrastructure investment By Domini Stuart
Swift action has characterised the Newman Government’s first six months in power, but with a constrained balance sheet, the challenges remain immense, writes Domini Stuart.
Five days before his victory in this year’s Queensland election, Liberal National Party (LNP) Leader Campbell Newman released a blueprint for all that his government hoped to achieve in its first 100 days in office.
‘If elected this Saturday, we’ll immediately start our plan to grow a four-pillar economy, lower the cost of living by cutting waste, deliver better infrastructure and better planning, revitalise front-line services for families and restore accountability in government,’ he said.
Months later, the plans for the state’s infrastructure sector appear to be on track.
Scott Emerson, Minister for Transport and Main Roads, said it’s important that the state delivers on its promised reform agenda.
‘It’s essential for the state’s future that we remain focused on delivering our agenda for Queenslanders who voted for change,’ he says. ‘My priority is to ensure we deliver on our election promises.’
The state of Queensland’s finances
Queensland’s government faces a unique and twofold demand for infrastructure. On one hand, it needs to provide for a decentralised and rapidly growing population. On the other, it must service and support a flourishing natural resources sector. As a result, Queensland has typically needed to allocate a more substantial share of state resources to capital investment than other states.
Total government capital expenditure has increased from around $4.4 billion in 2000–01 to an estimated $12.3 billion in 2011–12. This includes investments of $3.5 billion in upgrading and maintaining electricity infrastructure, and $1.9 billion in the construction and redevelopment of hospitals. An additional $5.4 billion was spent on transport infrastructure, including work on reconstructing over 9000 kilometres of road damaged by the recent spate of natural disasters, including flooding and cyclones.
With the state’s debt expected to reach $64 billion before the end of the 2011–12 financial year, a review of the state’s finances was high on the agenda for Newman and his government.
A Commission of Audit was set up to report on the current and forecast financial position, and to make recommendations for strengthening Queensland’s economy, with the goal of restoring its financial position and ensuring value for money in the delivery of frontline services.
Headed by former Federal Treasurer Peter Costello, the Commission released its interim report in June, with
Balancing act key to Queensland’s infrastructure investment
Costello describing the task of returning Queensland’s economy to a position of strength as ‘enormous’, and recommending a two-staged approach – stabilising the growth in debt and returning the budget to a fiscal surplus by 2014–15; then restoring the state’s AAA credit rating by 2017–18.
In particular, the report notes the impact that government-owned corporations (GOCs) are having on the state’s budget, with the 12 GOCs having a projected debt of $19.8 billion as at 30 June 2012, representing 32 per cent of total state-sector debt.
The response from the government has been swift.
In July, Emerson released the results of a government review into Queensland Rail, urging the GOC to refocus its attention on the delivery of front-line services and identify savings within the organisation.
The review found that QR had been a substantial drain on the state’s finances, with head office staffing levels increasing 68 per cent since 2010 in the communication, stakeholder and marketing areas; 122 per cent in the finance division; and 66 per cent in strategy and corporate services.
‘There is $4.53 million being paid to 12 senior executives, each paid above the CEO level for government departments,’ Emerson says. ‘By comparison, the Department of Transport and Main Roads has only two senior executives paid at CEO level for an organisation of similar size.’
Costello’s Commission of Audit found that QR poses ‘a significant funding risk to the state’ and that in the absence of competitive market pressures, ‘it is important to ensure that there are appropriate incentives for QR to contain costs and manage its business appropriately in order to limit the state’s financial commitment’.
Further reform was announced in the bulk water sector in South East Queensland, with Seqwater, LinkWater and the SEQ Water Grid Manager to be merged into a new single supply authority, and the Queensland Water Commission to be abolished.
While Costello’s report states that privatisation is a logical way to rein in state debt, State Treasurer Tim Nicholls remains adamant that there will be no more asset sales without an election mandate.
Responding to the Commission’s interim findings, the government outlined a commitment to achieve $4 billion in savings over three years – $1 billion more than was recommended by Costello’s report.
The enlarged savings target follows a $1.66 billion downward revision in the government’s outlook over the forward estimates, including an $812 million downward revision to transfer duty revenue over the next four years.
ABOVE: Scott Emerson
Measures recommended by the interim Commission of Audit into Queensland’s finances include:
• broadening the land tax base by removing or reducing exemptions and concessions or an increase in mining royalties • addressing the cost of recurrent expenditure by linking the previously announced three per cent cap on growth in employee expenses in legislation • prioritising capital expenditure over the forward estimates, ensuring that only the highest priority projects receive funding. Business cases should include not only realistic estimates of capital costs, but also whole-of-life costs such as operating and maintenance costs over a period of 20 years • undertaking a review of the government’s holding of physical and commercial assets and implementing measures to maximise a return on those assets. The Audit states there is ‘no justification’ for the government continuing to operate commercial business operations in direct competition with private businesses, including Q-Fleet, Q-Build, Goprint, CITEC and Queensland Shared Services. The Audit urges further examination of avenues for private sector management of government assets and delivery of business services to government.
Balancing act key to Queensland’s infrastructure investment
RIGHT: Campbell Newman and Scott Emerson
Rising to the challenge
One of the more formidable infrastructure challenges confronting the new government is the looming heavy rail crisis in Brisbane’s CBD.
An Environmental Impact Statement released by the previous Bligh Government last year estimated that without updates to the network, the existing rail system in Brisbane’s CBD will reach capacity by 2016. The EIS reaffirmed figures released by Premier Beattie in 2005 and in the Inner-city Rail Capacity study in 2008.
At the moment, there is just one inner-city rail bridge across the Brisbane River – the Merivale – which is likely to reach its capacity limit by 2016. Back in 2005, then Premier Peter Beattie began planning an underground rail link called the Cross River Rail (CRR).
The estimated cost of the CRR was originally $8 billion, though this was later revised down to $6.4 billion. Seven years on, despite there being little progress in terms of funding, Infrastructure Australia (IA) rated the Cross River Rail as ‘ready to proceed’ in its report to COAG in July, on the grounds that it offers genuine growth opportunities for the city.
Meanwhile, the South East Queensland Council of Mayors supported scrapping the CRR in favour of the much cheaper $2.5-billion ‘Cleveland solution’ proposed in a report commissioned from engineering firm GHD.
Brisbane Lord Mayor Graham Quirk, who chairs the council, described the Cleveland solution as a stopgap measure to boost capacity by adding around 20 years of life to the Merivale Bridge.
Quirk predicted that, eventually, the Cross River Rail would still have to be built, but that ‘there was a recognition among mayors that there just wasn’t a spare $7 billion floating around in federal or state government coffers to deliver CRR, and there was a need to do something’.
On taking office, Emerson asked for a review of the work already undertaken and options for both future-proofing the network and extending the capacity deadline. In June, he announced his decision – a solution that he says will deliver the two underground tunnels promised in the original plan for the much lower cost of just $4.5 billion.
The plan put forward by the LNP, however, would still require substantial funding from the federal government.
‘We’ll be seeking 75 to 80 per cent from Canberra, which is standard for projects like this,’ he tells Future Building. ‘Then we have to look at how the private sector can get involved. This could include commercial opportunities for investors, such as paid parking.’
As the project cannot be delivered before 2020, the state government is looking at short-term measures to increase capacity. The review panel suggested a number of interim measures, such as removing some seats to create more standing room for commuters, and rescheduling interstate services so that they don’t run in peak periods.
‘We have to consider what delivers the best result for the dollars we spend,’ Emerson says.
He is now preparing a submission for Cabinet to consider, and says he will continue to engage with Federal Infrastructure Minister Anthony Albanese and Infrastructure Australia.
Restoring confidence in public transport
The rationale behind a revamp of Queensland’s rail system is clear. Queenslanders made four million fewer trips on public transport in the final six months of 2011 than in 2010. Major disruptions to Queensland Rail services have shaken commuter confidence, with two notable incidents in February and March this year together affecting 297 services and resulting in 124 cancellations.
An audit of Queensland Rail’s maintenance was ordered by the LNP when it took government.
‘The audit found that maintenance of the rail network was being carried out in a piecemeal fashion
Balancing act key to Queensland’s infrastructure investment
and that sections of our city network were in urgent need of attention,’ Emerson says.
Meanwhile, pressure is also building on Brisbane’s roads. Brisbane City Council has already completed stage one of an upgrade to Kingsford Smith Drive – a major road linking Brisbane CBD to the Brisbane Airport, Port of Brisbane, Northshore Hamilton and the Australia TradeCoast area – in order to reduce traffic congestion and improve safety. Options for the next stages are currently under review.
‘Restoring confidence in the public transport network is fundamental to easing congestion in Queensland’s major cities,’ adds Emerson.
The government has also said it is committed to making public transport more affordable by introducing free travel after the ninth journey in any week, and halving Translink’s annual fare increases to 7.5 per cent, though this plan was called into question in the interim Commission of Audit.
The demands of increasing regionalisation
South East Queensland is growing fast; by 2031 it is likely to be home to almost 4.5 million people.
In the words of Emerson, it’s this growing regionalisation that presents its own unique challenges for the state’s transport network.
‘The great challenge with transport in our state will also be delivering for all Queenslanders, whether they be in Cairns, Coolangatta or Cunnamulla,’ says Emerson.
While it is critical that key arteries like the Bruce Highway are maintained to a high standard, infrastructure is also needed to support a sustainable and integrated transport system. For instance, Queensland Rail is planning to expand and improve the rail network with projects such as the $100 million Keperra to Ferny Grove upgrade, and the $1.15 billion Moreton Bay Rail Link.
‘Returning some of the wealth created in mining industries will also be crucial if those communities are to grow in a sustainable manner,’ says Emerson.
Harnessing the resources boom
The government is looking at ways to increase the wealth flowing from resources by using infrastructure to boost productivity. Jeff Seeney, Deputy Premier and Minister for State Development, Infrastructure and Planning, believes that Abbot Point is an important strategic asset for the state and that its future expansion could play a key role in Queensland’s economic development. He recently told State Parliament that the planned incremental growth for Abbot Point would increase the export capacity from around 200 million tonnes a year to 360 million tonnes.
‘We will be working hard to obtain the remaining approvals for the developments and discussing with industry what additional capacity is needed beyond that,’ he said.
The Newman Government has also announced two rail corridors to service new and existing coal mines in the Galilee and Bowen Basins. An east-west corridor will see an extension of the existing QR National network from near Moranbah to the central Galilee Basin, and will provide links to the coal ports of Abbot Point, Dalrymple Bay and Dudgeon Point. A north-south rail corridor will be defined along the proposed GVK-Hancock Coal alignment to facilitate the construction of new standard-gauge rail lines to link the proposed large-scale, vertically integrated mining operations in the southern Galilee Basin to Abbot Point.
Seeney told Parliament that the two corridors were the only areas in which the state government was likely to use its powers to compulsorily acquire land for new rail lines.
‘The government will work towards declaring State Development Areas to define these two preferred corridors, within which the government’s powers of compulsory land acquisition can be exercised to bring about our clearly stated policy outcomes of a
ABOVE: Scott Emerson
Balancing act key to Queensland’s infrastructure investment
coordinated approach to railway development,’ he said.
The government will also support the development of coal-line standard for the existing rail line from Alpha to Emerald.
‘We will ensure third-party access to each of these corridors and no proponent will be disadvantaged,’ he said. ‘There will also be the option for other large mining proposals to co-locate their own new railway lines within the north-south corridor should they consider that to be more commercially viable.’
Infrastructure Queensland
The Audit Commission’s interim report reiterated that, in order to maintain financial sustainability, any government must be able to deliver its long-term service and infrastructure commitments without having to impose excessive revenue-raising measures such as taxes, and without undue reliance on debt. In other words, it must be able to afford what it invests.
The Commission spelled out a number of general principles that governments should apply to the forward planning of net capital spending. These include planning for the long term and ensuring that all government agencies have up-to-date asset registers and detailed asset management plans.
Newman had already committed to establishing Infrastructure Queensland, a body that will advise the state government on long-term infrastructure planning, prioritisation and ongoing management and maintenance.
It follows the move by the O’Farrell Government in New South Wales to establish Infrastructure NSW as an advisory body soon after it won the state election in March 2011.
Emerson is confident that the establishment of Infrastructure Queensland will help to provide the best infrastructure outcome for taxpayers.
‘We are going to require some changes to the way we do business,’ says Emerson. ‘For example, Queensland has slipped behind other states when it comes to delivering major projects in a cost-effective way. I want to see greater involvement from the private sectors in delivering innovation and value for money when it comes to transport and road infrastructure.
‘Cutting red tape and making our business attractive to the private sector will be a very important part of delivering major transport infrastructure in the future – whether that’s pure investment or a public private partnership (PPP). It’s not only about private investment; I’m also keen to ensure that the private sector is in a position to deliver value for money and innovation for taxpayers when it comes to tendering for government contracts.’
The Newman Government has also announced the establishment of Projects Queensland, a standalone unit set up within the Department of Treasury and Trade to drive cooperative funding models and maximise private investment in infrastructure.
While progress has been swift since the election, the government’s success in meeting its infrastructure investment task will be closely linked to a prudent fiscal strategy, including a broader debate around the structural reforms needed to free up capacity on the state’s budget.
Queensland’s budget is under sustained pressure, and the loss of the state’s triple-A rating makes a strong case for ongoing reform to slash waste in the public sector.
As the Commission of Audit showed, there is a long way to go.
