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ProfessionalsAustralia

ROAD AND RAIL INFORMER

WHAT’S INSIDE:

• Current performance• Funding• Australian Infrastructure Audit

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The summary

Infrastructure Australia recently released its comprehensive Australian Infrastructure Audit which stressed the importance of ongoing, well-planned investment in roads and rail.

The audit says that “productive, sustainable infrastructure is essential if we are to drive economic growth, increase employment and enhance the quality of life of all Australians.” Major investment in roads and rail will become increasingly important over the coming years as population growth places greater strain on existing networks.

Informer – Road and Rail

Current performance

Spending on roads and rail remained strong through much of the 2000s, with several major projects contributing to an improvement in the nation’s infrastructure stocks. However, declining in infrastructure spending over the past five years has impacted the growth of roads and rail networks.

Informer - Road and Rail

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Road

Australia relies heavily on its road network for both passenger and freight transport. Major roads investment remains a high priority for Governments across Australia, and is typically well supported by voters.

As a result, investment in roads is strong, with engineering construction work on roads across Australia totalling $16.3 billion in 2013-14 . However, despite the importance of road networks, investment has declined by an annualised 2.1 per cent over the past five years according to the Bureau of Infrastructure, Transport and Regional Economics. Much of this decline was driven by a lull in activity during 2013-14, with the longer-term trend supporting greater investment in roads. The Australian Infrastructure Audit suggests that congestion on roads cost the nation $13.7 billion in 2011. This demonstrates that while the overall sum of road investment is significant, more work needs to be done in order to reduce the drain caused by congestion.

Rail

Investment in rail has fared better over the past five years as Governments sought to improve networks and take the strain off roads.

Engineering construction work done on rail has increased by an annualised 16.8 per cent over the past five years, to total $7.6 billion in 2013-14. Improvements in major capitals and investment in additional rolling-stock have provided a boost for network users, with greater reliability and more services making public transport increasingly attractive for commuters. Rail networks have also benefited from investment in freight lines, driven by the growing popularity of rail-freight and increased congestion on roads. The need for efficient networks to transport bulk-freight - such as mined commodities - has encouraged investment. Private investment in rail has been a major avenue for growth over the past decade, with more projects still to come. These privately funded projects include the $2.2 billion North Galilee Basin Rail Project and the Carmichael Coal Mine and Rail Project, which are both expected to commence over the next five years. While the mining price boom appears to be over, volumes of mined goods are higher than ever. Rail freight is the only efficient mode of transporting these goods to ports for export. As a result, mining continues to provide a major source of investment in rail.

Share of infrastructure spending Infrastructure Engineering and Construction work done

30,000

25,000

20,000

15,000

10,000

5,000

2008-09 2009-10 2010-11 2011-12 2012-13 2013-140

Roads and bridges Railways Total

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Funding

Governments across the political spectrum generally agree on the importance of infrastructure, and have supported the push for more major projects.

However, major infrastructure decisions have become increasingly political over the past decade. While the future of infrastructure spending looks strong, the challenge for Governments at all levels will be to ensure the needs of the community drive investment in the nation’s road and rail networks.

The increasingly political nature of infrastructure has led to greater scrutiny of the cost of projects. In order to satisfy voters and avoid media criticism, Governments are required to deliver major projects, with clear economic benefits, at as low a cost as possible. The sharing of investment and risk between Government and private parties can significantly reduce the up-front costs, making major investments more palatable for voters. Toll roads are one avenue through which this might occur, with private toll-road operators contributing a portion of the initial investment in exchange for the right to charge tolls once the project is completed. According to IBISWorld, Toll road operators in Australia will earn a combined $2.1 billion in 2014-15 , rising by an annualised 5.6 per cent over the past five years due to increased patronage and the opening of new roads. While tolls remain unpopular among some motorists, many appreciate the benefits provided by private involvement, as in many cases this can be the difference between a major project going ahead or being rejected.

Outlook

The future for roads and rail remains strong, as the community and Governments both recognise the need for greater investment.

Population growth

The population – particularly around major capitals – is forecast to grow, driving greater congestion and higher travel times on roads and rail, especially during peak travel periods. These challenges are likely to promote growth in network investment. Governments at all levels have recognised the need to improve road networks, reduce bottlenecks and take

freight traffic off suburban roads. This has encouraged a number of major projects, with more proposals in the pipeline. IBISWorld forecasts road and bridge construction to increase by an annualised 3.9 per cent over the next five years . Renewed investment in roads will drive growth in engineering construction in the short-term, and will support much-needed productivity gains in the wider economy over the longer-term. While Government spending constraints will pose a challenge for road and rail, Governments need to weigh up the additional cost of investment, against the potentially enormous future cost for the economy if these investments in road and rail are not made.

Superannuation

Superannuation, at its core, is essentially a large-scale investment scheme. According to the Australian Prudential and Regulatory Authority, the total sum of funds in superannuation reached $2 trillion in March 2015 , with approximately 4 per cent of this invested in infrastructure. Infrastructure is an especially appealing investment for superannuation funds in ensuring the stability of returns over a long-term. As the pool of funds in superannuation continues to grow, the amount of money available for infrastructure investment will rise, providing an enormous opportunity for infrastructure development.

Australian Infrastructure Audit

Infrastructure Australia published its Australian Infrastructure Audit in May 2015 . The overriding theme of the Audit was the need for greater investment. The Audit estimated that congestion on roads cost the nation $13.7 billion in 2011. This number is expected to swell to $53.3 billion in 2031. The Audit presents a compelling case for change, making it very clear that a business-as-usual approach to Australia’s roads and rail will not be adequate to maintain quality of life.

Infrastructure Australia’s next step in its push for infrastructure improvements will be the publication of a 15-year plan. The plan aims to place better investment on the agenda for Governments and encourage the development of a pipeline of major projects, free from political intervention. While it remains unclear what kinds of projects will be supported by the plan, it is clear that large-scale new investment in road and rail will be a key feature.

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Road and rail informer

Level 1, 163 Eastern Road SOUTH MELBOURNE VIC 3205 rpeng@professionalsaustralia.org.au 1300 273 762 +61 3 9695 8902

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