Australian Airports Association National Conference

Tuesday 22 November 2016, Canberra

Philip Davies, Infrastructure Australia Chief Executive

Good afternoon ladies and gentlemen. It's a pleasure to be here in Canberra this afternoon for the Australian Airports Association's National Conference.

Thank you to AAA National Chairman, Guy Thompson, for the opportunity to provide an update on IA's work.

Airports are of course critical infrastructure assets. They are drivers of economic growth, facilitating the movement of people and goods and attracting investment and jobs in surrounding areas.

And airports are absolutely fundamental to our tourism sector, which is increasingly important for the Australian economy as it provides a reliable source of growth alongside the knowledge economy, as we transition out of the mining boom.

In fact, the most recent ABS figures show that tourism grew three times faster than the broader economy, both in terms of GDP and jobs.

So it is appropriate at this year's national conference that I should share some of our thoughts on the challenges and opportunities facing Australia's infrastructure over the coming years – and what we at Infrastructure Australia believe we must do now, to set ourselves up for the future.

For those who are not familiar with our work, Infrastructure Australia provides independent research and advice to governments and the community on the projects and reforms Australia needs to fill the infrastructure gap and meet our future needs.

We were established in July 2008 and in 2014, our Act was amended to give Infrastructure Australia new powers, and to create an independent board with the right to appoint its own CEO.

Under the Act, we have responsibility to strategically audit Australia's nationally significant infrastructure, and develop 15-year rolling Infrastructure Plans that specify national and state level priorities.

Over the past 18 months we have been busy delivering three landmark reports:

The Australian Infrastructure Audit—which identified the challenges that our infrastructure faces out to 2031 and for the first time provided an evidence base for a long term plan.

The Australian Infrastructure Plan—Launched at the site of Brisbane's airports new runway with the Prime Minister back in February, a reform based document, providing a road map for governments, business and the community to address Australia's infrastructure challenges— and at the same time we reinvigorated the Infrastructure Priority List.

The List is a living document that sits alongside the Plan and provides a prioritised list of nationally-significant investments and guidance to decision makers on where they should direct funding.

For my presentation this afternoon I want to begin by outlining some of our current challenges and opportunities, as identified in the Australian Infrastructure Audit. This includes our projected population growth and the economic opportunities emerging in China and South-East Asia.

I also want to talk in greater detail about some of the key recommendations in the Australian Infrastructure Plan, with a focus on planning to meet changes in demand for airports and supporting infrastructure in our cities and regions.

In particular, I will discuss the importance of long-term, strategic land use planning and why governments must provide long-term leadership in preserving corridors to meet future infrastructure needs.

I also want to touch on the importance of community engagement, particularly early in the development process, and why we recommend that caps, curfews and other restrictions on new infrastructure should be avoided as much as possible.

Finally, I will talk about the importance of sustainably funding the infrastructure we need, and how we advance these principles through our rigorous process for assessing project business cases.

In planning for our future infrastructure needs, Australia's growing population is the most challenging factor shaping our cities and regions.

The Australian Infrastructure Audit projected that by 2031, Australia's population would grow to more than 30.5 million people.

Between 2011 and 2031, almost three-quarters of our population growth will occur in Sydney, Melbourne, Brisbane and Perth. This means our biggest four cities will collectively need to accommodate an additional 5.9 million people, which is growth of 46 per cent.

The smaller capital cities—Adelaide, Canberra, Hobart and Darwin are also projected to grow in total by 26 per cent.

And the number of people living in Australia's regional areas is projected to grow, from around 5.6 million in 2011 to 6.8 million in 2031 – an increase of around 22 per cent.

Overall, this will have a positive impact on our economy as it provides a larger domestic market for businesses and increases the size of the labour force.

But it also places additional demands on infrastructure, particularly the airports in our major cities which are already subject to high levels of demand.

In addition to Australia's population growth, another important factor in planning for our future infrastructure needs is our close proximity to the booming economies of China and South-East Asia.

Asia will account for around two-thirds of the world's middle class population by 2031, and this will create significant demand for Australian goods and services.

With our established reputation for both high quality goods and services, we are well-placed to take advantage of the booming economies of China and South East Asia.

And as Asia continues to grow, we see a great opportunity for Australia to invest and develop businesses in areas as diverse as financial services, hospitality, education, agriculture, transport and logistics.

Demand for tourism is also expected to grow significantly. Asia's rising middle class, our increased connectivity and an aging demographic will see more people travelling and for longer periods of time.

In just two years, China will be the largest source of both inbound arrivals and inbound expenditure, overtaking New Zealand as our largest international tourism market.

In terms of visitor numbers, China will contribute 43 per cent of total growth over the next 10 years and account for 60 per cent of tourism expenditure.

Clearly, airports in both our cities and regions will have an important role to play and this is already borne out in the passenger numbers.

Close to 61 million passengers were carried on Australian domestic commercial flights in the 2015–16 financial year, an increase of 1.8 per cent on the previous year.

That includes more than 23 million domestic aviation passengers travelling through regional airports.

Of course, in addition to tourism, regional airports play an essential role in sustaining regional economies and communities and connecting with markets.

Regional airports provide access to specialist health and services, and facilitate greater accessibility for business and flexibility in the labour market.

But as the recent ACIL Allen report commissioned by the Australian Airports Association shows, regional airports also face great challenges in funding and upgrading facilities to meet future aviation needs.

So on one hand, with a growing population and Asia's economic rise driving demand for tourism and our services in particular, we have a clear opportunity to continue our economic success story.

But on the other hand, we are facing, according to the AAA report, funding challenges at regional airports over the next 10 years.

This is not an uncommon challenge and one we have seen consistently in our recent work.

The Australian Infrastructure Plan recommends fundamental changes to the way we plan, fund, deliver and use our infrastructure.

We have focused our 78 reform recommendations in the Plan under four major themes:

• Productive cities, productive regions
• Efficient markets
• Sustainable and equitable infrastructure, and
• Better decisions, better delivery.

One of the central themes in the Plan is that we need to get better at long-term, integrated land-use planning.

Long-term planning is absolutely key to preparing for shifts in infrastructure demand, and ensures we construct the right projects at the right time.

In general, long-term, strategic planning promotes better project selection and ensures that potential investments are well-thought-through and address an identified infrastructure need.

Strong governance arrangements ensure that infrastructure funding is directed towards projects which have sound business cases and a demonstrated economic benefit.

By international standards, Australia has a strong record of delivering high-quality infrastructure with robust governance arrangements, and we must avoid instances of poor project selection and weak governance.

We must instil a culture of long-term planning to deliver infrastructure that will serve current and future generations.

It's about transparent, evidenced-based decision making.

Long-term planning also helps in establishing a pipeline of well-conceived investments that enable us to make better use of existing infrastructure.

When it comes to airports, this means planning for the supporting landside infrastructure needed to get people and goods to our airports—whether it be better road, rail or bus connections.

So we reinvigorated the Infrastructure Priority List through an evidence based long-term planning process, and included a number of potential investments that would help our metropolitan airports cope with increased passenger demand over the next 15 or so years.

For example, we identify public transport access to Melbourne airport as a priority initiative.

Investing in public transport along this corridor would help alleviate some of the road congestion that affects traffic in both directions from the airport to the Melbourne CBD, particularly near the airport terminal.

Some of the projects on the List have already moved beyond the initiative phase. We are seeing positive progress in developing project solutions as governments around Australia look to develop strong business cases for potential projects with fully developed cost benefit analysis.

Recently, the Infrastructure Australia Board positively assessed the business case for the Perth-Forrestfield Airport Link.

This project, which was submitted to us by the Western Australian Government, addresses the lack of public transport access to the eastern region of Perth and Perth Airport—where passenger numbers are projected to double over the next 20 years.

The project will deliver substantial economic benefits and improved outcomes for infrastructure users in Perth, which is why it has been positively assessed by the Infrastructure Australia Board and added to the List as a Priority Project.

Long-term, integrated planning also enables governments to identify and protect sites and corridors to accommodate future projects like airports, as well as the supporting infrastructure such as rail lines and motorways.

Western Sydney Airport is a good example of long-term, strategic infrastructure planning. It shows how preserving land to meet future infrastructure needs can deliver the best outcomes for both infrastructure users and the broader economy.

The Badgerys Creek site was acquired and reserved for a second Sydney airport more than 30 years ago.

This foresight and commitment to long-term infrastructure planning will deliver significant cost savings when it comes to constructing the airport.

And it means that State and Federal Governments are now well-placed to future-proof Sydney's aviation capacity in the face of increasing demand—which is vital to our national productivity.

As Australia's primary aviation gateway, Sydney accounts for around 40% of international flights, 43% of domestic flights, and 45% of international air freight.

Given its national economic significance, all Australians will therefore benefit from the difficult decisions made in the past to preserve land for the Western Sydney Airport at Badgerys Creek.

Long-term, strategic planning must remain front of mind if we are to do the same for future generations.

That is why the Infrastructure Priority List also recommends preserving the corridors for a Western Sydney Airport rail connection and fuel pipeline.

Both are recognised as High Priority Initiatives on the List and should be progressed by Federal and State Governments.

An added benefit of long-term, strategic planning and good governance arrangements is that it ensures we get the community engagement right from the start.

As we acknowledge in the Plan, consistent and genuine community consultation must underpin all stages of planning and development for major infrastructure projects, and this is no truer than for airports and the supporting infrastructure that goes along with them.

This engagement is the responsibility of all levels of governments and the private sector.

If successful, it reduces the likelihood of divisive opposition in the later stages of development and can deliver better outcomes for infrastructure users.

Within local communities, governments should strike an appropriate balance between addressing legitimate local concerns and the need to meet wider metropolitan outcomes.

Any restrictions should appropriately balance local interests with those of the broader community.

This brings me to the issue of caps and curfews on new infrastructure.

A key recommendation in the Australian Infrastructure Plan, is that for new infrastructure, caps, curfews and other restrictions on operations should be avoided as much as possible.

Giving Australia's infrastructure the capacity to freely meet its economic and social purposes will open new opportunities for growth and development.

Existing regulatory constraints should be regularly reviewed to ensure they remain relevant and new assets—including airports—should be planned to ensure curfews and other restrictions are minimised.

For our cities to be world-class and accessible, we cannot afford to be limited by too many restrictions that inhibit the flexible use of infrastructure.

Our airports should be carefully developed to ensure community concerns are managed through design and integrated land-use planning, rather than overly prescriptive operational restrictions.

The final reform recommendation from the Plan I want to touch on this afternoon relates to the issue of sustainably funding the infrastructure we need.

Across all sectors, we need to diversify the pool of funding we apply to infrastructure to meet the needs of a growing economy.

There are ultimately two ways that public infrastructure can be paid for: either by taxpayers with an allocation of government spending, or directly by the user through for example, utility bills or road tolls.

We can't rely on taxpayer funds alone to meet our infrastructure needs, particularly in the face of increasing budget pressures to fund welfare and health services. That's why a user pays approach should be a key consideration.

User pays recognises that those who use the infrastructure are generally the principal beneficiary of its provision, so should bear the principal cost of its provision.

Importantly, there is a strong link between the degree of user pays and the quality of maintenance outcomes.

This suggests that the most appropriate and sustainable structural solution to the maintenance deficit in public infrastructure markets is a transition to a user pays model.

User-pays is just one potential way to diversify the available pool of funding for infrastructure investment.

The onus is on all levels of government and the community to work together to explore appropriate funding opportunities to deliver the infrastructure we need.

So having outlined some of the reforms we recommend in the Plan, I want to conclude by talking to you briefly about how we are advancing these principles through our business case assessment framework.

As I mentioned earlier, our Infrastructure Priority List is a priority list of nationally significant investment opportunities that all levels of government can choose from.

We have a rigorous process for assessing a business case for inclusion on the Infrastructure Priority List.

This involves assessing the proposal's costs and benefits, challenging their veracity and subjecting them to stress testing.

Assessing a business case in this way allows us to better understand the strategic fit, economic impact and deliverability of a project.

We are required to do so for Commonwealth investment over $100 million.

Importantly though, it is a two-way process and we are constantly feeding back information and advice to project proponents to promote best practice when it comes to project planning and delivery.  

As a key part of our assessment, Cost Benefit Analysis helps decision makers ensure that project costs are proportionate to benefits.

In assessing the deliverability of a project, we would encourage the proponent to explore a user-pays funding approach first which ultimately delivers better outcomes for infrastructure users.

So while an important part of our role is providing overarching, big picture advice on the infrastructure reforms and investments Australia needs, we are also working with proponents to put these principles into practice in the development of business cases.

This year, the Infrastructure Australia Board has assessed a record number of business cases, and I am pleased to say that we are seeing significant improvements in the quality of business cases developed for major projects.

There is however more work to be done. In particular, there remains room for improvement to better align project proposals with identified problems, and ensure a full range of potential solutions are considered before a decision is taken.

We also want to see evidence of meaningful engagement with key stakeholders at each stage of the development process, to ensure that issues are identified early and can be addressed appropriately.

Our 15-year Infrastructure Plan outlines an ambitious infrastructure reform agenda to help Australia reap the many social and economic benefits of our population growth, and protect and enhance our quality of life.

In particular, we want to see better infrastructure planning, including a greater commitment from governments at all levels to preserve corridors to meet future infrastructure needs.

We also want to see better project selection, and a commitment to community engagement from the outset.

Infrastructure Australia will continue to work closely with proponents to encourage better planning, better delivery and better value for infrastructure users.

It's about setting our cities and regions up for the future with the right infrastructure which is efficient, effective and sustainably funded.

Thank you.