WA is on the cusp of another boom, making investment in infrastructure vital if the state is to take full advantage. But with the state’s finances increasingly tight, federal-state cooperation has never been more important.
POLITICS can make for interesting bedfellows.
A glance at the $12 billion in projects that make up the top 10 Western Australian infrastructure developments under way or considered high priority, shows just how closely tied are the fortunes of Liberal premier Colin Barnett and Labor prime minister Kevin Rudd.
As recently as November, Mr Barnett goaded the state Labor opposition over its frustration that his “close friend Kevin Rudd, prime minister” would match the state’s $339 million contribution for common-user port facilities at Oakajee.
The premier saw Canberra’s support as a vindication of his view that state involvement in the $4 billion project, which was previously to be solely privately funded, was vital to ensure the vital Mid West facility would be open to all potential users.
Yet normal programming resumed just a month later when he demanded Canberra intervene to stop mounting industrial action in the Pilbara, which threatened to bring the iron ore and LNG industries to a grinding halt.
Things worsened last month when WA became the biggest loser in the annual carve-up of GST funds. Mr Barnett promptly accused Canberra of “short changing” every Western Australian in order to prop up the rusting economies of New South Wales and Victoria.
Yet for all the colourful rhetoric, there has been a surprising level of cooperation in the past 18 months between state and federal governments in the critical area of infrastructure, as economic stimulus became the key to surviving the global financial crisis.
Handing down its budget last year, the Rudd government committed $22 billion for infrastructure investment nationwide, the biggest such commitment since the Snowy Mountains Scheme.
“Infrastructure investment will be the cornerstone of the recovery of the Australian economy going forward,” the federal government said in its budget documents.
However, improving economic conditions and growing focus on government debt levels in an election year are likely to temper future exuberance when it comes to pledging more taxpayer money to big infrastructure developments.
With WA shaping as a key battleground state in the coming federal election, it will be interesting to see how that is reflected in support for proposed infrastructure investment in WA, the state doing most of the heavy lifting in the nation’s recovery.
On recent evidence, the prospects do not look so good.
One need only look as far back as last month, when WA was stripped of $440 million as the Commonwealth Grants Commission did its annual carve-up of GST revenues.
Despite having just more than 10 per cent of the national population, and contributing more than any other state to Australia’s economic recovery, WA will receive just 7.4 per cent of national GST revenue next financial year.
WA also fared relatively poorly in Infrastructure Australia funding last year, winning just $770 million, or about 3.5 per cent, of the total $22 billion commitment.
Aside from the Oakajee commitment, Canberra pledged $236 million to sink the railway through Northbridge and $195 million to support Stage 2 of the Ord River – East Kimberley development scheme.
Mr Barnett was criticised for WA’s poor return, but countered by saying he had only sought assistance for five projects he considered were most vital to the WA and national economies.
Responding to WA Business News this week, Mr Barnett said he was pleased with Canberra’s initial funding commitments.
“The Commonwealth slightly altered their criteria to provide funding so I am pleased they received support. I’m certainly not critical of the process,” he said
The other two projects to miss out – a request for up to $471 million for the Pilbara Cities program to complement the state government’s $300 million commitment, and a $600 million upgrade of the road transport network around Perth Airport – now head the list of seven projects submitted by the premier in November for funding under the next round of Infrastructure Australia allocations.
In total, the state government is seeking federal support for up to $2.6 billion in critical infrastructure in the next round of federal allocations, including the airport gateway.
Other projects submitted include: a $1 billion deepening of the channel at Port Hedland harbour to allow increased iron ore exports; $471 million to complete the Pilbara Cities scheme; a $550 million LNG supply base at Derby; a $280 million further upgrade of transmission capacity in the Mid West (the $300 million first stage has been announced by the state government); a $172 million upgrade of the southern grain freight network; and a $63 million upgrade of rail facilities at Bunbury port.
Asked whether these projects would stall without federal funding, Mr Barnett conceded delays would be likely.
“The state government would still want to proceed. It may be the case that projects are spread out over time as it would take a lot longer without Commonwealth support,” he told WA Business News.
Mr Barnett has also identified Public Private Partnerships, as at Oakajee and the proposed Midland Health Campus, as having an increasingly crucial role in delivering major infrastructure investment.
Oakajee, Port Hedland inner harbour, Derby LNG base, Pilbara Cities and the Airport Gateway projects all make the list of WA’s top 10 infrastructure projects on total cost, reflecting the state government’s focus on the needs of industry in the coming boom.
But the top 10 also includes significant health infrastructure costing almost $3 billion, comprising the Fiona Stanley Hospital already under way and the proposed new children’s hospital.
Major community infrastructure also features, including the $955 million Binningup desalination plant, and the Riverside revitalisation already under way on the East Perth foreshore. Riverside will ultimately complement the $2 billion Northbridge Link urban renewal redevelopment, which cannot really kick off until sinking of the railway is complete.
More generally, the state government has forecast a $24.6 billion investment in infrastructure over the next four years, including $7.6 billion this financial year (down $620 million from its forecast last May).
The biggest initiative is a $1.2 billion spend on electricity infrastructure, notably $263 million for two high-efficiency gas turbines at Verve Energy’s Kwinana power station due to start operating next year, additional transmission capacity and the continuation of its program to bury power lines.
It has also earmarked just more than $1 billion for water infrastructure, though most of that is for completion of the Binningup desalination plant and Alkimos wastewater treatment plant.
Another $1 billion is earmarked for education facilities, including five new high schools, 23 primary schools, upgrades of 13 high schools and 18 primary schools in addition to the $666 million of federal stimulus money being spent, and upgrades at most Tafe campuses.
Almost $1 billion has been pledged to spending on housing and land development across the state, including 22 per cent more residential lots, in a bid to address falling housing affordability.
More than $600 million has been earmarked for spending on roads, including the Mandurah Entrance Road, Bunbury port linkages, Indian Ocean Drive, and Reid Highway.
Almost $600 million will be spent on health facilities, most notably stage one of the Fiona Stanley Hospital, Midland Health Campus and new facilities in Port Hedland.
More than $300 million will be spent on the state’s ports, excluding Oakajee, which will be funded in 2012-13, and $300 million will be put to upgrading regional prisons and courts across the state, including the Central Law Courts and Perth Police Complex.
But how does that program look to those outside government?
Chamber of Commerce and Industry WA chief economist John Nicolaou said there was no doubt that capacity constraints were the primary issue facing industry as the state headed into the boom, and that infrastructure was “the key enabler to economic growth”.
Mr Nicolaou said investment in common-user infrastructure – especially in ports, roads and rail – was therefore a major priority.
However, the chamber also believed the roll-out of high-speed broadband across WA was critical, as was investment in “lifestyle” infrastructure such as the $536 million Perth Arena (pictured) and other cultural facilities, which were critical to ensuring the state can attract and retain the thousands of workers needed as the boom hits full speed.
But more importantly, Mr Nicolaou said, the state needed a dedicated infrastructure strategy to ensure the optimum provision of infrastructure in a timely fashion
“For some time CCI has been calling for a medium-term infrastructure plan which would give a greater degree of certainty to business as to the future direction of investment that the state would be undertaking,” he said.
Critically, he said the strategy needed to provide a framework for the transparent assessment of infrastructure proposals, including detailed cost benefit analyses, to “deliver the maximum value for the state”.
“That’s what we are looking for from this government,” Mr Nicolaou said.
WA Chamber of Minerals and Energy director Paul Frewer said the need for upgraded infrastructure in so many areas would put significant pressure on the state’s capacity to fund investment, making the level of federal support crucial.
However, history showed that WA never received an adequate share of federal funding, meaning it would be very hard to see how the state’s needs could be met without more use of PPPs, he said.
State opposition leader Eric Ripper said Mr Barnett was failing on several fronts, most notably its lack of an infrastructure plan even though state bureaucrats and the CCI had jointly worked to prepare a detailed strategy framework during the last term of the state Labor government.
It had also failed to formally allocate funds under the state budget for several key measures, notably the Mid West transmission upgrade.
Mr Ripper also criticised what he believed to be an unrealistic focus on seeking to change the system for carving up GST funding, instead of targeting a more achievable rise in WA’s share of federal infrastructure funding.
“As a state, together on a bipartisan business and government basis, we should campaign for more direct commonwealth investment in WA as a way of dealing with the unfair penalties that we experience through the GST revenue sharing system,” Mr Ripper said.