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Address to the Melbourne Institute’s 2009 Economic and Social Outlook Conference - Growth is Good

Monday 16th November 2009

Acting Shadow Minister for Infrastructure Scott Morrison's address to the Melbourne Institute’s 2009 Economic and Social Outlook Conference, Friday, 6 November 2009

An audio recording of the speech is available by clicking on the link at the end of this page, then selecting the audio link under the title Session 7D: The infrastructure challenge. The audio also features presentations from Mr Michael Deegan, Infrastructure Coordinator at Infrastructure Australia and Mr Rod Sims, Director, Port Jackson Partners Limited as well as a special Q+A session involving all speakers.

Growth is Good
Scott Morrison MP

Well thank you very much for that introduction. It’s a great pleasure to be here and it’s a great pleasure to be here representing Andrew. And I’m sure you join with me in wishing Andrew all the best. He’s an extraordinary colleague and an extraordinary individual and he’s done an enormous amount of work, I know with many people in the room as well, as he’s worked on our policies in this critical area. I also want to pay tribute to the work Michael has been doing with Infrastructure Australia as well. I personally think infrastructure Australia is a good move and the work that they’ve talked about today and the work that they are doing I think is excellent and much needed and it’s certainly something we’ll be taking a lot of interest in and paying a lot of attention to and I think that really is the critical issue with all of this. All of this work can be done but at the end of the day people have to make decisions based on it and it’s our view that decisions should be based on that sort of quality of work.

I was going to approach today really as, effectively and hopefully, what I consider to be a young politician. We’ve had advisors to governments and we’ve had consultants speaking on these issues today. But to give you an idea of the context as someone in politics who will hopefully one day be in a position to make decisions rather than being in opposition on these types of matters, and it’s become fairly apparent very early having entered the parliament, what will be the challenge of my generation of politicians. And that is the growth of Australia’s population to 35 million people by 2049. There are some statistics which stick in your mind and that’s one which will stick in my mind for as long as the electors of Cook have the good grace to send me to Canberra. It is going to be the defining challenge I think over the next 20 years in particular. I think back to 40 year ago, 35 years ago when I was sitting in primary school and there were people making decisions based on the population then of around about 12 million and today over 20. They made decisions for the generation that now sits here today and the same will be true when my daughter is 40 and hopefully she won’t be presenting at this conference. Hopefully she’ll be a musician or something of that nature, far more entertaining. But never the less I think that puts into context I think for many of us, really understanding that this is the challenge that we are going to have to grapple with.

When we think about this challenge I think that the Reserve Bank governor and the piece in the Australian today about what he said last night really sums it up well and that is how do we drive prosperity from our growth? And as we think about growth I think we have a number of key challenges and this really frames the presentation I want to give to you today. If I was going to give it a title I’d say ‘growth is good’. I don’t think that is an argument that we can take lightly. I don’t think it is an argument that we can assume is accepted, broadly across the Australian population. I certainly think that we have the numbers on it from a political context if you want to put it that way. But I don’t think we can assume that everybody thinks that that’s the case. We can go and make a whole range of decisions based on such an assumption and I think it can get us into quite a bit of strife if we do not commit ourselves to winning that debate about growth, that this population growth that we will see, while it presents enormous challenges is also a very, very good thing. It’s that growth in population that will provide the engine for our economy to provide the opportunities for growth in real wages, to provide opportunity for building a capacity for taking this country to a completely new level. We have to see it in those contexts and I think we have to argue for it in those contexts because there are many who say that that should be brought to naught, that we should basically put the shutters up and say that’s it.

The second point is at the end of the day it’s about supply. There are many debates that focus on demand management but largely it think that’s a bit like King Canute trying to hold back the tide. At the end of the day if we’re going to address this issue we must address supply. Rather than taking, what I think is a very conservative and unsustainable position that somehow we can manage how this demand unfolds. It is coming, it is there and we need to address it from a supply point of view first and foremost. That’s not to say that management of demand issues don’t come into the equation, of course they do. But I think we have to put our priority on delivering on the supply question.

The third point and Michael made reference to this, and that is the private sector must be at the centre of our solution and our efforts. We also must recognise that in acknowledging that fact, that much of that capital is also going to come from overseas. There is a view that the government should be at the centre of the economy at the moment. We don’t support that view and I don’t support that view in terms of the challenge we have between now and 2049. The private sector is going to be at the centre of our solution to meeting these challenges in the years ahead. So what role then for government? The role for government then, I think is to focus government policy in creating the appropriate environment where we can get it right, that’s our task. When I talk about government I don’t just mean federal government. I mean all spheres of government and as shadow minister for local government I spend a lot of time talking to local government and they have a massive role to play in delivering on these challenges. But it’s about getting it right for the long term. It’s not about getting it right for the next few years and I suppose the context I brought to this debate as a relatively young MP and a relatively new member of Malcolm’s team in the parliament is that we want to see this issue addressed for the next forty years because we know that if we don’t do that then this is a challenge that will haunt us and bedevil us for decades to come.

Now what does that mean? It means getting the governance right. Getting the governance right across the three spheres of government so we ensure that government is appropriately tasked, responsible, accountable and working together. In my maiden speech to parliament I talked about local government, I talked about the nature of our federation and I’ve always liked the analogy of the three legged stool in terms of how things stand up. I made the comment that our federation works a lot more like a three legged dog than a three legged stool. That is still true. If we are unable to address how those three spheres of government work together in being tasked, accountable and responsible. It’s one this to talk about ending the blame game, but if all that leads to is collusive federalism and a lowest common denominator approach then I really don’t think we’ve gone very far forward and I think that is the risk we have in the government space at the moment. It’s about ensuring resources are directed, both private and publicly, to projects that support and service growth and productivity improvement for the long term. There has to be that as our focus. It’s can’t be just let’s get as much money as we can and spray it wherever it possibly goes to suit the particular agenda at the time. There must be a very disciplined framework around that and governments through the sort of the work Michael’s been doing can provide that context and that framework. It is about being able to deliver projects on the ground. Those of you who take a keen interest in management and leadership theory will know of the shift that all went towards execution and that book was released a few years ago. Execution, not just the development of plans but actually how you deliver them on the ground and the role the private sector in that process, the delivery systems all of these things. They must be tight they must be world class and they must be highly competitive. So it’s one thing to have a plan but if we can’t actually make it happen on the ground as we’re seeing with a lot of projects at presently then again we run into problems.

It’s also about positively conditioning an operating environment for this infrastructure, whether it’s in the space of the emissions trading scheme or whether it’s in pricing issues or other regulatory matters, these things at the end of the day impact on the productivity of these investments, the return on these investments and it’s government’s responsibility to make sure we set the best possible environment for the investments that are made by the private public sector alike and the frameworks that sit around it that are going to be effective. So it’s about planning it, it’s about building it and it’s about running it. From a federal policy perspective and trying to meet that infrastructure challenge, these are the things that I believe have such a policy for infrastructure need to address. Now if we fail to do this, we are going to pay a price. We are going to pay a price in lost productivity through lost jobs, through wages and things of that nature. We are going to pay a price in unfruitful debt. The productivity commission this week, I think it was this week – it was last week, had a lot to say about that in terms of if you get this wrong then you’re not only going to pay for it once but you’re going to pay for in twice in debt that carries on and robs your budget from other priorities down the track and we will pay for it through debt and that will rob resources from that budget for those types of services. We’ll pay for it, ultimately through higher taxes and as a very community based MP what disturbs me and frankly as a Liberal, why am I so opposed to this idea of this leading to higher taxes? Because at the end of the day higher taxes rob people of their own choices. They rob people of their own choices about how they want to spend their money and how they want to run their lives. As a community based politician, when you are out and about that is something, particularly in my community, that makes an enormous amount of difference. Higher taxes take those decisions away from people and that’s why we oppose those types of decisions. Now we pay the price also ultimately in higher interest rates borne by the frustration of the bottlenecks by failing to get this right with our infrastructure as well, and of poor economic choices and fiscal policy decisions.

To touch briefly on those in the time we have.

I think I have already made the point that growth is good. We need to engage that debate so really it’s a call to arms for all of us who are interested in addressing this challenge, to get out and make that case. In terms of supply I’d make this point, I want to touch a little bit now on the housing sector, this is probably where this issue of supply we’re seeing most played out in a retail sense if you like, even in a retail political sense at present. There’s been much discussion about it, as a member of the House Economics Committee I’ve had quite a few opportunities now to talk to the Reserve Bank governor on this very issue. Our more recent conversation, back in July, where we talked about these issues of bottlenecks and bubbles and various things, I was very pleased to hear what he had to say through the questioning that we went through that he has also identified, as the Coalition has, that the bottlenecks in the supply of new houses to the market is what is going to make our cities unaffordable. That is, at the end of the day, the big rock in the jar when it comes to addressing housing affordability issues in this country.

The Reserve Bank itself says we need to be building around 165,000 homes each year just to meet current demand. We are currently building less than 140,000. There is, estimated by the ANZ, to be a backlog of homes across the country of some 200,000. Now changing those numbers is what the challenge is all about. The challenge is in private sector housing. The solution must address the supply bottlenecks and constraints for the delivery of housing in the private market. Now these bottlenecks are not just at the city fringe and there has been much discussion about the release of land and provision of infrastructure to service new lots and all of these types of issues and that is all very, very true. But the challenge is also in multi-unit developments in inner and middle ring suburbs as well. The frustrations there of accessing finance, in terms of permits and approvals and then the delivery as well remains a massive challenge and a massive frustration which is inhibiting the supply of these dwellings to the market.

Now the government’s approach has been simply to address the public housing component of this challenge. They have confined themselves to that area with their social housing spend and other initiatives to address what are worthy initiatives, what are legitimate needs but at the end of the day 95 % of people in Australia live in the private housing market. That is where they pay their mortgages and that is where they pay their rents. If we are going to address their needs as well, and I strongly believe we do need to do that, then we have to ensure our solutions encompass the private market and just not the delivery of homes in the public space. It is our goal to see more people self supporting in sustainable private housing. At the end of the day I would like to see far less clients in public housing, I’d like to see far less people relying on homelessness services, that has to be a goal,. There will always be those who unfortunately for whatever reasons, life circumstances, illness and other various tragic conditions will see them in need of such support and I don’t want to see those sorts of people competing for support with others who are demanding resources through the public housing sector who might otherwise be able to be self supporting in the private housing market. It requires major reform and we don’t have time to go into it here, of all the planning and land use issues we have talked about and others have talked about. For the Coalition when we were in government we rightly held the view this was a matter for the states. It still is a matter for the states and local government but I think there is an acknowledgment now from the Coalition in Opposition that we as an Opposition, we as a federal party, have to have a view on how we can bring some leverage to addressing these issues. We have been saying now for more than a year as a matter of policy and record that the government should be using its funding that it provides to the state and local government as leverage to extract these reforms. Now the Prime Minister has something to say about it the other week but frankly $100 billion or thereabouts has already gone out the door without one dollar of that demanding one reform and I take advantage to point out the National Affordable Housing Agreement, an agreement of over $6 billion that goes over 5 years, it doesn’t demand that one block of land be released in any state or territory in the country as a condition of receiving funding. We have given out over $1 billion or thereabouts to local governments and we give out about $2 billion each year and we don’t demand one reform as a condition of performance for receiving those levels of funds. Even more recently the government through the Minister has made comments about the issues of land supply and in fact denied that land supply was an issue of March of this year when talking about the National Housing Supply Council’s report. In Opposition the Minister had actually gone onto say that releasing land in Western Sydney would lead to negative equity. So I don’t think the government is genuinely committed to reform in this area yet. You would expect me to say that as representing the Coalition but I do believe it is true. I think their focus is on the public dimension of this problem in terms of social housing and the issues of private housing have been neglected.

In bringing it to a conclusion, I think there is also a big issue here of bringing the community with us in addressing the housing affordability issues. That really I think is about trying to rebuild the trust that exists between the community and the development sector, the community and local councils and I think a lot of that trust and faith has been shattered, particularly in my home state of NSW, but it has been shattered. Developers I think are rightly concerned that if powers all go back to councils they will never be able to build anything ever again. But equally communities are frustrated that they are seeing their communities change without having any real input into it. This dislocation between where the community wants to be and what the private sector knows they need to do I think is going to be a massive challenge where we are going to have to come and knit these things back together. If we don’t we are going to have gridlock. If you like, we have to see the end of the war between developers and communities. It is the role of governments to try and bring that peace, bring a system into place which will ensure that some sensible decisions can be taken and the community can have faith in those decisions. Until we have that I think it is going to go downhill. I mentioned before it is about the private sector, in government as a Coalition, and the current government has had a lot to say about levels of infrastructure spending, we all know the overall level of infrastructure increased from around 3% to 5.6% of GDP but the principle reason that increased and I think it is a badge of courage for our government, was that it was delivered principally and almost exclusively through the increase in private sector investment. That is the capital we need to leverage into addressing this challenge and that remains the challenge going forward. An unrealistic expectation has been created in the community, the federal government will fund every single project that someone has an interest in and that is simply not possible. I think that expectation will be disappointed and will come back to the hard reality of the fact it is about leveraging private capital. The fact that $22 billion worth of projects were announced in the budget, that they require $6 billion of additional private capital to finish I think makes that point.

I am really starting to run out of a bit of time and there are many other issues I would like to address but on the final issue of planning and building and running it, in terms of planning we have seen some good work being done by Infrastructure Australia and other bodies but as I said at the outset it is really about acting on that advice. It is about ensuring this sort of information and inputs are not sideshows but are part of the central performance, they really are driving the agenda. I think it is exciting to be talking about having project pipelines. I think that is absolutely critical, it provides a context of, what next? What are the next things? Where is the government going to be moving next? Where are its priorities going to sit in terms of facilitating this infrastructure for the next things that come out of the pipelines? Priorities are important and the needs assessment. That fact that, as the BCA report showed, only one in $7 of the stimulus was spent on economic infrastructure I think talks a lot about the priorities that are there presently. For being about building productivity for the future when 1 in $7 are going that way, then that remains a problem. On the building it side, the need for transparency is paramount and on the running side, obviously regulatory reform is, I think, top of the list. There are many other things we could talk about and as the Coalition continues to develop its policy in this area you will hear much more about it. But it is the big challenge that I believe I will be dealing with, hopefully for as long as the good electors of Cook want me to, and I should stress pre-selectors as well in the Liberal Party, and I look forward to that challenge in working with the people in this room to achieve it.

Thank you.

Q&A SESSION

Scott Morrison MP, Federal Member for Cook and Shadow Minister for Housing & Local Government, Acting Shadow Minister for Infrastructure
Chair, Ms Melinda Cilento , Deputy Chief Executive, Business Council of Australia
Mr Michael Deegan, Infrastructure Coordinator, Infrastructure Australia
Mr Rod Sims, Director, Port Jackson Partners Limited

SCOTT MORRISON:

In short and in general terms yes, that is the answer to the question. But I think it goes broader than that. I talked about the need to restore faith between the community and developers. That goes right across the infrastructure spectrum as will. It’s the lack of transparency that I think has actually shattered that trust and it’s not easy to rebuild. So whether it’s releasing the cost benefit as surely they should or whether it is actually what the contract terms say about the diversion of traffic onto new roads that are being built, as we saw in Sydney and completely shattered trust with the cross-city tunnel. These are the things that destroy public confidence, these are the things that destroy public trust. So whether its transparency on cost-benefit analysis or tendering processes or contracting arrangements or any number of these things, how needs are assessed and how priorities are set that I think the public has a very big appetite for transparency and if we are going to restore that trust and meet the challenge then I think it needs to be reintroduced.

QUESTION:

Scott Morrison, you mentioned affordability of housing, it is a subject that came up yesterday prices for construction of a house, an actual building hasn’t really increased over the last twenty years while the price of land has skyrocketed. Yesterday we also heard that this is leading to social division, those people who own houses and those who don’t and those who can and those who can’t. Do you think anybody in politics has the courage to remove some of the existing policies [inaudible] and others which support and inflate the prices and perhaps even reverse those policies?

SCOTT MORRISON:

Well the primary thing driving up housing prices is land development controls. That’s the major thing that is actually driving them up. Sorry to keep referring back to NSW examples but it’s actually the worst example of this area. Some years ago the state government said basically ‘we’re full, that’s it’ and effectively the prices went through the roof. Now unless you are prepared to address what is a fundamental matching of supply and demand, firstly with land and then to allow or remove the bottlenecks that enable multi unit dwellings to be built in inner and middle ring suburbs then house prices are just going to keep going up and up and up. Now taxation and other things I think play a role whether it’s the transaction taxes that sit around, take a couple whose kids have left the nest, they may be in their late 50s and early 60s and want to move out of their 5 bedroom home and want to move into an apartment that hasn’t been built yet, if the transaction taxes and agents fees and various other things amount to about $100,000 for the privilege of moving out of one home into another then that is an obvious disincentive which is one of the contributing factors to house occupancy ratios declining rather than increasing. So it largely I think rests more around the planning development controls, land use issues, infrastructure delivery issues and so on than it does around some of the more popular taxation debates. I genuinely don’t think there has been that real resolve to take this issue on. As I said when we were in government we thought it was the state’s responsibility and it was. Now we take the view that it is still the state’s responsibility but we should do more to leverage them into making those decisions through the heavy hand of funding.

QUESTION:

Which will see asset prices drop.

SCOTT MORRISON:

No, I don’t think if will see asset prices drop, I think you will see asset prices moderate and we won’t have bottleneck fuelled increases in house prices. I think the key point that Glenn Stevens made in July was this isn’t a speculative bubble. A speculative bubble is when you have effectively an over supply driven by rampant credit markets That is not what is happening here. What is happening here is a structural shortage of supply that is being made worse and is continuing to drive prices higher, not just for home prices but also for rents. We will have the housing occupancy figures come out I think about now or thereabouts and rents will go up just as much as house prices will, in fact more so.

SCOTT MORRISON:

Can I just support what Michael [Deegan] said there and give you another example which is in Alice Springs, where I was recently. If anyone were to possibly think of Alice Springs as landlocked you would think they were crazy but Alice Springs currently has the worst housing affordability problem of anywhere in the country. They cannot get the release of new land and the infrastructure is basically strangling the city, with the need for a new sewage pipeline through the gap. That’s in one part of Australia, it’s surrounded by land, literally and it’s landlocked and companies are literally taking out private rentals in the market to ensure their people can actually, when they employ them, come to the town and have somewhere to live. That place is having an absolute housing crisis and they live in the middle of the desert and they can’t get access to land.

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