Unlocking infrastructure investment in Australia

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In the first of a regular series about how we are helping build a better working world, EY’s Government & Public Sector Infrastructure Leader Bill Banks focuses on increasing infrastructure investment in Australia.

“Unlocking greater investment will require a clear, committed pipeline of projects and greater long term certainty on tax and regulation.”

Australia’s ageing infrastructure is a looming concern. Like many other countries, the long-term issue of who will pay, and how we pay, are becoming hugely important questions.

Hunger pains

We recently completed a report on infrastructure investment on behalf of Australia’s Financial Services Council. Despite a significant appetite to invest, a lack of suitable infrastructure projects acts as a significant barrier for investment in infrastructure by superannuation (pension) funds.

That’s not to say this A$1.75 trillion industry doesn’t make a significant contribution to Australia’s infrastructure. A broad estimate is that around A$45 billion in total is already invested by Australian superannuation funds in infrastructure.

This is projected to rise by A$100 billion in the near term if state governments commit to privatization of public assets, and to as much as A$200 billion by 2025 on the basis of likely asset allocations.

But much more can be done. As Australia’s population ages and more people begin to draw on their superannuation, demand for stable long-term returns to fund retirement incomes will grow. If structured correctly, infrastructure is the perfect asset to meet this demand.

Industry rationalization has also resulted in a substantial number of larger funds which are able to invest in large infrastructure assets without creating a liquidity risk.

We found that unlocking greater investment will require a clear, committed pipeline of projects and greater long term certainty on tax and regulation. The list of barriers to investment in infrastructure is long and varied:

  • Lack of suitably structured projects for institutional investment
  • Greenfield project risks
  • Inconsistent, complex and expensive bidding processes
  • Unfavorable Australian banking terms

Government to the rescue?

Australian policy-makers can help in several ways. A good starting point would be to focus on their role in recycling capital — selling brownfield assets to super funds to release capital for greenfield infrastructure. This will reduce the budget burden for the public sector and also offer superannuation funds the type of assets they require for infrastructure investment.

Some progress has been made. Our report found there has been improvement in the performance of state governments as they plan, develop, and implement infrastructure projects as potential private sector investment opportunities.

The recent early introduction of Federal legislation to fundamentally reform and strengthen Infrastructure Australia is also seen as a positive step change to addressing the issue of national project pipeline uncertainty. Infrastructure Australia is the national body tasked with developing a strategic blueprint for unlocking infrastructure bottlenecks and modernizing the nation's transport, water, energy and communications assets.

Building a better working world

Our recommendations provide the basis to build on the already large infrastructure investment made by Australia’s superannuation industry. This funding will lead to stronger economic growth and will be crystallized in the form of new road, rail and subway projects and much more.

It is also a good illustration of how EY is helping build a better working world by working with governments and businesses to foster sustainable, long-term growth.

Read our report Superannuation investment in infrastructure — Steps to further efficiency.

Read our article: Unlocking infrastructure investment in Australia