Rob Dossor
Generally the Commonwealth funds infrastructure through the
states and territories. Typically, this assistance is provided by grants or loans.
Grants
A longstanding arrangement is for infrastructure funds to be
provided to states and territories for specific projects. These are known as ‘specific
purpose payments’.
Funds may also be made available generally to states and
territories for projects that meet specific criteria. The Asset Recycling
Initiative (ARI) is an example.
In the 2016–17 Budget, all infrastructure grants are made
though the COAG Reform Fund Special Account.[1]
The ARI
The ARI provides states and territories with an incentive to
‘recycle’ (privatise) existing public assets, such as electricity distribution
networks, and use the proceeds to fund new infrastructure. Under ARI, the
Commonwealth will pay to the state or territory, as a grant, an amount equal to
15 per cent of that which the state or territory reinvests in infrastructure
from the proceeds of privatisation or sale.[2]
The advantages of the ARI are:
- that the cost to the Commonwealth is small—being only 15 per cent
of the amount reinvested by the state or territory, yet the potential impact,
in terms of investment in infrastructure is large.
- that states and territories benefit because they can avoid taking
on more, or substantially more debt, by using the equity of existing assets to
invest in new infrastructure.
-
that the Commonwealth will derive tax revenues from the assets
once in private ownership.
A novel feature of the ARI is that it draws on existing,
‘earmarked’ funds and so has no impact on the underlying cash balance.[3]
$5.0 billion of the $5.7 billion received from the sale of Medibank Private
was, in effect, hypothecated to the ARI.[4]
Some payments that the Commonwealth will make through the
ARI include:
- $1,466 million to NSW for its sale of TransGrid, Ausgrid and Endeavour
Energy which NSW is re investing in the Sydney Rapid Transit project and the
Western Sydney Rail Upgrade programme.[5]
- $58.9 million to the ACT for the sale of ACTTAB and various
public properties (such as the Dame Pattie Menzies House, the Dickson Motor
Registry and Macarthur House) which the ACT will re-invest in Capital Metro.[6]
Despite these advantages the sale of existing public assets aspect
of this measure has been unpopular, with one commentator arguing that it was a
key contributing factor to the LNP party’s loss in the 2015 Queensland
election.[7]
Loans
In the last two years, the Commonwealth has committed to
provide some states and territories with loans to build particular infrastructure.
Although the details of these arrangements are not available, it seems likely
that the attraction of these loans for the states and territories is that they
will leverage the Commonwealth’s AAA credit rating.
Concessional loans feature prominently in the 2016–17 Budget
due to their minimal effect on the underlying cash balance. Their budgetary
treatment differs from grants which are treated as an expense. Loans are
treated as investments. The cost to the government, in terms of impact on the
underlying cash balance, is the difference between the Commonwealth’s cost of
funds and the rate at which it lends funds to a state or territory.
The budgetary treatment of loans means that large outlays
can be made with a much smaller impact on the underlying cash balance being
recorded. For instance, for the $2.0 billion concessional loan for the
WestConnex project the effect on the underlying cash balance is only $96.2
million (from 2014–15 to 2017–18).[8] Where there is no
differential, no cost is recorded (such as for the National Water
Infrastructure Loan Facility).[9]
Any loan, while treated as an investment in the budget, is
also recorded as a contingent liability.
State and territory arrangements
It should be noted that state and territory governments also
frequently raise their own finances to fund infrastructure. Commonwealth
funding can add to the funding raised under these arrangements.
[1].
Australian Government, Portfolio
budget statements 2016–17: budget related paper no. 1.16: Treasury Portfolio,
pp. 24–30.
[2].
R Dossor, Asset
Recycling Fund Bill 2014 [and] Asset Recycling Fund (Consequential Amendments)
Bill 2014, Bills digest, 90, 2013–14, Parliamentary Library, Canberra, 17
June 2014.
[3].
See Ibid. Note, the Asset Recycling Fund Bill was amended in the
Senate. These amendments were not accepted by the House of Representatives and
it lapsed when Parliament was prolonged in April 2016. Consequently, the
Building Australia Fund and the Education Investment Fund were never abolished
with the funds moved to the Asset Recycling Fund. Parliament of Australia, ‘Asset
Recycling Fund Bill 2014 homepage’,
Australian Parliament website.
[4].
Australian Government, Budget
measures: budget paper no. 2: 2014–15, 2014, p. 216. ‘Medibank
Private sale earns Government more than $5.6 billion: proceeds to be reinvested
in infrastructure’, ABC News, 23 November 2014.
[5].
Council of Australian Governments (COAG), National
Partnership Agreement on Asset Recycling: New South Wales Asset Divestments and
Projects, COAG, 5 March 2015.
[6].
Council of Australian Governments (COAG), National
Partnership Agreement on Asset Recycling: Australian Capital Territory Asset
Sales and Projects, COAG, 17 February 2015.
[7].
A Ferguson, ‘The
brutal politics of privatisation’, The Age, 3 February 2015, p. 21.
[8].
Australian Government, Budget
measures: budget paper no. 2: 2014–15, 2014, p. 176.
[9].
Ibid.
All online articles accessed May 2016.
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