NSW infrastructure – keeping all funding options on the table

Published on LinkedIn on 20 June 2019

Listening to the NSW Treasurer speak yesterday about his budget has driven home the funding challenges that NSW will need to overcome in the years ahead.

The funding of infrastructure needs is a perennial challenge for all governments. It was made much easier in NSW in recent years by the Baird Government’s decision to seek a mandate from voters to privatise the state’s electricity distribution and port assets and invest the sale proceeds into new infrastructure, principally the WestConnex project and stage 2 of Sydney Metro.  

The timing was good, as the NSW Government was able to access the Australian Government’s ‘asset recycling’ scheme, which rewarded state and territory governments for implementing privatisation reforms by adding a further 15% of Commonwealth funding to the sale proceeds, so long as the sale proceeds were reinvested in new infrastructure.

But you can only sell (or lease for 99 years) an asset once – unless you sell half of the asset, in which event the opportunity to later sell the other half remains. Which is why the NSW Government is encouraging the Commonwealth Government to revive its asset recycling incentive for ‘reforming’ state governments, so that the NSW Government can access some Commonwealth funding by selling its residual 49% interests in Ausgrid, Endeavour Energy and WestConnex.

But even if the NSW Government can achieve the same price for the other half of Endeavour Energy ($3bn), Ausgrid ($6bn) and WestConnex ($9bn), that’s only $18bn, which falls well short of the total estimated cost of the following mega projects that the NSW Government has announced:

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To this list can also be added the Berejiklian Government’s proposed fast rail network and Parramatta Light Rail stage 2.  

While some of these projects have received NSW budget funding allocations for business cases and other preparatory activities, none of them are “fully funded”.

And assets sales alone will not be sufficient to fully fund these projects, even if all of the assets identified in today’s AFR are sold.

So, for NSW to “have it all”, it’s essential that our Government continues to keep all funding and financing options on the table including:

  • lobbying the Commonwealth Government for more funding, whether in the form of incentive payments for asset recycling or other micro-economic reforms, tied-grants or otherwise
  • increasing government debt, either directly via government borrowings, or indirectly via privately financed Public Private Partnerships and the like
  • user charges, for those projects and existing assets where user charges are possible (e.g new toll roads, and road user charges for existing roads)
  • value capture – ie requiring those land owners, businesses and other third party beneficiaries that receive significant windfall gains as a result of the development of tax-payer funded infrastructure in the vicinity of their land or business to contribute a portion (not all) of the realised windfall gain towards the cost of the infrastructure that created the gain
  • reducing government expenditure in other areas
  • productivity enhancing reforms that will lift economic activity and, consequently, government revenue from existing taxes; 
  • the sale of assets (or revenue streams) that can be operated or utilised more efficiently by the private sector, and
  • new or increased taxes.

Congratulations to the NSW Treasurer for not ruling out any of these funding options (other than perhaps the last one), and for “keeping all options on the table”.

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