Sky TV Business, Interview with Ticky Fullerton

Release Date: 
11 May 2017
Transcript

Topic: Federal Budget

FULLERTON:

Angus Taylor welcome and tell us about your new baby, the IPFA.

ANGUS TAYLOR:

Well thanks for having me Ticky. Look this is really about building the skills of the Federal Government in investing in infrastructure. The Prime Minister for some time has been saying he doesn’t want to be the automatic teller machine for State governments with their pet projects, we actually want to be investment partners with them. We also want to invest more in infrastructure but we have limited amounts of grant funding - so we need to be able to genuinely invest in projects where we can get a return or we can work with private sector players so that they invest and they get a return. Now all of that, that different approach to infrastructure, does require new skills. So we’re setting up this agency within the Prime Minister’s department - small high calibre, 14 people, relatively small budget but we know small high calibre teams can make a real difference in this area, people with genuine expertise in financing infrastructure projects which is what we’re planning to do.

FULLERTON:

Now the agency of course has copped a little bit of criticism particularly from people like Brendan Lyon from Infrastructure Partnerships, now he is telling anyone who will listen, this is the wrong way to do things. They’ve got plenty of private sector expertise around. It’s the properly funded infrastructure rollout that’s missing – things like more asset recycling. 

ANGUS TAYLOR:

Well Ticky, when you’re an investor you need to have the skills of an investor. You can’t outsource those, you can use service providers, but you can’t outsource those fundamental skills. And we are an investor and we’re becoming a more significant investor. Our investment in infrastructure, as you pointed out in your introduction, is increasing, so that means more of it needs to be debt and equity financing and you can’t do that without the skillsets.

FULLERTON:

So you’re talking about understanding the risk allocation, that places like Macquarie Bank have been so good at, indeed at the expense in the past of say the NSW Government.

ANGUS TAYLOR:

Well it’s true if you have very very experienced private sector people, or very inexperienced public sector people, it’s not always a good outcome for the taxpayer Ticky, so it’s crucial that we have a small high calibre team that have real experience. It’s also true Ticky that for those who want unconditional grant funding, big bucket loads of free money like we saw with some of the Labor infrastructure programs for pink batts and school halls and so on, then you’ll be disappointed with this approach. But I think taxpayers in Australia they want a Government that’s smart, that does things in the right way and your audience will understand that.

FULLERTON:

So what do you make of the Infrastructure Australia chairman’s comments Mark Birrell, he says for the Commonwealth to open itself up on infrastructure projects to be taking both construction and operator risks, he said you’ve got to have straight bats for this, taking equity stakes is really for the birds. He would much rather have a clean grant and presumably the accountability.

ANGUS TAYLOR:

Well that’s Infrastructure Partnerships Australia, Infrastructure Australia has endorsed this approach as have many others like Consult Australia and a range of third parties, think that we are doing absolutely the right thing. But look Ticky we are investing more as a government. We want to get a good dividend from out investments in infrastructure, that is a public policy dividend like growing the economy, growing housing supply and reducing congestion on our roads and improving our freight links. But we also want where we can to get a return on investment, a commercial return on investment, or at least a sufficient return on investment to pay for the costs. You can’t always do that.

FULLERTON:

So what do you make of this good debt definition that the Treasurer has?

ANGUS TAYLOR:

Any business person knows what good debt is, it’s debt that supports an investment that gets a return.

FULLERTON:

Well I agree with you, I think that’s what good debt means, I’m not sure that’s what the Treasurer is saying it is. He seems to be talking about recurrent…debt for recurrent expenditure that’s bad debt, any long term capital debt is good debt. Now I’d say that that’s not correct.

ANGUS TAYLOR:

If you invest in the right projects, then non-recurrent spending will be good debt, well debt to finance non-recurrent spending, and look that’s exactly what we’re seeking to do with this agency. We just haven’t had the skills in the government to be able to make investments where we can be an investment partner with the private sector, with state government, where we can get a return for taxpayers, and a return for citizens and businesses across Australia. That’s a new approach and now is a good time to be doing it.

FULLERTON:

  Well let me ask you about one of them, Inland Rail. Over $8billion, now that has been put into the Government’s ARTC. There were two rival proposals there. The first that the private sector alternative, National Trunk Rail, has heard about this decision was in the Budget. Why did you go with ARTC or indeed is that the decision that’s been made before your agency has had a chance to make an objective decision on it? 

ANGUS TAYLOR:

Well Ticky this agency will be up and running from the 1st of July but the ARTC is an existing government enterprise that has significant experience in building and operating rail tracks. They run a number of very very successful legs or corridors in the Hunter Valley, between the East Coast and the West Coast, and I’ve looked at these for many many years. They are very very successful corridors.

FULLERTON:

Well you did at Port Jackson, I know, but it’s upgrading for example that $300 million. If that was true to form I mean that has been criticised and this project is in part upgrading existing track, it’s a government  funded thing essentially and you’re looking at an alternative that was offering largely private sector funded, six year build not a longer build, flatter, faster, and indeed including all the way to the port of Brisbane, which the original ARTC wasn’t, I mean there seem to be lots of advantages there and there are suggestions from that camp that it wasn’t a fair process.

ANGUS TAYLOR:

Well Ticky I haven’t personally seen an alternative fully funded business case. But what I do know is that there is a good business case around Inland Rail. It is an important freight corridor. I think we can drive a very significant modal shift – that’s more and more of the freight, particularly container freight, being carried on rail not on the roads.

FULLERTON:

But wouldn’t it be better to go through the Murrimbidgee Irrigation Area, wouldn’t it be better to have the real efficiencies that would actually upgrade, make sense to upgrade from road to rail, and there are questions around whether upgrading existing track would deliver that?

ANGUS TAYLOR:

I’m not going to get into debating the business case now, but what is critical, what matters here, is that we are able to get genuine volumes, significant volumes into that rail corridor. That’s what counts, that’s what delivers the outcomes and the returns and that’s absolutely what we’ll be focused on doing.

FULLERTON:

Alright let me move to the Snowy. Because of course your grandfather was Sir William Hudson which I only found out in the last couple of months, so this must be a very important moment for you. Is this the right way to do it though, to actually buy out the states. Once again, it’s almost the reverse of asset recycling isn’t it?   

ANGUS TAYLOR:

Sure, but you know we’ve also said that the money that we use to buy out the states, we want to see invested in infrastructure projects. So there’s an inbuilt asset recycling in what we’re proposing here Ticky and that’s a very very important piece of this. Look, there’s no doubt there’s been some very poor policy decisions made in the electricity sector in the past. We are paying the price for that now and we’re seeing a significant drop in reliability and affordability of electricity and we are making an intervention. In a perfect world, we wouldn’t need to do that. But I think this is an important project. It’s an unfinished project. I remember well standing, talking with my grandfather in the 1970’s about the potential for the Snowy to be a battery for our electricity system and of course that is exactly what we’re doing here. I think it’s an exciting project and it can stabilise many of the problems that we have seen in the electricity grid.

FULLERTON:

Briefly, can I ask you about the news today that the cost of the company tax cuts will blow out to $65billion? Now I know that’s not new news for you guys because it’s shifted to an extra year at the end of the 10 years which is expensive, but optically it’s going to be an even harder sell, isn’t it?

ANGUS TAYLOR:

Frankly, Ticky, with things like this Labor worries about the optics and we’ll worry about the substance. You know I have seen through the course that I have been looking and working in business the very significant improvements that have come about from reductions in company tax rates. They were championed by Hawke and Keating and then subsequently by Howard of course. And we saw extraordinary increases in economic activity as a result of reductions in company tax rates. That’s why this idea that it’s just a cut and there’s no compensating increase in activity is just wrong. The debate which is being driven by those who are against, essentially against business, is that it won’t drive economic activity. Look in this modern world where there’s enormous competition between countries for capital I have no doubt the company tax rates will drive higher levels of activity in Australia and so the so-called costs need to be seen in that context.

FULLERTON:

Alright Minister I wish you a lot of luck with your new agency. We’ll be following it closely.