Nation-Building Funds and the Infrastructure Priority List

Nation-Building Funds

The Nation-building Funds Bill 2008 is part of a package of bills giving effect to the Government’s 2008-09 Budget announcement to establish three new nation-building funds as of 1 January 2009 that will provide significant investment in transport, communications, water, energy, education, research and health infrastructure.  The purpose of the nation-building funds is to lift Australia’s productive capacity by providing leadership in the planning, financing and provision of significant national infrastructure projects.

The nation-building funds include:

Fund Government contribution 2008-09 Funding towards
The Building Australia Fund (BAF) $12.6 billion Transport, communications, energy and water, infrastructure (including proceeds from the T3 sale and the balance of the Communications Fund).
The Education Investment Fund (EIF) $8.7 billion Education infrastructure (including the balance of the Higher Education Endowment Fund).
The Health and Hospitals Fund (HHF) $5 billion Health infrastructure.

Where the funds are used to finance capital projects in the states and territories, funding will be distributed through a new Council of Australian Governments (COAG) Reform Fund, which will be established through the COAG Reform Fund Bill 2008, another component of this package of bills (see below).  The nation-building funds will utilise the investment framework that has been established for the Future Fund, including giving responsibility for managing the investments of the funds to the Future Fund Board of Guardians.

Spending from the funds on specific projects will be subject to rigorous evaluation by independent advisory bodies. In the context of the global financial crisis and the Government’s commitment to strengthen the Australian economy, the Nation-building Funds Bill 2008 allows for interim advisory bodies for the Education Investment Fund and the Health and Hospitals Fund to be established as soon as possible. Allocations from the Building Australia Fund will be guided by Infrastructure Australia, the independent statutory council headed by Sir Rod Eddington.

The COAG Reform Fund

The COAG Reform Fund Bill 2008 was introduced to Parliament on 23 October 2008 to establish the COAG Reform Fund as a Special Account as provided for in section 21 of the Financial Management and Accountability Act 1997.  The fund will commence on 1 January 2009 with the purpose of making grants of financial assistance to the States and Territories.  It will channel National Partnership reform payments from the Commonwealth Budget annual appropriations and payments from the nation-building funds. For further information on the National Partnership Payments and changes to Commonwealth-State financial relations please see the Hawker Britton paper on the November 2008 COAG meeting.
National Infrastructure Shortlist

On 19 December 2008 the Minister for Infrastructure, Transport, Regional Development and Local Government Anthony Albanese received Infrastructure Australia’s preliminary report –A Report to the Council of Australian Governments – an audit Australia’s infrastructure needs. The audit canvasses the condition and adequacy of the nation’s transport, water, energy and communications infrastructure.

The early Infrastructure Australia analysis concluded that future public and private investment needed to be directed towards:

  • developing a more competitive broadband system;
  • extending national energy grids to increase competition in power and gas markets;
  • lifting port productivity and boosting associated land transport links;
  • increasing the amount of freight shifted by rail;
  • preparing for the impact of climate change on water supplies;
  • expanding public transport within cities; and
  • improving services to indigenous communities.

Infrastructure Australia received over 600 submissions proposing over 1000 infrastructure projects.  Of these, 94 have been shortlisted as proposals for prioritisation.

The detailed list is available here.

Infrastructure Australia will provide a final Infrastructure Priority List to the Government in March 2009.  In order to finalise the list, Infrastructure Australia proposes to:

  • Subject the data underpinning the assessment of strategic fit to further detailed scrutiny.
  • Request the development of comprehensive economic analysis of specified projects, where only a rapid economic analysis is available at this stage.
  • Ask submitting organisations to provide comprehensive economic analysis of specified projects immediately, if currently available.
  • Request and scrutinise the detailed demand modelling underpinning the projects.
  • Subject the economic modelling methodology to further scrutiny.

The report suggests that even though the projects will receive funding from the Building Australia Fund, it is important to consider ways of facilitating the participation of private sector funds, such as superannuation, in infrastructure investment.