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Asset recycling 'paves way for better infrastructure'

05 May, 2014

The federal budget due out next week will include a "growth agenda" involving the sale of iconic assets in order to fund much-needed new infrastructure projects, reports suggest – a move business has described as a "sensible" approach.

The iconic assets up for sale would include the Australian Rail Track Corporation, Defence Housing Australia, and potentially Snowy Hydro.

As outlined in COAG National Partnership Agreement on Asset Recycling, the new fund created from the sales could be used to fund new road and rail projects as part of Federal Treasurer Joe Hockey's policy to offer a 15 per cent incentive payment to states who sell old public assets to raise the money needed for new ones.

Such a move would pave the way for better infrastructure, according to the Business Council of Australia (BCA).

"COAG National Partnership Agreement on Asset Recycling can expand the pool of funds available for new infrastructure, kick-start much-needed investment and provide a major input into lifting our productivity," Business Council of Australia Chief Executive Jennifer Westacott said in statement last week (2 May).

Westacott said recycling capital was a practical way for governments to fund new public infrastructure, especially when facing significant budget constraints.

"There is potentially a huge community dividend in what COAG has agreed to …  It would allow communities to get faster access to the infrastructure they need – such as roads and rail – to lift their living standards.

Asset recycling also means that private investors, such as superannuation funds, can take ownership of existing infrastructure and manage the assets to deliver innovation and improved service performance for the community's benefit.

"Where assets are sold, it will be incumbent on governments to ensure that appropriate regulatory frameworks are in place to promote ongoing efficient investment and safeguard consumers in the relevant infrastructure markets, including the application of the COAG Competition Principles Agreement when reforming public monopolies," Westacott said.

"The successful experience of privatisation to date – such as in energy, rail and port infrastructure – demonstrates that in many cases there is no reason for governments to hold on to mature assets. The funds tied up in these assets should be used to address more pressing needs in the economy.

"How the funds will be spent is vitally important. The new federal funding contribution and the funds raised by the asset sales must be directed into well-designed projects that have the highest net economic and social benefits to the community.

"Infrastructure Australia will have a critical role to advise the federal government about project priorities and to ensure a cost–benefit analysis is undertaken and published.

"In designing new infrastructure projects, governments should give priority to applying user-pays models and creating opportunities for private investment to further limit the call on public spending.

"Depending on how the states respond to the deal, a nationally coordinated approach may be needed to manage asset sales in an orderly way."

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