1. TheCIE.com.au Evaluating infrastructure priorities and economic contribution Presentation to the Economic Society Sydney 12 July 2006

2. 2 Study’s objectives n Identify where opportunities to invest in state significant, economic infrastructure exist n Indicate priorities among the infrastructure needs n Demonstrate approach to investment prioritisation n Illustrate expected returns from investment

3. 3 Overview of the process Input from GHD Consultation with PCA members and other stakeholders Set the macro story  What has NSW been doing? 1. Stakeholder consultations to test the priority list 4. Prioritise projects to identify top 20 infrastructure needs 3. Identify what hard (economic) infrastructure is needed 2. Estimate the boost that the top 20 projects can deliver to NSW economy 5. Prepare report 6. Multi-criteria analysis (establish criteria, weights and score projects) GE model to assess economic impacts

4. 4 2: Infrastructure dynamics n Funds committed to capital investment (private & public) is growing; as a share of the economy’s resources, it’s falling – private sector plays an increasingly important role – NSW Govn’t plans to increase spending over current budget forecast n NSW has shortfalls in physical infrastructure & governance – current planning arrangements do not give private sector enough information for it to play the increasingly important & expected role in infrastructure provision and financing

5. 5 Capital Expenditure by the NSW public sector (nominal)

6. 6 NSW General government capital expenditure

7. 7 Infrastructure report card results

8. 8 3: Investment opportunities n Identified projects of state significance ($100m+) n Key findings: – around 60 unfunded projects of state significance were identified – projects tended to address infrastructure needs in the Sydney metropolitan areas – projects tend to play catch up to compensate for past under-investment – transport (freight & passenger) had the greatest number of identified projects

9. 9 4: Setting priorities n Used MCA to identify top 20 priority projects n Key findings: – funded projects tended to rank highly among the priorities – high priority, unfunded projects largely respond to passenger transport needs – top 20 projects tend to be very robust - ranking well regardless of how criteria are weighted

10. 10 4: Setting priorities - MCA

11. 11 4: Setting priorities - MCA

12. 12 Triple bottom line Infrastructure sector Rankings of projects - ‘top 10’ Economic focus 4610Electricity distribution upgrades to include Parramatta CBD Energy 13 9Sydney water recycling projectsWater & sewerage 11128Harbour rail link (Eveleigh to Chatswood)Passenger rail 12117Western Sydney bus transitwaysBuses 226Pacific highway upgradesRoads 775M4 East and M4 to Botany TunnelRoads 644Peak load electricity generator (gas fired)Energy 333Southern Sydney freight lineFreight rail 552NW Rail link (Cheltenham to Rouse Hill)Passenger rail 111Sydney Port intermodal freight networkIntermodal freight Project name Unadjusted

13. 13 Rankings of projects - ‘2nd 10’

14. 14 Project scores 124 5 6 7 3 8 9 10 11 12 13 1415 1617 18 19 20 PCA 1. Sydney Port Intermodal Freight Network 2. NW Rail Link (Cheltenham-Rouse Hill) 3. Southern Sydney Freight Line 4. Peak Load Electricity Generator (gas fired) 5. M4 East & M4 to Botany Tunnel 6. Pacific Highway Upgrades 7. Western Sydney Bus Transitways 8. Harbour Rail Link (Eveleigh-Chatswood) 9. Sydney Water Recycling Projects 10. Electricity Distribution Upgrades to include Parramatta CBD 11. F3 to M2 Connection 12. Mount Piper Baseload Electricity Generator Upgrade 13. Rail Tunnel to improve Newcastle Port link to North West (Liverpool Range Freight Rail Tunnel) 14. Parramatta to Sydney High Speed Rail Link 15. Inland Rail Freight Route Link (Brisbane - Sydney - Melbourne) 16. Parramatta Rail Link Section 2 (Epping - Parramatta) 17. CBD Light Rail Loop 18. Inner Sydney Light Rail System 19. Southern and Western Suburbs Ocean Outfall Sewer 20. Sydney to Warnervale High Speed Passenger and Rail Link

15. 15 4: Setting priorities n Key messages: – prioritisation can be undertaken in a manner that is consistent with both stakeholder and state goals – highest priority projects generally meet triple bottom line and strategic criteria – transparent process enhances understanding of what tradeoffs are necessitated by prioritising investment

16. 16 5: Contribution to growth n GE modeling to estimate how 20 highest priority projects could impact on the NSW economy n Key findings – impact on NSW economy – regional implications – performance of individual projects (top 10) – effects of a second investment (2nd 10)

17. 17 TERM n A CGE model of the Australian economy n Up to 166 sectors n Up to 57 regions (ABS statistical divisions) n CGE and benefit cost analysis – direct effects – indirect effects – full accounting of opportunity costs

18. 18 NSW impacts of 10 priority projects % Year n Cumulative impact of an infrastructure investment

19. 19 NSW impacts of 10 priority projects -2.72Consumer price index 1.01Aggregate capital stock -0.19Imports price index -1.58Export price index 1.79Import volumes – landed 1.75Import volumes – used 9.10Export volumes 0.73Real investment 0.51Population 0.90Real wages 1.55Employment 1.85Household consumption 2.89Real GSP % NSW (average annual % change)Indicator n Investment of $18.5 billion infrastructure could produce the following benefits:

20. 20 Regional impacts of 10 priority projects n Regional NSW benefits from improvements to infrastructure services

21. 21 Sydney Port Intermodal Freight Link

22. 22 Sydney Port Intermodal Freight Link Far West Murray Murrum- bidgee South East Central West NSW North West NSW Northern NSW Mid North Coast Richmond Tweed Illawarra Hunter Sydney Indicators 0.160.020.040.030.060.070.05 0.03 -0.02 0.100.120.08Population 0.200.050.040.020.030.100.07 0.01 -0.01 0.130.120.08CPI 1.040.320.290.330.420.630.43 0.25 0.16 0.700.720.50 Import volume -0.74-0.26-0.25-0.17-0.27-0.52-0.38 -0.19 -0.06 0.612.043.33Export volume 0.310.100.11 0.130.190.13 0.11 0.07 0.180.200.16Average real wage 0.440.120.130.100.160.270.16 0.09 0.02 0.270.290.19 Aggregate 0.770.230.240.190.450.520.27 0.19 0.10 0.610.730.31Real GDP employment

23. 23 Economic impacts of additional investment in infrastructure n Second investment of $11 billion would further stimulate the economy

24. 24 Permanent growth

25. 25 5: Conclusion n NSW would become more competitive, attracting population, jobs, and investment – GSP increase by 3%, about $8.8 billion annually – employment increase by 1.6%, additional 50,300 jobs in today’s workforce – household consumption would rise by 1.9% – export volumes would increase by around 9% – CPI would fall by 2.7% – NSW population increase by 0.5%, about 37,000 additional residents based on today’s population – all 12 regions in NSW would benefit

26. 26 For economists... n Pre-screening projects: – assists with priority identification – focus effort on obtaining greater returns – could raise transparency and certainty – is practical n Economy wide evaluation may assist in – comprehensive evaluation – accounting for flow-on implications – assessing regional impacts – forming stronger views about value for money

27. 27 Full Paper n Building Wealth through infrastructure n For the Property Council of Australia n Available from: www.TheCIE.com.au Presentation by Kerry Barwise Centre for International Economics Telephone: 02 9250 0800 Fax: 02 9250 0888 Email: kbarwise@thecie.com.au