1. Overview

Infrastructure describes the structural framework, systems and networks that facilitate economic and social activity in an economy (Rutherford 2000). Infrastructure is also one of Australia's largest asset classes accounting for around $616 billion in assets and around 22.8% of GDP each year (ABS 2007) (See Table 1). However, economic and social infrastructure plays a much greater role in the economy because of its extensive multiplier effects on most other sectors of the economy. Infrastructure also accounts for 13.6% of private capital investment and around 17% of aggregate gross fixed capital formation, an important driver of domestic demand, output and economic growth (Regan 2004).

Table 1 NET CAPITAL STOCK Australia 2005

SOURCE

ABS 5204.0; RBA Bulletin Oct. 20063

In Australia, around 68% of economic and social infrastructure is provided by the state although in recent years, private infrastructure investment has increased to around 2% of GDP (See Diagram 1). The average age of infrastructure is increasing and overall net contribution to capital stock accumulation is less than the average for Organisation of Economic Cooperation and Development (OECD) countries (See Table 2).

Table 2 NET GROSS FIXED CAPITAL FORMATION Australia 2005

SOURCE ABS 5204 2006

NOTE * Capital wasting and depreciation.

Infrastructure is an important element of regional economic development. Queensland is especially reliant on land transport infrastructure to service its strongly growing regional economy. The Queensland economy exhibits a number of features that distinguish it from other regional economies such as its greater reliance on the agribusiness, mining, construction, transport, tourism and the retail sectors than is the case nationally. The state is also under-represented in the finance and insurance, manufacturing, property and business services industries. Industry composition is reflected in the strong contribution of the construction and the resources industries to growth in total factor income, a characteristic shared with Western Australia (ABS 2006c). The decentralised nature of the state population and its industry mean that Queensland places greater reliance on land transport infrastructure than other states.

Investment was the major driver of Queensland's economic growth in 2006 with private gross fixed capital formation (GFCF) increasing by 20.1%. There were several underlying factors here - international commodity prices, greater investment and productivity in the resources sector and strong domestic demand in the services sector (Department of Treasury 2006a, p. 5, 8). This trend continued into the 2007-08 year. Given the importance of investment to regional economic performance, the current rate of both public and private investment will play a significant role in the region's future economic, social and spatial development.

Household consumption is also a strong contributor to growth in Queensland supported by population growth and favourable labour market conditions including strong growth in employment. In the 10 years to 2006, non-dwelling capital investment in Queensland increased from 17.7% to 19.3% of GSP_. ¹ Reflecting a national trend over this period, public investment declined from 5.9% to 5.4% of GSP and private investment increased from 11.8% to 14%. In the same period, national public investment increased slightly from 3.6% of GDP to 3.9% and private investment increased from 12.2 to 13.2% (ABS 2006c). Public capital investment is a major driver of growth in public final demand which reached record levels in 2005-06. The data indicates that non-dwelling public investment in Queensland in this period was the highest of all the states. However, investment was declining in both monetary and per capita terms.

An alternative measure of investment is the value of non-dwelling engineering construction activity2. Queensland accounted for around 22% of expenditure in the 6 years to 2006 which compares with New South Wales 24%, Victoria 16.9% and Western Australia 26%. This is the second highest spending nationally in GSP and per capita terms behind Western Australia. Both states are characterised by large land mass, relatively low population density and, in the case of Queensland, a decentralised economy with around 36% of the State's population and 38% of economic activity located outside the South East Queensland regional economy (SEQRE) (ABS 8762.0 2004, 2006; OESR 2007).

In the 2006 State Budget, the Treasurer announced significant increases in public capital investment with capital outlays of $8 billion, a 32% increase on estimated actual 2005-05 capital outlays. Around 66% of this expenditure is earmarked for regional areas outside the SEQRE and 43% of the capital will be provided by government business enterprises (GBEs). The investment will be applied to transport infrastructure (34%), energy (27%), other infrastructure (21%), health (7%), education and training (7%) and law, order and public safety (4%).

A significant component of the SEQIPP program is underway using a combination of procurement mechanisms - traditional procurement, alliance contracting and public private partnerships. PPPs are essentially a procurement method that employs various combinations of private sector capital and management. In Queensland and the other Australian states, PPPs follow a formal project evaluation and selection process based on an output specification for the delivery of services to or on behalf of the state.

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1 Investment includes expenditure on machinery, equipment and non-dwelling construction and excludes livestock and intangible fixed assets. Current prices.

2 Includes public and private investment in roads, highways and urban land sub-division, bridges, railways, harbours, energy, water, telecommunications and heavy industry (ABS 8762.0 September, 2006).