Transport & Logistics

Assessing the funding paradox: how important is a AAA credit rating?

23 Sep 2013, by Informa Insights

Overview of the Victorian Transport Infrastructure Summit

Gordon Rich-Phillips
Gordon Rich-Phillips

Infrastructure creates a catch 22 within many private and public organisations; new assets are critical for the productivity of all businesses, but it is also expensive and time consuming to build. The Victorian Transport Infrastructure summit, held on the 10th & 11 of September in Melbourne, addressed many of the key issues within Victoria when it comes to funding major infrastructure projects.

The Assistant Treasurer of Victoria, the Honourable Gordon Rich-Phillips deliver the keynote address in the morning in order to discuss some of the Victorian Government’s infrastructure priorities and why they have chosen to back the projects that are being given the go ahead:

“We’ve had to have a focus on our infrastructure development; in June this year there were more jobs created in Victoria than the whole of Australia combined”

“The reason we focused on our AAA rating was to invest in the state; Victoria is the only state with a AAA credit rating”

The East-West Link has been a hotly debated project, but the Minister stated that it was given priority because it will connect surrounding motorways and stimulate the economy with employment:

“This is the next major transformational project in Victoria; a project to connect the eastern freeway to CityLink. It’s a very substantial piece of infrastructure for Victoria and it will create 3000-5000 jobs”

This sentiment was continued by CEO of the Linking Melbourne Authority, Ken Mathers who stated that the East-West Link is the highest priority of the state government and it will have practical benefits to commuters: “The project will improve productivity and will employ a lot of people. It will provide an alternative to the M1 Corridor and reduce the number of trucks on the road”

One of the standout presentations was delivered by Professor John Wilson who represented Engineers Australia in order to discuss the current status of infrastructure in Victoria.

Prof John Wilson
Prof John Wilson

“There is massive congestion from cars and freight; to deal with this there should be more freight on rail and there’s no doubt congestion reduces productivity. Having freeways that aren’t connected doesn’t make sense from a holistic perspective.”

“How fundamental is a AAA credit rating? We are in a “funding paradox!” What’s the point in having the credit rating if we don’t use it? There is a disparity between ‘aspiration’ and ‘reality’ – we know where we would like to go but know funding is an issue”

So why is debt such a big issue in Victoria? It seems as though there is a skirmish between those who want to maintain Victoria’s triple AAA credit rating, and those who want new infrastructure. But what does a triple AAA credit rating entitle? The ability to pay the debt back.

This was the theme of the AI Group’s Victorian Director Tim Piper: “Infrastructure projects simply won’t get off the ground if the government isn’t willing to take on debt. We don’t have to worry so much about a surplus from a society perspective as it has been a priority of the government to retain a AAA+ rating and a $100 million surplus each year. Being able to repay the debt is what the rating is all about”.

[polldaddy poll=7417466] But when we look at the pipeline of projects covered by the Victorian Government, we see that the redevelopment of the Port of Melbourne, the development of the Port of Hastings, the Regional Rail Link, the Network Development Plan are all great investments on the governments behalf. However it is projects such the potential for High Speed Rail, funding for the Melbourne Metro Rail Tunnel, and more service trains for cities such as Shepparton are the area’s where most of the speakers felt funding was lacking.

We’d love to know if you think it’s important in retaining a AAA credit rating, or if infrastructure is a debt worth taking on in the long run. We’ve heard from the expert, so we’d love to hear what you have to say too.

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