

Hockey pushes America to use capitalism for its infrastructure needs

Jacob Greber
Jacob GreberUnited States Correspondent

Washington | Ambassador Joe Hockey is pressing the United States to urgently unlock trillions of dollars of underperforming US infrastructure assets, saying the country has fallen "behind the rest of the developed world" in privatising assets as a way of building new roads and ports.

"There is a lack of political will to engage with the private sector on infrastructure in the same way that many other countries have engaged," Mr Hockey told a conference of policymakers and investors in Washington.

The blunt warning comes as the Trump administration prepares to take another shot at putting together an infrastructure deal with Democrats, who take control of the House of Representatives next month.

Australian ambassador to the United States, Joe Hockey, urged a gathering on US infrastructure to adopt Australia's asset recycling program. Alex Ellinghausen

At stake is the President's 2016 pledge to unlock $US1 trillion ($1.4 trillion) on infrastructure as well as promises by Democrats to voters at last month's mid-terms that would lead the Congress over the next two years in a way that produces a package that addresses America's widening multitrillion-dollar infrastructure shortfall.

Australian pensioners and superannuation savers are emerging players in the US infrastructure story, which is being targeted for long-term investment by groups including Macquarie and IFM Investors, both of which already have significant stakes in US assets.


A former White House infrastructure advisor, D.J. Gribbin, told The Australian Financial Review that while details were scarce, there was a "tailwind" for getting a bill passed.

"It's bipartisan, and the public strongly supports something that would result in better infrastructure for the nation," said Mr Gribbin, who left the administration in April and now works for investment fund Stonepeak Infrastructure Partners.

But Mr Gribbin warned that disagreement over how to fund the bill remained the biggest roadblock.

"While everyone agrees we want infrastructure, some members want to borrow money, others want asset recycling, others want to raise taxes. The challenge is Congress, which has a hard time passing anything."

Australia's ambassador in Washington, Joe Hockey, has been lobbying for Australians to retain sole access to the special E3 visa.   Photo: Andrew Meares

Mr Hockey continues to push the example set by Australia's asset recycling scheme, which was introduced by the ambassador when he was treasurer in 2015. The scheme provided federal incentives to states if they sold or leased assets and used the proceeds to build new projects.

"Many of your congressmen and senators that I have spoken with, and many of your governors and mayors that I have spoken with, can see the obvious need for more public-private partnerships but they can't see a way through the politics," he told the infrastructure conference in Washington, according to a copy of the speech obtained by the Financial Review.

Asset recycling offers a way for increased spending on new projects by a US federal government that is heavily constrained by debt.


The US is the only developed country that will see its debt-to-GDP ratio increase over the next five years, by nearly 9 per cent, according to International Monetary Fund data cited by Mr Hockey.

US President Donald Trump and Australia's ambassador to the US, Joe Hockey, at the Trump National golf club in Virginia in April. Supplied

As in Australia, the majority of US assets are owned by state and local governments, many of which have large underfunded pension liabilities totalling more than $US6 trillion. The onus is on them to "own the politics", Mr Hockey said.

Democrats have indicated in recent weeks that they are not likely to support a package that relies on asset recycling, and are demanding the White House finds the money up front.

Democrat Peter DeFazio, who is expected to become chairman of the House transportation committee in January, said that while there were "myriad ways" of funding transport projects, they needed to be "real".

"We're not going to do pretend stuff, like asset recycling, we're not going to do massive privatisation."

He is pushing for the sale of government bonds to pay for new transport projects, but have the money repaid by indexing the federal tax on petrol, which has been frozen in nominal terms since 1994.

Others are calling for a gradual increase in the petrol tax over several years until it reaches the point it would have been had it been indexed.


Democrat Senate minority leader Chuck Schumer last week said there would be no deal on an infrastructure bill if it "didn't do something on climate change".

He is also calling for the bill to be fully funded by reversing the Mr Trump's company tax cuts, something Republicans would never support.

Todd Metcalf, from PwC's tax practice in Washington, said the benefit of using public- private partnerships was that they generated a "lot of bang for a relatively small buck".

He suggested a bill that came up with $US50 billion to $US60 billion dollars.

"That's not that easy to do, but it's not impossible to find revenue or savings of that amount ... and you could get up to $US1 trillion in infrastructure investment" as a result, Mr Metcalf said.

"Now the challenge in public-private partnerships is that they require ratepayers ... investors want a return on their investment."

One of the bugbears had been a "remarkable unwillingness" to raise America's federal petrol and diesel tax, he said, "even though in state after state, governors have done just that and... politically speaking they haven't suffered any significant political blowback," Mr Metcalf said.

Mr DeFazio told The Washington Post late last week that in his one meeting with Donald Trump, the President "talked about a substantial increase in the user fees – the gas tax".


"The President is going to have to be fully on board if we're going to move [a gas tax increase] in the Senate."

Mr Gribbin cautioned that the huge field of Democrat contenders for the 2020 presidential race – many of them in Congress – meant the opportunity for compromise on infrastructure might already be ending.

"The presidential race may have already started," he said. "Usually, you'd have six to eight months next year before people get very political and partisan."

Mr Hockey said there were states and cities across the US with "trillions and trillions of dollars of under-utilised and under-performing assets".

"Interestingly I have found that many states and cities don't know all the assets they own let alone what they are worth, and how much they could be worth if they maximised their potential."

There are also many authorities that have allowed valuable transport, roads, schools and hospital assets to be inadvertently run down because they can't afford the maintenance.

At the same time, Mr Hockey estimates there is around $US173 billion in "dry powder" sitting in infrastructure funds, ready and waiting to be invested, up 173 per cent since 2000.

Jacob Greber

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