A new $5 billion Asset Recycling Initiative will enable the federal government to offer incentives to state and territory counterparts to sell government-owned assets and use the proceeds to pay for new productive infrastructure.

States and territories stand to gain 15 per cent of the asset value if they sign a bilateral agreement with the federal government that locks in future spending on agreed projects, rather than taking other measures, such as paying down debt. Time is also an issue; state and territory governments will only have until 30 June 2016 to form agreements with the federal government.

The government will establish an Asset Recycling Fund to provide funding and financial incentives to states, territories and other bodies to invest in new productivity enhancing infrastructure, including through the Asset Recycling Initiative. It will start with $5.9 billion (uncommitted monies from other funds) and will grow with the addition of proceeds of the Medibank Private sale and any future privatisations.

"The federal government's Asset Recycling Initiative will delight private sector infrastructure asset companies and major builders, who will have new opportunities to buy blue chip government assets and to build new roads, rail and infrastructure co-funded by the scheme," Mr Morgan-Payler said. "Banks, superannuation funds and infrastructure asset operations and maintenance businesses will also benefit from the opportunities to participate in these new projects.

"The initiative will favour states and territories that still own significant assets, such as major ports, water assets and electricity transmission, distribution and generation assets. Infrastructure Australia has estimated that Australian governments currently own at least $100 billion in such commercial infrastructure assets, which could be sold."

Norton Rose Fulbright partner Keith Redenbach says that the Asset Recycling Initiative borrows heavily from the experience of NSW and the new NSW Premier, Mike Baird.

"Mr Baird's background as a banker and manager of the financial affairs of the state have no doubt forged the way forward. This means the lion's share of funding has been allocated to NSW, where the model has been in operation since Mr Baird was appointed to his former role as Treasurer in March 2011."

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