Industry perspective: Federal Budget and infrastructure

Brendon Lyon, CEO of Infrastructure Partnerships Australia, says the 2014 Federal Budget is an excellent outcome for the national infrastructure sector. He shares his views on the largest-ever national infrastructure investment programme.

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For Brendon Lyon, Chief Executive Officer of Infrastructure Partnerships Australia, the 2014 Federal Budget is an excellent outcome for national infrastructure. He shares his views on the largest-ever national infrastructure investment programme.

The 2014 Federal Budget is an excellent outcome for the national infrastructure sector because it reforms recurrent and discretionary programmes to substantially increase the committed investment to transport infrastructure projects.

As widely predicted, transport infrastructure funding formed a centrepiece of the Budget, with a mixture of asset sales and difficult revenue and expenditure changes used to fund a substantial increase in the level of committed capital expenditure – representing the largest-ever national infrastructure investment programme.

The Budget sees a total headline infrastructure investment of $50 billion over a seven-year programme – with up to $39 billion of total Commonwealth investment over the forward estimates (including remaining expenditure in 2013-14) depending on payments accessed by states in the out years under the Commonwealth’s Asset Recycling Initiative agreed at COAG earlier this month.

While much of the commentary will likely reflect the painful changes across many Budget areas, including welfare, foreign aid and health care assistance, the Commonwealth has managed to increase the proportion of infrastructure investment both in dollar terms and as a share of General Government Expenditure.

Across the forward estimates, infrastructure investment increases to an average 1.62 per cent of expenditure, rising from 1.60 per cent under the previous infrastructure investment programme up to 2013.

IPA analysis shows that over the forward estimates, including the increased 2013-14 spend, the Federal Government’s total infrastructure investment represents a circa $9 billion increase compared to the preceding five Budgets (including 2013-14).

The Budget directly (and the IPA believes correctly) links reform to revenue and recurrent expenditure to the enhanced capital funding programme – and highlights the dual benefits that accrue via the economic stimulus from increased infrastructure investment activity, and the long-run productivity benefit.

The net impact of policy decisions since MYEFO 2013-14 delivers a $28.1 billion decrease in Commonwealth payments over the forward estimates, providing additional headroom for increased infrastructure investment.

Key investment initiatives

Infrastructure investment in the Budget is split across two programmes:

  • The Infrastructure Investment Programme will total $39 billion out to 2019-20, of which circa $28.5 billion is allocated over the forward estimates; and
  • The Infrastructure Growth Package totalling $11.6 billion: comprising $5 billion from the Commonwealth’s Asset Recycling Initiative and $6.6 billion in New investments (including confirmation of a $2.9 billion Western Sydney Infrastructure Plan), of which $7.8 billion falls within the forward estimates and the remainder falls in the out years of the programme.

The Infrastructure Investment Programme provides baseline funding for Commonwealth infrastructure investment; while the Infrastructure Growth Package is designed to accelerate investment in the near-term, particularly in 2015-16 and 2016-17.

Headline projects to be funded under the Infrastructure Investment Programme and Infrastructure Growth Package include:

New South Wales

  • Pacific Highway$5.6 billion.
  • WestConnex $1.5 billion.
  • Western Sydney Infrastructure Plan $2.9 billion.

Victoria

  • East West Link $3.0 billion.
  • Victorian Regional Rail Link $1.5 billion.

Queensland

  • Bruce Highway$6.7 billion.
  • Gateway Motorway North $0.9 billion.
  • Legacy Way $0.4 billion.
  • Warrego Highway$0.5 billion.

Western Australia

  • Perth Freight Link $0.9 billion.
  • GatewayWA$0.6 billion.
  • Swan Valley Bypass $0.6 billion.

South Australia

  • North-South Corridor Adelaide $0.9 billion.
  • Goodwood and Torrens Junction $0.2 billion.

Tasmania

  • Midland Highway$0.4 billion.
  • Freight Rail Revitalisation $0.1 billion.

The Government also used the Budget to announce a concessional loan of up to $2 billion to accelerate the delivery of Stage 2 of the West Connex project in Sydney. The loan would be available for drawdown during the construction period of WestConnex Stage 2 from 1 July 2015 to 31 December 2018. The full repayment of the loan is expected by 2029.

Key revenue measures for the infrastructure sector

The reintroduction of indexation of the Fuel Excise

The Indexation of Fuel Excise will be applied from 1 August 2014 on the current 38.14 cent per litre rate on a half yearly basis. The measure is expected to generate $2.2 billion in new revenue over the forward estimates, which the Treasurer said would be fully appropriated to growth investment in road infrastructure.

Sale of key Commonwealth assets

In addition into the already announced Medibank Private sale, scoping studies will be undertaken into the ownership of Australian Hearing, Defence Housing Australia, the Australian Securities and Investment Commission Registry function and the Royal Australian Mint. The proceeds from future privatisations will be reinvested into the Asset Recycling Fund under the Commonwealth’s Asset Recycling Initiative.

The Asset Recycling Fund will be funded through a transfer of the remaining uncommitted $2.4 billion in the Building Australia Fund and $3.9 billion from the Education Investment Fund, with additional transfers to be made from the proceeds of the Medibank Private sale and other privatisations. The Asset Recycling Fund will see states receive a 15 per cent premium paid by the Commonwealth on sale proceeds from asset divestments on a ‘first come, first served’ basis.

For more Federal Budget insight and analysis, visit NAB’s Federal Budget Hub.