What the Federal Budget means for infrastructure

The infrastructure sector was one of the big winners in the Federal Budget, with the share of infrastructure spending rising in both dollar terms and as a share of government spending. This should go some way in helping to fill the void left by retreating mining investment.

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NAB’s view:

The infrastructure sector was one of the big winners in the Budget, with the share of infrastructure spending rising in both dollar terms and as a share of government spending. This should go some way in helping to fill the void left by retreating mining investment. The $11.6 billion outlay on infrastructure will provide new work for the nation’s largest building and engineering firms, as well as building products suppliers and potential project owners such as superannuation funds.

Although infrastructure spending is a key tenet of the 2014 Budget, the infrastructure package is heavily focused on roads and expediting “critical infrastructure”. One of the criticisms of the budget is that there is very little in the way of new investments in public transport to help address congestion problems in major cities where it may be argued that substantial investments in road infrastructure may add to congestion by attracting more traffic.

It is notable that the other key infrastructure programs were dwarfed by spending on roads, with the Government allocating $300 million for preconstruction works to deliver an inland railway line between Melbourne and Brisbane over the next 10 years to improve access to domestic markets and reduce road congestion. Around $120 million was also allocated to improve Tasmania’s freight rail system, with continued support also for Regional Rail Link (Victoria).

Funding models will include concessional loans to the states, but the private sector will still need to be heavily involved, despite Commonwealth spending.

Key initiatives:

  • The $11.6 billion Infrastructure Growth Package supports the transition to non-resource sector driven growth. This will bring the Government’s infrastructure investment to $50 billion by 2019-20 and to over $125 billion when combined with state and private sector funding.
  • The budget infrastructure package consists of:
  • $5 billion Asset Recycling Initiative over five years to encourage states to sell assets and redirect the funds into infrastructure, with states receiving a 15% premium from the Federal Government on their asset sales. Funds for asset recycling will also come from the sale of Medibank Private and the potential sale of other government assets.
  • $3.7 billion for the Infrastructure Investment Programme over five years, with a substantial funding commitment to major roads and highways. New investments include stage 2of the East West Link in Melbourne ($1.5 billion); North-South Road Corridor in Adelaide; Toowoomba Second Range Crossing in Queensland; Perth Freight Link ($866 million) and Northern Territory road upgrades. The Government is also providing $229 million for a New National Highway Upgrade Programme; an additional $200 million to the Black Spot Programme; and a further $350 million to the Roads to Recovery Programme.
  • $2.9 billion over a decade from 2014-15 for Western Sydney infrastructure (roads) around the Badgerys Creek airport development.

Industry comment:

Infrastructure Partnerships Australia is highly supportive of the infrastructure initiatives in the budget. According to IPA Chief Executive Brendan Lyon: “The Commonwealth Budget strikes a solid balance between the short-term pain of budget reform and the long-term national interest, because it frees up the funding needed to invest in economic infrastructure to safeguard the economy.”

The budget has also been welcomed by the superannuation industry. Industry Super Australia’s

Director of Public Affairs Matt Linden said the initiatives would be welcomed by super funds, which would partner with governments to invest in the infrastructure Australia was crying out for. “Industry super funds have been pioneers in investing in infrastructure, and stand ready to invest an additional $15 billion over the next five years if appropriate deals can be brought to market,” he noted.

Our economists’ view

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