NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
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.
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.
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.
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