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Federal Budget makes record infrastructure spend

The resounding feature of Australia’s Federal Budget announced last week was the inclusion of big ticket infrastructure spending.

The Minister for Transport and Infrastructure, Darren Chester claims that the 2017-2018 Federal Budget will be the single largest Commonwealth infrastructure spend in the nation’s history.

Mr Chester described it as a “once-in-a-generation, $75 billion infrastructure budget that sets a long-term vision for our future and commits to game-changing infrastructure projects across the nation.”

A number of big ticket infrastructure items were announced, including $8.4 billion for a Melbourne-Brisbane inland rail link, $5.3 billion for Sydney’s second airport and $2.3 billion for Western Australian road and rail projects (to see our breakdown of budget items impacting surveying and spatial click here).

Federal infrastructure spending reaches a new height in 2017-2018. Source: Darren Chester MP. (click to enlarge)

General Manager of the Surveying and Spatial Sciences Institute (SSSI), Chris Malouf, welcomes these projects, saying they will have a positive impact on the sector.

“These major infrastructure spends will all have significant components of work requiring the professional services of surveyors and spatial scientists,” he said.

However, a new report from BIS Oxford Economics (formerly BIS Shrapnel) warns that longer term risks to infrastructure funding will remain if economic targets aren’t met.

Only part of the picture

BIS Oxford Economics this week released key findings from its Engineering Construction in Australia 2017-2031 report. It revealed that while the Federal Budget will help deliver a strong boost to Australia’s $80 billion civil construction market, there are huge variances in the engineering construction outlook by segment and state.

A detailed analysis of current government spending programs found that sector-funded engineering construction will rise to a peak of more than $35 billion by 2018/19, almost 30 per cent above its 2015/16 level. This offsets further falls expected in privately-funded engineering construction – particularly in the resources segment – keeping total engineering construction activity in the $75-80 billion per annum range.

Engineering Construction: Public versus Private Sector Funded Work Done. Source: BIS Oxford Economics (click to enlarge)

“The boom in public infrastructure construction is exciting news as it helps drive a sizeable upswing in non-resources civil construction activity,” said Adrian Hart, Senior Manager, Infrastructure and Mining, BIS Oxford Economics.

“While State and Territory Governments are the principal funders of infrastructure investment, the Federal Government plays an increasingly vital role in supporting State infrastructure programs and funding nation-building infrastructure.”

Longer term risks remain

BIS Oxford Economics warns there may be risks to longer term public infrastructure funding if economic conditions turn out weaker than expected by the Federal Government through the next four years.

“The economic forecasts presented in the 2017/18 Federal Budget are certainly rosier than ours,” said Dr Sarah Hunter, Head of Australia Macroeconomics, BIS Oxford Economics. “Our main concerns are around the projected growth rate of household income and expenditure, which determine income tax and GST revenues.”

“As these account for almost two thirds of total revenues, any miss on these projections will keep the budget in deficit beyond FY 2020/21. Without other spending cuts or tax rises, our forecasts suggest the budget will remain in deficit until at least the mid-2020s.”

BIS Oxford Economics forecasts a downturn in public sector-funded engineering construction work in the early 2020s as a major program of road works and the NBN rollout wind down across the country.

“It will be hard for state and federal governments to sustain these higher levels of public infrastructure investment in the long term,” said Hart. “Governments must continue to implement sensible tax and expenditure reforms to ensure sustainable funding for infrastructure, as well as maintaining a long term pipeline of productive projects, if a sharper downturn in publicly funded work is to be avoided.”

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