Infrastructure expenditure

Budget Review 2015–16 Index

Rob Dossor

The bulk of Commonwealth infrastructure expenditure is by way of payments to the states. The 2015–16 Budget allocates $6.8 billion towards infrastructure expenditure in 2015–16.[1] This is almost $2 billion higher than the estimated amount spent on infrastructure in 2014–15, but $1.2 billion less than was allocated for 2015–16 last year.[2] These figures are outlined below.

Total payments to the states for infrastructure

$ millions
2014–15
2015–16
2016–17
2017–18
Total
2015–16 Budget totals
4900.8
6823.2
9244.7
7436.0
28404.7
2014–15 Budget totals
5702.9
8021.8
9107.8
5674.2
28506.7
Differences
-802.1
-1198.6
136.9
1761.8

While there is an underspend in 2014–15 and less than expected allocation in 2015–16, the four years to 2017–18 of the two budgets have broadly similar allocations. In other words, while the total expenditure is similar, a substantial amount is pushed out over the forward estimates.

The underspend in 2014–15 would have been significantly higher if it were not for the $500 million committed in the week before the budget to Western Australia for nine infrastructure projects as compensation for the GST revenue shortfall in 2014–15.[3] Without this compensation measure the underspend would total $1.3 billion.

The lower than expected expenditure in 2014–15 was likely affected by the three state elections that occurred in the period. Asset privatisation played a major role in the defeat of the Newman government in Queensland, while asset recycling (under the Asset Recycling Initiative)[4] was a key election issue in the recent NSW election.[5] These concerns may have pushed back Queensland and NSW infrastructure investment plans.

Infrastructure was also a key issue in the Victorian election. The 2014–15 Budget allowed for spending of $1.5 billion over the forward estimates for Melbourne’s East West link.[6] The East West Link was committed to by the Napthine Victorian government prior to the election, despite a cost benefit ratio (which was released after the election by the incoming Andrews government) of between 0.45 and 0.84, meaning that the project was expected to have a negative return.[7] On election the new government halted further work on the project before reaching an in-principle agreement with the project contract holders to cancel the project in April 2015.[8] The Budget includes as savings (over the forward estimates) the $1.5 billion previously allocated for the project. However, it also includes a commitment of $3 billion (as a contingent liability) to any Victorian government which proceeds with it.[9] The Victorian government has ruled out returning the $1.5 billion.[10]

During the 2013 election campaign the Coalition made a commitment that Infrastructure Australia would assess any infrastructure project worth more than $100 million, as well as calculate and publish the net present value for projects that were added to the priority list.[11] While the East West Link appears on Infrastructure Australia’s most recently available priority list, no net present value, or cost benefit analysis was made publicly available prior to the Commonwealth committed funding.[12] In addition, since December 2013 no priority list has been released and Infrastructure Australia has only made two assessments available—for the Sydney WestConnex and the Melbourne City Link projects.[13]

In the Budget few new infrastructure projects receive funding. While a number of major road projects are outlined as part of the Budget, most were announced in the 2014–15 Budget, including the Bruce Highway in Queensland, the Western Highway in Victoria and the WestConnex in NSW.[14] Most of the projects that appear new are the projects associated with the WA concession payment, which are funded in 2014–15 and were announced separately.[15]

Two new infrastructure items that were announced in the Budget, the Developing Northern Australia package and the Stronger Communities program, are dealt with elsewhere in this Budget Review.

The infrastructure measures in the Budget have attracted some negative comment. Marion Terrill of the Grattan Institute has observed that both major infrastructure announcements (the East West Link measures and the WA GST compensation measure) appear to serve political goals.[16] Ross Gittins, of the Sydney Morning Herald, rated the Government’s failure to increase spending on infrastructure to offset the declining effectiveness of interest rate cuts as the biggest ‘miss’ in the Budget.[17] Alan Kohler of The Australian, said ‘The Abbott government’s efforts on infrastructure have been pathetic, especially with the 10-year bond rate at 3 per cent ...’[18]

These are important issues as the scale of money is vast and infrastructure investment has the real potential to stimulate the economy, even if more debt were taken on to fund productive projects.[19]



[1].          The budget figures in this article have been taken from the following document unless otherwise sourced: Australian Government, Federal Financial Relations: budget paper no. 3: 2015–16, 2015.

[2].          Australian Government, Federal Financial Relations: budget paper no. 3: 2014–15, 2014, p. 60.

[3].          T Abbott (Prime Minister), W Truss (Deputy Prime Minister and Minister for Infrastructure and Regional Development) and M Cormann (Minister for Finance), ‘Commonwealth support for infrastructure projects in Western Australia’, media Release, 6 May 2015, p. 1.

[4].          The purpose of the asset recycling initiative is to stimulate infrastructure investment by encouraging states, through an incentive payment, to ‘unlock’ funds by selling assets and reinvesting the proceeds in new infrastructure. R Dossor, ‘Infrastructure Growth Package – Asset Recycling Fund’, Budget Review 2014–15, Parliamentary Library, Canberra, May 2015.

[5].          P Hudson, ‘Hockey faces trying time at meeting of Treasurers’, The Australian, 6 April 2015.

[6].          Australian Government, Budget measures: budget paper no. 2, 2014–15, 2014, p. 175.

[7].          J Gordon, ‘Analysis: Why the East West Link proved such a hard sell’, The Age, 15 December 2015.

[8].          ‘East West Link: Taxpayers hit with $339 million bill as Government strikes deal to scrap East West Link’, ABC News, 15 April 2015.

[9].          Australian Government, Budget measures: budget paper no. 2, 2015–16, 2015, p. 133.

[10].       R Baxendale and R Wallace, ‘Andrews rules out the return of $1.5bn’, The Australian, 14 May 2015.

[11].       Liberal Party of Australia and the Nationals, The Coalition’s policy to deliver the infrastructure for the 21st century     , Coalition policy document, Election 2013, p. 2.

[12].       Infrastructure Australia (IA), ‘Infrastructure Priority List Update – December 2013’, IA website.

[13].       Infrastructure Australia, ‘Project Assessments’, IA website.

[14].       W Truss (Deputy Prime Minister and Minister for Infrastructure and Regional Development) and J Briggs (Assistant Minister for Infrastructure and Regional Development), ‘Building our Future: world-class infrastructure for a stronger Australia’, Budget 2015, media release, 12 May 2015.

[15].       T Abbott, W Truss and M Cormann, ‘Commonwealth support for infrastructure projects in Western Australia’, op. cit.

[16].       M Terrill, ‘Budget infrastructure spending serves mainly political goals’, The Conversation, 13 May 2015.

[17].       R Gittins, ‘The hits and misses, and why there is still no free lunch’, Sydney Morning Herald, 14 May 2015.

[18].       A Kohler, ‘A lame effort full of flaws and dodged responsibility, and a dirty little secret’, The Australian, 14 May 2015.

[19].       M Terrill, op. cit., and M Maiden, ‘Shorten must bite bullet on infrastructure’, The Age, 14 May 2015.

 

All online articles accessed May 2015. 

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