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A record amount of government infrastructure spending is expected to lead to the start of a “wave of construction” later this year.
A record amount of government infrastructure spending is expected to lead to the start of a “wave of construction” later this year.

Public infrastructure investment to counter slowing resources sector

A new report has indicated that while Australian investment appears to have idled due to the winding down of the resources boom, it may soon pick up in other areas as both state and federal governments commit to infrastructure.

Deloitte Access Economics’ latest Investment Monitor report has stated that the value of major projects is “currently in a holding pattern”.

“The total value of all projects has barely budged since June 2013, predominately due to the relatively static value of resources projects under construction,” it stated.

At the end of 2011, the resources sector made up more than 50 per cent of the value of projects under construction but the recent data has indicated that on current trends this share could fall below 50 per cent within the next year.

Instead, the Deloitte report suggested that non-resources projects – public sector transport projects in particular – would be driving future investment activity.

“The value of transport projects under consideration increased by more than $16 billion in the June quarter, mainly due to state government investment plans,” the report stated.

State budgets also included 81 new projects which were added to Deloitte’s Investment Monitor database, lifting the total value of projects by $21 billion. Nevertheless, the total value of projects was down 0.4 per cent to $875.4 billion on the previous March 2014 quarter, and 0.2 per cent below the corresponding period in the previous year.

The value of “definite” projects in the database – projects that were either under construction or committed – fell by almost $13.5 billion over the June quarter of 2014, a decrease of more than $39 billion on the previous year.

On the other hand, the value of “planned” projects – those under consideration or possible – increased by $10 billion in the June quarter, up more than $37.5 billion on the previous year. The report noted, however, that the $16 billion increase in the value of projects under consideration was partly offset by a $6.7 billion fall in the value of projects classified as “possible”.

Government commitments
According to the Investment Monitor report, Australia’s state governments expect to spend around $40 billion per annum on infrastructure over the next four years.

The report noted that New South Wales in particular has committed to spend more than $61 billion towards infrastructure over that period, adding that the size of its spend had been “bolstered by [the state’s] policy of ‘capital recycling’ in recent years”.

“While capital recycling can be a useful mechanism for funding new infrastructure in a constrained fiscal environment, consideration of the cost and demand risks for new projects is critical,” the report warned. “Indeed, it is important that appropriate cost-benefit analysis is undertaken for all major investment projects, and that analysis is arguably even more important when projects are funded by the public sector.”

The development of Australia’s infrastructure has also been a focus at the Federal Government level, with an industry roundtable on the Productivity Commission’s inquiry into public infrastructure having recently been held in Adelaide.

In a media release, Federal Assistant Minister for Infrastructure and Regional Development Jamie Briggs stated, “The Commission’s inquiry shows that we must improve the financing, governance and delivery of new infrastructure in Australia to boost our productive capacity and economic growth.

“In order to achieve this we must address barriers to private sector investment, better utilise new innovative financing models to fast-track major projects, reduce construction costs of major infrastructure projects, and improve project selection and long term planning.

“That is why we are now seeking feedback from industry and state governments on how to best implement these reforms to ensure we drive down project costs and increase competition.

“We are particularly keen to work with the states and the private sector to improve project tendering, selection and financing so we can build more for less and more quickly.”

Briggs said that a “wave of construction” is expected to start late this year and carry on into 2015 following the Federal Government’s announcement of a $50 billion investment in infrastructure in the May federal budget, and that the Government was also leveraging a record $125 billion of public and private investment in infrastructure over the next decade.

“It’s critical we develop the solutions now to capitalise on the economic benefits these projects will deliver,” Briggs said.

Deloitte’s Investment Monitor is a quarterly publication available by subscription that provides data on the construction sector. It includes listings of Australian construction and investment projects organised by state, sector and project status.

Tuesday, 23 October, 2018 05:02pm
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