Australia Boosts Infrastructure As Mining Sector Loses Steam
With Australia's huge mining investment boom now running out of steam, the construction sector has found solace in the federal government's plan, announced last month, for nearly $24 billion in infrastructure spending over the next six years. But industry executives are concerned about an unforeseen budget deficit and too few incentives for private investment approaches.
The budget is a "long-overdue investment in nation-building infrastructure," says Peter Bailey, CEO of designer Arup Group's Melbourne-based Australasia region. Finance Minister Wayne Swan said the budget includes about $3 billion for Melbourne's new subway, $2.1-billion for road-rail projects in Sydney and $680 million for a Brisbane rail link.
Despite these "welcome" project commitments, federal spending plans do not go far enough to compensate for "evaporating mining-related investment," says Brendan Lyon, CEO of Infrastructure Partnerships Australia. Declining global demand for natural resources and the high value of the Australian dollar have resulted in "the second-largest revenue write-down since the Great Depression," Swan concedes. He says these factors contributed to this year's unexpected $19-billion federal deficit. Even so, the government's predicted peak net debt, at 11.4% of GDP, is a fraction of what U.S and large European economies carry. Australia's economy is shifting toward construction and goods distribution, says the Reserve Bank of Australia.
But with a backlog of needs, "more needs to be done to encourage private-sector investment through the appropriate sharing of risk or provision of tax incentives," Bailey said. Published reports in Australia say the government is exploring industry's call for a federal-state infrastructure investment fund that would offer institutional and retail investors better long-term returns than government bond rates. While engineering and construction "reached phenomenal heights" during the resources boom, activity "is expected to remain strong," says industry group Master Builders Australia.