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.