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Australia’s infrastructure sector ‘clouded by uncertainty’ as 2023 budget targets cost of living

12 May 2023

Avista Strategy’s Peter Colacino shares his thoughts on the key takeaways for infrastructure from the Australia Federal Budget 2023-24.

Australia’s infrastructure sector ‘clouded by uncertainty’ as 2023 budget targets cost of living
Infrastructure spending is delayed as the Australian government commits to a review of land transport investment. Image credit: Shutterstock

In the face of high short-term inflation and slowing economic growth in Australia, the main focus of the Albanese-led Labor Government’s second federal budget is the cost of living.

Inflation is the challenge of the day

Inflation hit 6.6% for the March quarter. This was slightly less than the previous quarter but, in the words of the treasurer, remains the primary economic challenge for the country.

The decision of the Reserve Bank of Australia (RBA) to increase interest rates puts pressure on household spending and increases the likelihood of a recession.

The pressure on household budgets and constraints within the construction sector place considerable limits on both the RBA and the treasury to respond to medium-term economic changes.

Infrastructure Australia reported last year that the combined public infrastructure pipeline has increased to an all-time record spend of $647 billion over five years.

During this time, labour shortages and construction costs have risen significantly.

Thirty-year productivity remains low, unfair risk allocation affects working practices, and the industry has struggled to grow female representation beyond 12%.

Infrastructure spending commitments are minimal in the face of an ongoing review

The declining economic situation in Australia and constraints within the construction sector, which makes up 14% of the economy, have spurred the government to address perceived waste.

In the weeks leading up to the budget, infrastructure minister Catherine King committed the government to a major review of the $120 billion Infrastructure Investment Program.

This programme co-funds state government assets such as the national land transport network.

The 90-day independent review aims to address perceptions of misadministration under the previous government.

Criticisms included wasteful spending, major project cost increases, and political interference in spending.

It follows the release of the review of the Inland Rail project and reports of cost overruns at another major Australian government project, Snowy Hydro 2.0.

With the federal government’s flagship Infrastructure Investment Program under review, the 2023-24 budget confirmed little on future spending on land transport projects.

The government has also cut water infrastructure funding by $872.5 million over 11 years from 2022–23.

New spending focuses on resilience, climate change, and Northern Australia

The energy sector has seen significant investment, with over $40 billion committed to the energy transformation.

This includes more than $2 billion for hydrogen and $10 billion for electricity transmission assets, as well as support for industry, energy-intensive small businesses, and worker transition.

Meanwhile, the government has committed to a major update to the Our North, Our Future white paper on developing northern Australia, further increasing the policy focus on the region.

The Australian parliament is currently considering reforms to increase the allocation to the Northern Australia Infrastructure Facility (NAIF) from $5 billion to $7 billion.

The government will provide $28m to develop Australia’s first national climate risk assessment and a national adaptation plan.

It has committed to an independent review of the Australian Climate Service and to establish a new national Net Zero Authority to support regional economic transformation associated with decarbonisation.

Limited spending puts review, policy, and reform back into focus

In addition to reviewing land transport investment, the Australian Government has committed to further reviews of the regulatory powers of the Civil Aviation Safety Authority, the Australian Maritime Safety Authority, and the Australian Transport Safety Bureau.

The Infrastructure Australia Amendment (Independent Review) Bill also before parliament this week responds to recommendations of the independent review of Infrastructure Australia (IA).

The budget didn’t contain major changes in the funding for the agency, despite changes in its role, governance, and structure.

With spending reviews and regulatory reform, it’s likely the Australian infrastructure sector will be clouded by uncertainty over the coming months.

Continued strong statements from the minister on the focus of future spending will provide some clarity as the focus shifts from roads and water to what, at early stages, appears to be spending on resilience, renewables, and cities.

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  • Peter Colacino, partner at Avista Strategy