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Is Australia’s new budget doing enough to lift a slow economy?

23 May 2024

The 2024-25 federal budget emphasised urgent public concerns over long-term growth, writes ICE Policy Fellow Matthew Colton.

Is Australia’s new budget doing enough to lift a slow economy?
Australia’s significant shift to renewable energy received plenty of attention in the budget. Image credit: Shutterstock

The Australian economy is at its slowest in 23 years.

Investing in infrastructure can boost economic growth, but this often depends on government budgets.

Australia recently announced its 2024-25 federal budget – in which the government emphasised ‘cost of living help and a future made in Australia’ – but does it address this need for growth?

To consider this, we must delve deeper into the measures.

Short-term needs were the priority

Australian treasurer Jim Chalmers had to negotiate major competing priorities in this budget.

As well as meeting a range of election promises, the budget had to address the most urgent public concerns – inflation and the cost of living.

Displeased voters are eager to see the government tackle rising costs and the housing crisis in Australian cities.

This is despite Australia’s resilient employment market. The number of jobs grows each year, and the unemployment rate is lower than any other advanced economy.

Clearly, the need for immediate relief was given more importance than long-term economic growth.

The short-term focus is clear from the budget priorities listed on the government website, from tax cuts to student debt relief.

Only a few measures show a longer-term view:

  • The $22.7 billion Future Made in Australia package to encourage private investment in key industries, including renewable energy.
  • $1.6 billion to skills development and higher education reform.
  • $101 million for regional community infrastructure, including the upgrade of regional airports and remote airstrips.

Australia’s economic growth rate is below 2% – lower than the USA and far lower than China.

With headline inflation above 4% (and recently as high as 8%), it’s crucial for the government to address this, as well as meet short-term needs.

A small investment for new infrastructure

The previous Australian federal government invested heavily in transport projects, resulting in meaningful benefits to the economy – including an unemployment rate of just 3.7% in 2022.

Last year, the current government reviewed the $120 billion infrastructure investment programme (IIP). The result was a significant scaling back, with many projects put on hold or cancelled.

The effect on the infrastructure industry across Australia has been clear, with a huge increase in redundancies.

The new budget includes $16.5 billion over 10 years for infrastructure projects to “improve productivity, liveability, and sustainability”.

But only $4.6 billion is for new projects – a small part of the budget’s $734 billion total.

A shift towards renewable energy

The Australian government’s significant shift towards renewable energy received plenty of attention in the budget.

The government plans to speed up investment in hydrogen production and critical mineral processing (used to make renewable components, like batteries), including $13 billion in new tax incentives for private sector investment.

These incentives mark a change from previous attempts to attract private investment through government-led public-private partnerships.

One clear conflict in the budget is the energy rebate.

Every household will get $300 from 1 July, which may go against the strong incentives for private homeowners to switch to solar energy – a key element of the government’s green transition strategy.

Congestion reduction and interurban development

Transport in Australia poses real challenges, with long distances between cities and high congestion in major urban centres such as Sydney and Melbourne.

The budget allocated a substantial amount – though many experts argue not enough – to reduce road traffic congestion, including road upgrades, railways, and urban transport systems.

This includes continued investment in major projects like the Sydney Metro and the Melbourne Suburban Rail Loop.

However, the budget is silent on high-speed rail, the inland rail project, and other urgent transport projects that are on the horizon.

The budget also addressed the need for regional development outside the major urban centres, including upgrading regional roads and improving water infrastructure to support agriculture.

Addressing the need for additional digital infrastructure, the budget allocated $1.3 billion to expand broadband internet access across Australia, as well as improve online safety and deliver free Wi-Fi to remote First Nations communities.

A difficult balancing act

Overall, the 2024-25 federal budget shows an attempt to balance the need for long-term infrastructure investment with short-term ‘quality of life’ improvements in urban and rural areas.

As expected, the budget highlighted investment in social infrastructure, such as healthcare facilities, affordable housing, new hospitals, and care facilities.

The government invested in renewable energy and digital connectivity, and important projects such as Sydney Metro.

However, given the upcoming elections, the treasurer appears to have focused on short-term gains.

As a result, there’s a sense that the budget doesn’t give enough attention to the kind of infrastructure investment that brings long-term, sustainable growth.

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  • Matt Colton , ICE Council Member for Asia Pacific