Government spending boosting infrastructure activity

Earlier this week, I attended the sod turning ceremony on the Northern Connector project in Adelaide – a $985 million project, of which $788 million is funded by the federal government, to build a 15.5 kilometre expressway. This project will create some 480 jobs per year, and stimulate economic activity in the northern suburbs of Adelaide. It is a good example of the way that government infrastructure spending is boosting our economy.

The Turnbull Government is spending record amounts on infrastructure. This is important for many reasons; one is to provide economic stimulus at a time when the investment phase of the resources boom has come to an end.

Government infrastructure spending is an important means to generate economic activity and jobs in the civil construction sector, particularly in states such as Queensland and Western Australia where the resources downturn is having its most marked effect.

There are several reputable surveys which track planned investment and activity in infrastructure and construction, and these are telling a consistent story about the way that government infrastructure spending is feeding through to increased levels of investment interest and activity.

For example, Infrastructure Partnerships Australia, together with Perpetual, regularly issues the Australian Infrastructure Investment Report. The latest edition shows continuing high levels of global interest in Australian infrastructure, with 94 per cent of the major local and global investors participating in the survey reporting they are highly likely to invest in Australian infrastructure. As Perpetual Corporate Trust General Manager Andrew Cannane said:

“Investors identify Australia’s strong track record in infrastructure and our stable economic, fiscal and regulatory environment as key features driving the attractiveness of the Australian market.”

Particularly encouraging was that amongst the large investors participating in the survey, the percentage citing ‘political risk’ as a concern dropped by around half to 35 per cent.

Another important survey is the Construction Outlook issued by AIGroup and the Australian Constructors Association. The November 2016 edition says that

“The nation’s leading non-residential construction companies are forecasting a lift in major project work over the course of the 2016/17 and 2017/18 financial years, driven by an upturn in transport infrastructure activity.”

The Construction Outlook forecasts that the total value of major project work will rise 4.6% in 2016/17 and a further 4.5% in 2017/18. It predicts that engineering construction work in particular will rise, “underpinned by stronger public sector spending on transport infrastructure.” Such spending is having a very clear effect:

“infrastructure-related engineering work (a sub-set of engineering construction) is expected to rise by 13.5%, driven by strong growth in road (+17.9%) and rail (+16.1%) projects. This is in line with a range of large-scale Government transport projects that are either underway or in the pipeline.”

The Turnbull Government’s record infrastructure spending - some $50 billion through to 2019-20 - is complemented by spending by state governments. This spending is partly funded through asset recycling, with the NSW Government raising capital from assets such as Port Botany and the electricity distribution networks, and the Victorian Government similarly raising capital from Port Melbourne. The Turnbull Government’s Asset Recycling Initiative has helped encourage such an approach by state and territory governments.

Across the country, we are seeing state and territory governments reallocating capital from existing, mature assets to new infrastructure projects such as WestConnex and Sydney Metro in NSW, Melbourne Metro in Victoria and light rail in Canberra.

Infrastructure investments deliver long term benefits, allowing people and freight to move around more quickly and efficiently, and helping to make our cities more liveable and productive. But they also have important shorter term implications in stimulating economic activity and employment, particularly when external factors such as the downturn in resources sector investment would otherwise see reduced activity in the civil construction sector.

As these industry surveys show, the Turnbull Government’s investments in infrastructure - complemented by state government actions - are having a clear impact on activity in our construction sector.