- Australia’s infrastructure boom is expected to underpin economic growth in the years ahead.
- However, ANZ says billions of dollars in new projects is only the “minimum necessary” to keep up with population growth.
- Senior economist Daniel Gradwell says it’s unlikely Australia’s population growth will slow down anytime soon.
Australia’s economy has staged a pretty smooth transition from the mining boom into a surge in infrastructure spending.
And as ANZ senior economist Daniel Gradwell points out, the shift has been borne out of necessity.
“This strong outlook for infrastructure is essential given Australia’s still-rapid population growth,” Gradwell said.
Australia’s population recently ticked over 25 million and is growing by 1.6% a year, well in advance of most other developed economies.
So despite the billions allocated to infrastructure projects, “the ‘spend per increase in the population’ remains below the long-term average,” Gradwell said.
He illustrated the current levels in this chart:
“This suggests that we are still only doing the minimum necessary to cater for our expanding population,” he said.
Not surprisingly, the infrastructure push has been strongest in NSW and Victoria where population is growing the fastest.
Gradwell said Victoria’s population growth in 2016 “was the fastest since the 1850’s gold rush”.
“It is not surprising that these states have the greatest investment profile, given the strength of their economies coupled with their asset sale programs.”
The federal government is also expected to move back into a budget surplus, while NSW and Victoria still run surpluses despite the prospect of lower stamp duty revenue as the housing market cools.
This chart shows the scale at which NSW and Victoria dominate the outlook for infrastructure spending through to 2023/24:
Gradwell said that on a national level, infrastructure spending could peak as soon as this financial year, with the NBN project budgeted for $8 billion in spending before that amount halves in 2019/20.
The project is still on track for completion in 2020.
“This is important because the NBN has been by far the largest contributor to engineering construction outside of the capital cities.”
Once the NBN is complete, the next major regional project to pick up the slack will be the inland rail between Melbourne and Brisbane.
Gradwell said that if the NBN is stripped out of projections, the peak in infrastructure spending won’t arrive until 2022/23.
“Either way, activity is set to remain at historically strong levels, although the contribution to economic growth from infrastructure work will ease from here.”
For now, the debate remains ongoing about whether policy makers should focus on economic growth driven by productivity gains rather than population increases.
However, Gradwell doesn’t expect the current paradigm to change anytime soon.
“Governments at all levels are increasingly reliant on population growth to support the economy and underpin budgets, so we do not anticipate a rapid deceleration in population growth,” he said.
“This means infrastructure investment should remain around current elevated levels over the long term.”