Here’s some perspective on the Government’s infrastructure spending.
As Goldman Sachs shows in this chart, the $11.6 billion growth package is quite modest.
All told, the government announced several measures in last night’s budget that will see around $50 billion spent on roads, rail and ports in the next six years (So keep in mind that the $11.6 billion by 2018 is just one part of a broader plan).
In the short term though, the government isn’t spending much. In fact, according to Goldman, only $0.6 billion in full-year 2015.
In the same period, the bank expects a $24 billion decline in mining investment. From the note:
On face value, the infrastructure numbers in the FY15 Budget are highly impressive – flagging plans to spend around $50bn of Commonwealth funds on infrastructure by FY20 which, combined with infrastructure spending by the private sector and state Governments, is estimated to deliver ~$125bn in total infrastructure spending over this period.
Taking a closer look however, the amount of genuinely new funding announced in the FY15 Budget is considerably less ambitious – and particularly with respect to the forward estimates to FY18. Specifically, the Government’s $11.6bn “Infrastructure Growth Package” implies as little as ~$0.6bn additional spending on public infrastructure in FY15.
In context, this amounts to less than 0.1% of the total amount of business investment forecast for that fiscal year
What the Government spends on infrastructure is important, as it is the carrot to the stick that is huge spending cuts.
It is essential to make sure the harsh measures announced last night don’t damage the economy as it transitions. though most economists agree Joe Hockey has struck the right balance overall.
Basically, Goldman says that, even if the five years to 2018 are considered as whole, the package “pales in comparison” to projects nearing completion in the mining sector.
It is also only a modest contribution to projects that were already in the pipeline, such as the WestConnex and the East West link (as shown in the chart).
The government announced several facets of its infrastructure plan, that include a “recycling” fund to encourage states to sell old assets and reinvest in new ones.
When combined with state and private sector spending, the federal investment is expected to result in $125 billion in total infrastructure spending to 2020.
But what Goldman is saying, is that in the near-term, the infrastructure commitment is quite modest.
Australia needs infrastructure project to offset a decline in mining investment. Several banks have pointed this out in their budget summaries, such as Deutsche Bank, who said they were concerned that “infrastructure investment is starting to sound a little like an elixir that cures all”.
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