Next Week's Federal Budget Will Include At Least Another $5 Billion For Infrastructure

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Australia’s federal budget next Tuesday will include at least another $5 billion on top of $35.5 billion already promised for infrastructure projects to ease the economy through the slow down in mining investment spending.

Treasurer Joe Hockey will also announce new funding to pay for 15% top-ups on infrastructure investments by state governments, part of a massive infrastructure package designed to offset government spending cuts in other areas over the coming years.

A series of large projects across the country will be announced as part of the government’s growth strategy, says the Assistant Minister for Infrastructure, Jamie Briggs.

“After the election we committed to about $35.5 billion of infrastructure investments over five years,” Briggs told Business Insider Australia today. “After next Tuesday night you will see the figure into the forties (over six years).”

He says this additional infrastructure investment will keep the economy moving, particularly in the next couple of years with a drop off in the construction activity in the mining sector.

There has been mounting criticism of the government’s plans for spending adjustments in the budget over the past fortnight, particularly around the idea of a “deficit levy”, or temporary income tax increase on higher earners, and proposals for welfare cuts that will hit middle Australia. Ministers are saying voters will need to wait until next week to understand the full picture.

The balancing act for government is to cut its rate of spending – expected in a range of welfare cuts and the closure of some government agencies – while ensuring this doesn’t drag excessively on economic growth. The OECD has warned of the danger of cutting too fast, too quickly amid “near-term uncertainties” as the economy adjusts to the passing of the mining investment boom.

Briggs wouldn’t give an exact figure infrastructure spending but said the projects wouldn’t be driven solely by traditional government grant programs.

“There’s a mixture, using the budget differently and in some cases using the private sector more heavily in some of these investments,” he says.

“It’s a substantial number of additional and new infrastructure over the next four and five years.”

Some of the spending has already been announced, about $2.5 billion, including money for Western Sydney and the East West link in Melbourne.

Briggs says the private sector will increasingly need to be part the story to fund big new infrastructure.

“In a lot of ways the projects have gone beyond the capacity of governments themselves to do,” he says. “You will see in the budget not just new projects but quite a bit of reform on how we fund them.”

These projects will be in addition to the Infrastructure Recycling Fund, with details to also be revealed in the budget, to encourage the states to reinvest at least some of the funds raised by selling assets.

The deal is that the federal government will kick in 15% of the cost of agreed projects which are being funded by the proceeds from assets sales. It’s a significant incentive for states to sell assets like ports and power stations and reinvest the money – part of an overall Budget package designed to deliver on Tony Abbott’s promise of being an “infrastructure Prime Minister”.

“We’ve offered up an incentive payment,” Briggs says. “We they do sell an asset that we agree with the use of that money into an infrastructure project then they can access that money from us.

“One of the key elements of the budget expenditure will be the leverage we are getting from not just the state government money they will put into these projects but also the private sector.”

All the states have signed on to the infrastructure scheme. The agreement can be seen here but details won’t be announced until the budget.

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