The Turnbull government will help fund inland rail and is almost certain to build, own and operate the $6 billion second Sydney airport, after Treasurer Scott Morrison paved the way for an infrastructure splurge by changing the way debt will be classified in the budget.
Prime Minister Malcolm Turnbull all but confirmed that so-called “good debt” would be accrued to help build the much-vaunted inland rail link between Melbourne and Brisbane. Sources confirmed the government would enter the $10 billion venture with the private sector.
On Thursday, the Prime Minister said the rail link was ” a very high priority”.
“You can join the dots,” he said, when questioned how this related to Mr Morrison’s announcement.
Government sources confirmed it was now highly likely the Commonwealth would build the airport at Badgerys Creek, at a cost estimated between $5 billion and $6 billion. Because the law requires the airport to be built by a company, the government will establish an entity similar to NBN Co, which is building the National Broadband Network, to build the airport with borrowed money.
The Sydney Airport Corporation, which owns Sydney’s Kingsford Smith Airport, has until May 8, the day before the federal budget, to decide whether to exercise its right to build the second airport. Both the markets and the federal government are anticipating it will reject the offer, meaning the government has two options – build it itself, or find another private company to construct it.
A source said finding a private builder would take a long time and the government was eager to stick to the proposed schedule, which included beginning major construction in 2018 – which is also an election year – and completing the project by 2026.
On Wednesday, Urban Infrastructure Minister Paul Fletcher said the government was ready to go with a contingency plan should Sydney Airport Corporation exercise its right of refusal.
“Western Sydney Airport will be built and will be operational by 2026. That is a clear commitment. All paths lead to that outcome,” he said.
Other projects tipped to be in the budget include building or conducting a feasibility study into a gas pipeline connecting the North-West Shelf to the eastern states, and the government’s previously announced $2 million expansion of the Snowy hydro power station.
The Treasurer said public investment should not crowd out private investment “but public investment can build up an asset in a short time” because it has a ready access to finance.
Mr Morrison has given the government scope to borrow heavily for infrastructure by announcing the budget would break down the national debt to differentiate between good debt and bad debt.
Debt accrued to fund recurrent costs in health, welfare and other everyday expenses would essentially be classified as “bad” while that accrued to fund projects and policies that increase productivity and generate income would be classified as “good”.
The government believes it can blow out gross debt while not harming the planned return to surplus by investing in assets it will own or part own, and which will generate an income. This cash-for-asset approach has been used for the NBN, keeping the $30 billion-plus build cost off the books.
“There is a difference between government debt that you incur because you’re living beyond your means, spending more than you are receiving in tax, and debt that you incur in order to build an asset, particularly an economic asset, like rail or like the NBN for example,” Mr Turnbull said.
Mr Morrison cautioned that good debt still had to be repaid but it was easier to service than bad debt.
“Good debt is not free. The difference is you get an asset that’s going to generate an income stream that’s going to pay for itself,” he said.
He stressed the government was not disparaging Medicare or welfare by assigning its funding as bad debt.
“It is not saying that particular areas of expenditure are not important. Medicare expenditure is important. Education expenditure is important. That is why you need to ensure that your current expenditure can be met by your current earnings as a government and that you ensure the dollars that you bring in, each year from the taxpayer, can cover the expenses that you are meeting every day.”
Shadow treasurer Chris Bowen said the government was hypocritical given its past fear campaigns over debt while shadow infrastructure minster Anthony Albanese said the government had finally caught up with what Labor, the Reserve Bank and economists “have been saying for years” regarding the need to borrow for infrastructure.