PBO: Infrastructure spending to tank

The Parliamentary Budget Office (PBO) has forecast that Australia’s net infrastructure investment will peak at $38 billion in 2019-20, before falling over the next three years. This is primarily due to expectations that the net debt of the state governments will blow out to around $156 billion by 2022, which would constitute the states’ highest share of public debt in two decades:

The level of national net infrastructure investment, as measured by net capital investment, is at record levels and higher than those during the post-GFC stimulus. Infrastructure investment has been revised up by a total of $20.9 billion for the period 2018–19 to 2021–22, largely due to an upward revision in state and local net capital investment of $16.8 billion (Figures 1–3, 1–4). Net investment in infrastructure is projected to peak at $37.9 billion in 2019–20. As a share of GDP, national net capital investment is projected to reach levels just below those recorded during the GFC stimulus period.

The substantial increase in state net capital investment is largely driven by New South Wales and Victoria, whose net capital investment for the period has been revised upwards by $7.8 billion and $6.5 billion respectively. These increases reflect significant investment in public transport, roads, health and education…

The small operating surpluses expected in most states are insufficient to fund the strong level of investment the states plan to undertake over the forward estimates. States will need to sell assets or borrow to fund their planned investment, with a consequent impact on their net debt positions. The aggregate net debt of the states is projected to rise from around 10 per cent of national net debt in 2018–19 to over a third of national net debt by 2022–23. Over this period, state net debt is projected to increase sharply while Commonwealth net debt is projected to decline. Aggregate state net debt is projected to rise from 2.4 per cent of GDP ($45.7 billion) in 2018–19 to 6.9 per cent of GDP ($156.4 billion) in 2022–23 (Figure 2–18)—its highest level in over two decades.

This increase in net debt largely reflects infrastructure investment commitments in New South Wales and Victoria, and to a lesser extent, Queensland (Figure 2–19)…

Basically, the federal government’s mass immigration policy has forced the states to borrow and privatise assets in a bid to expand the infrastructure stock to accommodate all of the extra people.

And yet, despite trying their best, infrastructure continues to run further behind population growth, leading to rising bottlenecks and congestion.

Moreover, since it is the rate of change in infrastructure spending that matters to ‘jobs and growth’, the economy is set to take a hammering as infrastructure investment falls from next financial year. This will be made worse by run-off of NBN spenidng. And it will occur alongside the crash in dwelling construction.

The Australian economy is headed for an epic construction-led bust.

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments are hidden for Membership Subscribers only.