Infrastructure Spending In 2020: What We Can Expect
At the end of last year, our first top prediction for 2020 was that spending and investment in the country’s infrastructure – including roads, rail and renewable energy – would increase. What will this spending look like and what flow on effects will it have?
Underpinned by our population growth, Australia’s predicted infrastructure spend is likely to be centred on transport, with a recent Australian Infrastructure Audit predicting that our reliance on road and rail for freight will increase by 86% over the next 25 years.
Combine this with the pwc models showing that population growth will be mostly seen in metropolitan areas and jobs growth focused on CBD areas and we have a large-scale requirement for increased infrastructure across all major cities.
The Federal Budget for 2019-2020 certainly supports these predictions, showing a record transport infrastructure investment of $100 billion over the next 10 years. The aim is to help workers move between job sites more efficiently, improve delivery times and to get families home sooner and safer, both of which will inevitably stimulate employment and productivity.
This outcome ties into another DFP prediction for 2020: that projects can deliver stock into the market with the highest levels of affordability and strong transport links to employment will achieve the highest sales rates.
The $100 billion allocated in the Federal Budget will also be put towards combating congestion in the most affected areas of the country, with new road and rail projects targeted to support Australia’s future population growth.
According to the 2019 Australian Infrastructure Audit, this new wave of investment in and reform of Australia’s infrastructure is needed to support our quality of life and economic activity over the next 15 years.
Infrastructure Australia Chair, Julieanne Alroe, says that the growing demand is putting unprecedented pressure on the infrastructure services that on which Australians rely.
“The current infrastructure program must do more than plug the immediate funding gap, but instead deliver long-term changes to the way we plan, fund and deliver infrastructure,” she said.
This sentiment is echoed by The Guardian, which reported that Australian cities, straining under the weight of rapid population growth, will need $600 billion in new spending to keep pace with demand over the next 15 years.
The head of Infrastructure Australia, Romilly Madew, told The Guardian that their audit highlighted the need for significant government investment.
“On the infrastructure priority list there are already 103 initiatives sitting there that have been identified by the states and territories, and that means there is a pipeline of infrastructure that has been identified that could go,” Madew said.
Without future funding, current pressures will continue to be compounded by ageing assets, public transport crowding and demand for schools and hospitals. The report from Infrastructure Australia also shows that Australia’s forecast population of 31.4 million people in 15 years’ time (a 23.7% increase) will raise the cost of road congestion to $38.8 billion by 2031.
From a property development perspective, this infrastructure push is likely to have a flow-on effect of increasing demand for residential developments in key growth areas, especially as rural-to-urban migration continues throughout the country.
If the planned transport infrastructure projects come smoothly to fruition, the residential market could see the creation of a number of new sought-after locations that may have increased accessibility and access – resulting in more buyer activity, and new areas of focus for property developers.
For now we will have to wait to see if the significant level of pent up global private and public investment will begin to flow back to the world economy – particularly Australia’s – as predicted by DFP in 2019, as a result of the reduced geo-political risk following Brexit and the Trade War being resolved.
Financial Impact of the fires, floods and coronavirus
Leaving aside the clear infrastructure spending predictions, the country’s fiscal situation is more murky – with the full financial impact of the fires, coronavirus, floods, depressed retail sector and poor consumer confidence to be better understood on May 12 when the Federal Government presents its annual budget.
The fires have already significantly impacted the current budget with $500 million provisioned to assist affected communities through the 2019-20 financial year.
The Prime Minister Scott Morrison has been quoted confirming that the May budget would take into account the extra spending as well as the economic impact of the disasters “as best as they are known at that time”.
NAB chief economist Alan Oster believes the fires could impact economic growth by 0.4 per cent in the March quarter and possibly double that over a six-month period. That would put the total cost of the natural disaster at more than $15 billion.
Despite declining tax revenues and escalating costs of disaster recovery the Morrison Government will be under pressure to respond via a more aggressive fiscal policy and by fast tracking the existing pipeline of infrastructure projects. DFP expects the government to do just that.
With not much left in the tank as far as monetary policy is concerned, increased spending on Nation Building and climate change initiatives seems an inevitable course of action by the Morrison government for practical and political purposes.
The nation’s finances have put us in a position where we can withstand and respond to shocks to the system. We expect the Government to take back some lost political ground via a series of positive announcements relating to climate change and infrastructure spending over the coming weeks – all of which will work to lead us out of this current economic uncertainty.
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