World Economy

Big Cuts in Australia Infrastructure Spending

Big Cuts in Australia  Infrastructure SpendingBig Cuts in Australia  Infrastructure Spending

Australia’s coalition government’s efforts to trigger an infrastructure boom show signs of floundering with official figures showing there has been an unexplained $16 billion cut in expected spending since the 2014 budget.

Documents obtained by The Australian Financial Review reveal former treasurer Joe Hockey’s plan to spend $50 billion of federal money on new projects has also been cut by $1.4 billion, Yahoo reported.

Reduced spending on roads, railways and other vital projects threatens to undermine the government’s broader strategy of helping the economy adjust to the end of the resources investment boom.

While the economy is being held up by a surge in export volumes and a rebound in the services sector, particularly across New South Wales and Victoria, there remain serious doubts among analysts about where future jobs and activity will come from.

Hockey announced in the May 2014 budget that a so-called $5 asset recycling program would help unlock a $126.3 billion wave of new spending by states and private-sector investors.

But since then, says government information provided to a Senate inquiry, that figure has been cut to $110 billion.

  Cut Equals 1% GDP

The reduction is equivalent to 1% of gross domestic product, undermining a Group of 20 nation’s commitment brokered by the Abbott government and leaders of the world’s most industrialized countries late in 2014 in Sydney to boost global growth by 2% over two years.

It is not clear from the government’s documents why the drop in expected project spending is so large, with the scrapping of Victoria’s controversial East West Link accounting for only about $3 billion of the decline.

Figures published last month by the Australian Bureau of Statistics showed government spending on major engineering works had fallen by 20% over the past two years.

“This is a government that has talked about infrastructure but which has failed to build infrastructure,” said shadow infrastructure spokesman Anthony Albanese.

Albanese also accused the government of now seeking to conceal its failure by cutting spending by another $18 million to fund a “propaganda campaign”.

The issue is expected to be raised at a Senate estimates hearing on Monday, as well as questions about the marooned East West project in Victoria.

  Claims Challenged

Evidence of falling infrastructure spending came as research challenged some of the claims about the economic benefits of big projects.

Work by Australian National University Adjunct Associate Professor Leo Dobes, of the Crawford School, slammed the Canberra light rail as an example of how claims about so-called wider economic impacts, were often untested and exaggerated.

“The Canberra light rail project is a very good example with 20% of the benefits attributed to wider economic impacts,” Associate Professor Dobes said.

He challenged estimates of the benefits of the railway that included an increase in goods and service tax revenues, saying they were collected by the federal government and wouldn’t necessarily flow back to the ACT.

“The other problem is that if an infrastructure project is large enough to create an increase in employment and production, it’s also costly. You’re going to have to increase taxes to pay for it.”

  Chinese Adamant

Some of China’s largest developers say they are still intent on expanding in Australia despite fears of a slowdown in apartments and the imposition of tougher controls on Chinese outbound investment.

Greenland Group, China Poly Group, Country Garden and Starryland Australia are among the companies that told The Australian newspaper that their growth plans here remain bullish.

Analysts have warned that Chinese property investment in Australia may slow as the central government seeks to limit the amount of money leaving the country in an attempt to protect its volatile share markets.

A slowdown in Chinese off-the-plan buyers would suffocate a key market for Chinese developers at the same time that local demand for residential property in Sydney and Melbourne was slowing.

But Greenland Australia assistant managing director Kang Xue said the group was still ambitious about its prospects to grow in Australia.