Australia Investing $55b in Transport Infrastructure

Australia’s government finally took up the central bank’s call for economic stimulus in its annual budget, with a A$75 billion ($55.52 billion) infrastructure plan.

Road, rail and runway construction will support growth from western Sydney to western Australia, Treasurer Scott Morrison announced in Canberra Tuesday. His plan promises to create thousands of jobs as workers transition from recent mining and housing booms, Bloomberg reported.

While the forecast deficit of A$29.4 billion for fiscal 2018 is slightly wider than economists predicted, the government sought to calm rating agencies by maintaining a return to surplus by 2021. But it is bridging that gap with a heroic assumption: Australians’ meager wage growth rates are seen accelerating to above 3% from under 2% now.

“We are taking practical action to arrest the deficit and the growth in our debt, and doing all we can to preserve our AAA credit rating,” Treasury said. “We choose to focus on growing our economy, in particular by investing in infrastructure, to secure more and better-paying jobs.”

At the heart of Australia’s challenge is jobless growth: Much of the recent economic expansion has been underpinned by resource exports, immigration and house-price gains. The Reserve Bank of Australia is reticent to use further interest-rate ammunition for fear of fuelling house prices, while successive governments have tried and failed to balance the books.

Morrison has sought to change the terms of the economic debate, from dire warnings on debt and deficit to a more politically astute one of prosperity and jobs. His infrastructure plan aims to create a virtuous circle: Such investment may trigger private sector spending and increased household consumption that would boost the economy.

“To support growth, we choose to invest in building Australia, rail by rail, runway by runway and road by road,” Morrison said in the parliament.

Whether the budget will save the nation’s AAA score “will be a matter for the ratings agencies”, Morrison said. “We continue to get very strong support in the debt markets for our sovereign debt.”

Meanwhile, the S&P affirmed Australia’s coveted triple-A rating on Wednesday, citing low public debt and a “wealthy and resilient economy” although concerns remain about the government’s ability to return to a budget surplus.