Federal Budget Insights 2020-21

COVID-19 has challenged Australia’s already waning economic growth. However, it has also brought about a new opportunity to think differently about infrastructure.

In our ‘Australia Rebooted’ report, we showcased a pro-growth scenario, which included the building of new government-funded infrastructure across the country. This would, in turn, help rebuild our way to economic recovery. 

The scenario depicted the government undertaking future-proofed infrastructure investment, with a particular focus on health infrastructure. This provides the dual benefit of stimulating the economy in the short to medium term through job creation and increased productivity, while protecting against a viral resurgence long term.

The good news is that the foundation needed to navigate the country’s way out of the economic impacts of COVID-19 through infrastructure has already been laid. Pre-pandemic, governments across the country committed $300 billion to infrastructure and allocated an additional $15 billion for projects this year.

However, with physical distancing and working from home arrangements here to stay for the foreseeable future, a need for additional investment into infrastructure has come to light. The upcoming Federal Budget presents a timely opportunity to build on the existing momentum.

The Federal Budget can make meaningful impact through infrastructure in these key areas:

Accelerating investment in regional Australia and creating jobs outside the big cities 

COVID-19 has catapulted Australia into new ways of working and triggered a change in behaviours. Individuals and families are reassessing where they live and questioning the need to live in close proximity to a CBD as the working from home environment takes hold. 

This shift in behavior presents immediate opportunities for ‘screwdriver ready’ projects that can keep workers employed now as well as mid-term for the government to grow regional Australia and non-urban precincts. But to do so, relevant infrastructure will need to support it.

For example, real estate agents are now reporting increased demand for housing in regional hubs with longer commutes to capital cities than has been historically observed. Our report ‘Australia Rebooted: Where next for transport?’ details how this is influencing what types of transport infrastructure is now needed to support a relocation of population to regional hubs.

Other measures to underpin growth in regional manufacturing in industries of national importance could be Special Activation Precinct (SAP) initiatives, which the NSW Government has successfully developed in several regional centres. This would help to create greater investment, job security and opportunities to strengthen surrounding regional communities. It’s also an approach that would benefit from being a part of the Federal Government CityDeals program, which could be expanded to prioritise areas such as regional manufacturing. 

Supporting private sector participation 

The pandemic has only deepened the gap between the amount of infrastructure needed and what the government can afford. Our recent report Where next for infrastructure? details the options for greater private participation and how the Federal Government can create incentives and partnerships to boost production.

While the funding of infrastructure has long been up for debate, COVID-19 has provided an opportunity for the government to consider how they continue to fund new infrastructure projects and also consider the funding for the operating budget and whether there is more opportunity to partner with the private sector for both the financing of infrastructure and the provision of services that could drive better outcomes for communities. A partnership between the government and private sector would also be more publicly favourable than revenue streams, such as increasing taxes and help to prevent further government debt.

Typically, significant private sector capital is directed to ‘economic’ infrastructure where imposing toll and user chargers provides a return that matches the risks of investment. But not all projects meet this investment criteria, to bring private capital into the mix, government and business will need to consider further adoption of user-pays funding models which will provide more opportunities for the private sector to deploy capital alongside the government. 

Boosting social and affordable housing investment 

As the government prepares to hand down the next Federal Budget, there’s also a strong argument to create economic stimulus by investing in social housing. Not only would this stimulate large areas of the market, it would also help to support people on low incomes with housing needs – a significant social issue that is currently challenging Australia. 

By investing into a social housing program, the government would be able to target areas where the economic impacts of COVID-19 have been felt most and create countless new jobs in construction. While it will require a significant financial commitment, it’s clear that the return on investment would support the country’s economic recovery in both the immediate and long term.

An imperative element to ensuring this issue is a priority compared to other initiatives will be creating cross-sector collaboration. And while it has been acknowledged that this is a state responsibility, the Federal Government has the potential to help attract further private investment into the sector.

Australia needs a recovery that is supported by government initiatives and built on supporting job creation, increasing productivity and creating new opportunities for growth - this includes incentivising greener, more sustainable delivery of our infrastructure pipeline. For example, the Federal Government’s recently released Technology Investment Roadmap is a big step forward in investing in energy technologies to deliver lower emissions. To support its ‘stretch goal’ of producing low-emissions steel under $900 per tonne, the infrastructure pipeline could be leveraged to drive greater innovation for new industries. 

In the Federal Budget we look forward to seeing the Government build momentum on some of the good work that is underway for infrastructure. Subscribe for our in-depth analysis of the 2020-21 Federal Budget.