Budget Review 2021–22 Index

Rob Dossor

As Australia recovers from the impact of COVID-19, the Government is set to make $54.3 billion of payments to the states and territories for infrastructure spending over the forward estimates, including $12.1 billion in 2021-22 as shown in Table 1 below. This represents an increase of almost $4.4 billion over the forward estimates, compared to the 2020-21 Budget.

Table 1: total payments to the states for infrastructure projects over the forward estimates

Source: Australian Government, Federal Financial Relations: Budget Paper No. 3: 2021–22, p. 54, and Australian Government, Federal Financial Relations: Budget Paper No. 3: 2020–21, p. 44.

New funding

Budget Strategy and Outlook: Budget Paper No. 1: 2021–22 (p. 18) states that an additional $15.2 billion in funding had been allocated to infrastructure projects over the next ten years. This comprises:

• $13.2 billion in new infrastructure spending—including $8.0 billion over the forward estimates
• $1.0 billion in 2022–23 for small scale safety road projects and
• an additional $1.0 billion over two years to extend the Local Roads and Community Infrastructure program (Budget Measures: Budget Paper No. 2: 2021–22, pp. 151–161, 166).

The state and territory breakdown of the new funding is shown in Table 2.

Table 2: new funding over the forward estimates and beyond

Source: Australian Government, Budget Measures: Budget Paper No. 2 2021–22, pp. 146–160.

State share of infrastructure spend

Table 3 shows the state and territory distribution of infrastructure expenditure over the forward estimates. NSW receives around 32% of infrastructure grants, largely due to its larger population and number of existing projects. Victoria and Queensland both receive around 26%. Victoria’s share is in line with its population, while the Queensland share can be explained, at least partly, by Queensland’s more dispersed population.

All other states receive more than their population share, except the ACT, which receives less than its population share, but significantly more than in the 2020–21 Budget.

Table 3: total infrastructure grants to states and territories

*Figures do not sum due to rounding, and the inclusion of the National Water Grid fund in the totals, but not against all states.

Source: Australian Government, Federal Financial Relations: Budget Paper No. 3 2021–22,pp. 54–65; Australian Bureau of Statistics, National State and territory population, September 2020.

Re-announcements, existing projects

Compared to previous budgets the 2021–22 Budget does not include many new projects. While unusual, this would seem to be an appropriate response to the infrastructure construction situation.

As far back as 2019, Infrastructure Australia identified that the volume and scale of infrastructure construction, particularly in NSW and Victoria, had grown considerably, consuming and in some cases exceeding industry capacity (p. 213). In response to the COVID-19 pandemic, Australian governments fast-tracked infrastructure projects and the Commonwealth dramatically increased investment in existing and fast-tracked projects. This led to further capacity constraints.

Access Economics’ latest Business Outlook (March 2021) stated:

… a ridiculous $316 billion worth of [transport construction] projects are currently underway or in planning across Australia. A total of $135 billion worth of projects are under construction, and that figure is set to swell further in 2021 … All up, a total of $58 billion worth of projects are set to get underway in 2021, with only $13 billion slated to wrap up over the same period … There are some concerns about this sector’s ability to deliver this pipeline of work on-time and on-budget, with reports emerging of skilled labour shortages (p. 44).

In light of this, the 2021–22 Budget has largely allocated funding to existing projects. This will not increase the strain on the industry but will ease pressure on state and territory government budgets, as most of these projects are already committed to and funded.

This will help stimulate the economy (as it allows states to spend funds on other priorities), without causing further industry constraints.

New projects

Despite largely focusing on existing projects, the Budget funds a number of new projects. These include:

• Northern Territory National Network Highway Upgrades (Phase 2)—$150 million
• Gold coast rail line capacity improvement—Kuraby to Beenleigh—$178.1 million
• Great Eastern Highway—Coats Gully, Walgoolan to Southern Cross and Ghooli to Benari—$200.0 million and
• Inland Freight Route (Mungindi to Charters Towers) Upgrades—$400.0 million (Budget Paper No. 2: 2021–22, pp. 153–154, 159).

One other project, the $2.0 billion Melbourne intermodal terminal, is notable among the newly announced projects. This is due to its cost and its link to the Inland Rail Project. The estimated cost of Inland Rail project has recently been revised upwards, from $10.0 billion to $14.5 billion (according to Access Economics latest Investment Monitor). The intermodal terminal thus further increases the cost of the Inland Rail Project and associated infrastructure. The Department of Infrastructure, Transport, Regional Development and Communications states that this is necessary as Melbourne does not have capable infrastructure to accommodate the 1,800 metre double stacked trains the inland rail project will deliver.

It is positive that several of the new projects, including the Inland Freight Route and Gold Coast rail line capacity improvement projects, have been independently assessed by Infrastructure Australia, and added to the Infrastructure Australia Priority List.

The latest Infrastructure Australia Audit 2019 presented opportunities and challenges for Australian infrastructure, while the Infrastructure Priority List presents a long pipeline of nationally significant proposals. Questions remain, however, whether the industry has the capacity to deliver them; according to the Gratton Institute capacity constraints have the potential to cause delays and create cost over-runs.