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April 1, 2022

Australia’s infrastructure-focused budget to drive growth, but labour concerns remain

Much like in its 2021-22 Budget, the development of transport infrastructure will constitute a sizeable proportion of new government spending this year.

By GlobalData

The Australian economy recovered rapidly following the downturn caused by the Coronavirus pandemic, with real GDP up 3.4% on pre-pandemic levels in the final quarter of 2021, and unemployment at multi-year lows. The Australian government’s 2022-23 Budget, released on the 29 March 2022, outlines an array of measures to further support Australia’s economic growth at a time of heightened uncertainty due to the conflict in Ukraine, and the slowing of economic growth in China.

Much like in its 2021-22 Budget, the development of transport infrastructure will constitute a sizeable proportion of new government spending this year. The government is committing a further A$17.9bn ($13.4bn) to finance infrastructure projects, bringing its ten-year rolling transport infrastructure investment plan to A$120 billion ($89.8bn). This is an A$2.7bn increase on the additional funding outlaid for transport infrastructure in the 2021-22 Budget. The largest allocations of this funding are set to be awarded to the states of Queensland, New South Wales, and Victoria, which will receive project funding of A$4.4bn, A$3.6bn, and A$3.5bn, respectively. Several priority transport infrastructure projects have been selected by the government to receive additional funding, including A$2.3bn for the Darlington to Anzac Highway section of the North-South corridor, A$1.6bn for the Beerwah to Maroochydore rail connection on the Brisbane to the Sunshine Coast line, and A$3.1bn for the Melbourne Intermodal Terminals package.

The government has also committed a further A$7.4bn ($5.5bn) of capital for the development of water infrastructure, with water security, drought resilience, and the strengthening of Queensland’s agricultural sector a key priority. Of the total, A$6.6bn will be committed to projects in Queensland, including A$5.9bn on water infrastructure in Burdekin, A$600m for the Paradise Dam Redevelopment, and A$126.5m for the Emu Swamp Dam.

Given the large economic multiplier, the proportionate change in real GDP relative to a change in aggregate spending that infrastructure investment generates, the economic benefits accrued through these investments are likely to be considerable. However, with the Australian economy at near full employment, and construction activity in the residential construction sector expected to remain high due to the smoothing of HomeBuilder-funded construction until late 2022, an increase of construction demand in the civil engineering sector is likely to lead to an increase of aggregate wages in the industry, and further inflate construction material costs. This will lead to increased project costs, and may delay progress on projects currently under construction, and those in the later stages of pre-execution.

Skill shortages in the construction industry may further delay project progress and inflate wage costs, with Infrastructure Australia projecting the shortfall in the public infrastructure sector alone will peak in early 2023 at shortage of 93,000 workers. An A$2.8bn investment over the next five years in the upskilling of apprentices, and a 20% deduction in employing training costs for small businesses through the Skills and Training Boost, will ease these shortages to some extent. However, despite these initiatives and a resumption of skilled migration, the labour market for skilled workers in the construction industry is likely to remain tight due to the considerable volumes of work in the pipeline.

GlobalData currently expects the Australian construction industry to record growth of 4.3% this year, following growth its of 1.8% in 2021, and record an average growth of 2.8% between 2023 and 2026. The growth of the transport infrastructure construction sector is expected to exceed aggregate construction industry growth, recording a expansion of 4.6% this year, and an average growth of 3.2% over the remainder of the forecast period.

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