Australia Federal Budget boosts recovery momentum

Anooj Oodit, Managing Director for Asia Pacific comments on the Australia 2021/22 Federal Budget.

“Last week Treasurer Josh Frydenberg handed down his surprise ‘cash-splash’ Federal Budget for 2021-22. Driving this major spending programme is the downwards revision of the 2020-21 deficit by AU$52.7bn, driven by a higher-than-forecast iron ore price, a higher employment rate and the strong rebound of the economy. This budget is focussed on boosting recovery momentum.

“The Federal Government’s overall response to the COVID-19 pandemic has been largely successful in minimising the impact on Australia’s economy. The success of the JobKeeper and JobSeeker policies have swiftly driven down unemployment and upheld consumer spending. Despite the significant deficit it has created, the majority will agree that this was necessary to support the economy through the pandemic and to enable our economy to bounce back to such a strong position so soon after the recession.   

“In the 2020-21 budget, the government moved away from trying to repair the budget deficit and instead provided more stimulus aimed at increasing employment and boosting economic growth.

"The government is not expecting a return to surplus in the next decade, however, this should not be of great concern, given that the low interest rate environment will make this debt more sustainable and serviceable. With interest rates expected to stay low for some time, now is the optimal time for the government to be investing heavily into parts of the economy that need it most, particularly the construction industry. The government is anticipating that as the economy continues to expand and with interest rates expected to stay low, this debt will stabilise and should fall relative to the economy.

“One of the key areas of the economy that is proven to drive economic growth and increase employment is the construction sector. The infrastructure spending outlaid in the FY2021/22 budget was sizeable, adding AU$15.2bn in road and rail projects to be delivered over the next ten years. This takes the government’s total infrastructure investment pipeline to AU$110bn over ten years.

This scale of investment into construction is critical for the industry at a time where private sector activity remains weak following the COVID-19 pandemic. The return on investment that a government gets when it invest into infrastructure is two-fold and it provides both short and long-term rewards for an economy.

Australia Federal Budget infrastructure funding highlights:

• AU$3.8bn for New South Wales including AU$2bn for upgrades to the Great Western Highway between Katoomba and Lithgow.
• AU$3.4bn for Victoria including AU$2bn to support the delivery of the Melbourne Intermodal Terminal, and AU$380m for the Pakenham roads upgrade.
• AU$3.4bn for South Australia including AU$2.6bn for the North-South Corridor in Adelaide and AU$161m for the Truro Bypass.
• AU$2bn for Queensland including AU$400m in additional funding for the Bruce Highway upgrades.
• AU$1.6bn for Western Australia including AU$237.5m for grade separation and the elevation of stations on the METRONET, and AU$146.1m for local road and community infrastructure projects.
• AU$401m for the Northern Territory including AU$161m for the Northern Territory national highway network.
• AU$377.2m for Tasmania including AU$113.4m for the Midland Highway upgrades.
• AU$186.2m for the Australian Capital Territory including AU$132.5m for the Canberra Light Rail – Stage 2A.
• AU$2.5bn over four years for water
• AU$774m over four years for health
• AU$216m for recycling

“Infrastructure projects boost economic growth, create millions of direct and indirect jobs and can increase productivity in an economy. Ongoing infrastructure investment plays a key role in not only maintaining economic growth, but also helping to generate private sector investment.

“While the infrastructure spend in the Federal Budget is sizeable, after this year’s big investment the government will be expecting the private sector to step in and take over. Private sector investment has been weak following the COVID-19 pandemic and we are only now starting to see this gradually return. The success and timing of the COVID-19 vaccine roll-out and the reopening of international borders will be a key determinant of the pace of recovery for the private sector.

“Overall, the FY2021/22 budget is sizeable and it is what we would have hoped for to keep the recovery momentum going. While a lot of this policy is directed at short-term growth, with GDP to fall back to 2.5 percent in FY2022/23, Australia’s economy is still far better placed than most given the circumstances.”