The Australian Economy - The infrastructure projects boosting the economy

NATIONAL

As the post-COVID economic recovery gathers steam around the country, the Federal and State Governments are progressing a long list of infrastructure development projects to accelerate the recovery. Beyond the short term jobs benefit, the knock-on effects of these investments are likely to be significant. We discuss the coming infrastructure boom and what it means below.

The Australian economy is recovering after last year’s pandemic-related economic weakness. IHS Markit estimates the economy will grow by 3.2% in 2021, after a 2.4% contraction in 2020.

Both Australian Federal and State Governments responded to the pandemic by committing to spend more on infrastructure. The reasoning is sound. In fact, late last year, the IMF presented to its member countries about the benefits of investing in infrastructure in a low-interest rate world with rising unemployment. They showed that increasing public investment by just 1% of economic output would create 7 million jobs directly and between 20-33 million jobs from the knock-on effects across the global economy.

Australia’s Federal and State Governments have followed the IMF’s recommendations by budgeting to spend a total of $226 billion over the coming four years, until 30 June 2024. That’s a 26% increase on the previous budget, so we are in the midst of an infrastructure spending boom.

The upcoming $226 billion of infrastructure spending is good news for all states and territories, with solid spending growth planned across the board. The list of planned projects includes: 1. WestConnex (NSW): $16 Billion 2. Sydney Metro (NSW): $12 Billion 3. Melbourne Metro Tunnel (VIC):

4. Melbourne to Brisbane Inland Rail

5. Bruce Highway Upgrade Program

6. West Gate Tunnel (VIC): $6.8

7. Cross River Rail (QLD): $5.4

8. Western Sydney Airport (NSW):

9. Melbourne Airport Rail Link (VIC):

10. Western Sydney Infrastructure

The economic implications of this infrastructure spending boom are likely to be significant, bearing in mind the IMF’s research shows that the knock-on economic benefits are 3-5 times larger than the direct benefits.

For example, the Inland Rail project connecting Melbourne with Brisbane is expected to create 21,500 jobs at peak construction. Over its first fifty years of operations, it’s expected to boost economic growth by $18 billion above the cost of delivery. And then, there are the knock-on benefits which include increased domestic tourism and business travel.

The $6.5 billion Western Australian ‘Building for Tomorrow’ road and rail infrastructure projects are another good example. Whilst the short term benefits are focused upon job creation; the long term knock-on benefits include time savings for commuters, growing tourist numbers, and increased private sector investment.

And then there’s the Marinus Link project, an undersea and underground electricity connection between Tasmania and Victoria, which will enable the more efficient transfer of renewable energy. This project is expected to create thousands of jobs and billions in economic growth, and the knock-on benefits include stronger growth in the renewables sector and a more robust grid system.

The Australian economic recovery is building steam, and the infrastructure spending boom will serve to accelerate economic growth. With $226 billion to be invested in infrastructure projects in the coming four years, the direct economic benefits will be strong, whilst the knockon benefits will be far more significant.