The role of infrastructure in fiscal stimulus

One of the heartening aspects of the response to this pandemic has been the bipartisan support for massive fiscal stimulus in Australia. Both sides of politics recognise that any instinct to tighten the purse strings at this time will only deepen and lengthen the downturn, and there is broad agreement around the principles behind the largest expansion of Commonwealth spending since the Second World War.

Direct payments to businesses and private citizens were the focus of the Government’s early response to the crisis, however sights are now turning to a range of other measures, including infrastructure spending. Infrastructure offers a strong value proposition to governments looking for ways to pump more money into the economy: beyond the immediate stimulus itself, there is further potential to boost the economy and citizens’ welfare over the long term through lasting improvements to productivity and amenity.

The next project or the right project?

The question is how to ensure that the right projects receive funding – infrastructure that really will lift the economy and provide a raft of continuing benefits, as was the case with the Sydney Harbour Bridge and the Snowy Mountains Scheme, carried out in the wake of the Great Depression and Second World War respectively.

No-one wants a situation where we’re engaging in meaningless infrastructure projects – the proverbial digging of holes just to fill them in again – but even projects that seemed like a good idea twelve months ago may not fit the bill precisely at this moment. But because major projects take years to come through the planning pipeline there will inevitably be tension at times like these between the projects that are shovel ready and those for which there is a real and pressing need in our changed circumstances.

Responding to changing societal needs

The truly impactful global events have historically acted as fulcrums around which society has undergone profound change, giving need to new types of infrastructure. For instance, the increase in female participation in the labour force during the Second World War never fully dissipated, instead paving the way for generations of women in the workforce and creating new demand for infrastructure to support them, such as childcare.

The current crisis has similarly crystalised demand around alternative ways of working, and the recent announcement that the NBN will be upgraded on a user-pays basis for those who require fibre to the premises has been made in direct response to accelerated need in our new paradigm.

Beyond this straightforward commercial necessity, however, I’d point to social infrastructure as another area where lasting effects will be felt. From increased utilisation of playgrounds, beaches and national parks, to the need to retrofit public transport and facilities to make them safer for users, our new attitude to mobility is opening the door to a variety of creative uses for our infrastructure dollar. And that’s of course before we even mention the additional requirements we’ve developed this year for further material investment in the field of healthcare.

How Australia’s plans shape up

The Commonwealth infrastructure pipeline going in to this month’s budget was already enormous, weighing in somewhere around $100 billion dollars. The Government has added another $10 billion to that figure for FY2020-21, mostly in the form of funding for roads, rail and dams. These are all worthy projects, but as mentioned previously, a key argument for their approval would have no doubt been that they were already in the pipeline and shovel ready, rather than directly responding to current needs.

As eager as they might be, governments can only take these stimulus programs so far, and much greater leverage is available to those willing to engage partners in the private sector. The catch is that it generally takes longer to commence a project when private capital is involved, and early projects in such stimulus programs tend to lean heavily on Design and Construct contracts, rather than models such as Public Private Partnerships which are less capital intensive for governments and make more effective use of the ideas and expertise of the private sector.

The bottom line is that regardless of their historical positioning on budget discipline, the Federal Government is spending, as it needs to, which is good news for the economy.

As we move forward, however, there will be limits to the ability of government to fund all of the projects it wants, and opportunities should arise for deeper engagement with the private sector, maximising the impact of public investment and enabling some truly transformational projects in response to the emerging needs of our post-pandemic society.