Infrastructure high on govt agenda

13-May-2014

By Kate Kachor

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The federal government will pump $11.6 billion into infrastructure investment to support Australia’s transition to non-resource sector-driven growth.

As part of the move, the government will reform Infrastructure Australia.

The multi-billion-dollar funding was the government’s response to the needs of the economy, it said.

“To address the mounting costs and inefficiencies that are unnecessarily delaying projects, this government is reforming Infrastructure Australia, which will improve infrastructure project planning, selection and delivery, and contribute to a strong pipeline of infrastructure projects,” the government said in its 2014/15 budget.

The government would, where possible, encourage greater reliance on “user charging” with the potential to stimulate significantly greater levels of additional private sector investment, it said.

“Over the next six years, the government will help build new roads, rail, ports and airports,” Treasurer Joe Hockey said.

“Our growth package will stimulate the construction sector and create thousands of jobs as the economy transitions from resource-led growth to broader-based growth.

“This new infrastructure will drive and support the next wave of national prosperity.”

The $11.6 billion in funding has been broken down into three separate projects, with $5 billion allocated to an asset recycling initiative, $3.7 billion for the infrastructure investment program and $2.9 billion for the western Sydney infrastructure plan.

The asset recycling fund would be set up on 1 July 2014 to “facilitate the government’s investment in new infrastructure”, the budget papers said.

It would include unspent funds from the Building Australia Fund and Education Investment Fund as well as proceeds of the sale of Medibank Private and other possible privatisations, it said.

“The investment will leverage nearly $40 billion in additional infrastructure, which will connect communities, deliver growth and boost employment,” Finance Minister Mathias Cormann said.

“This fund will help states and territories strengthen their balance sheets through recycling capital into a dedicated funding source to build new infrastructure.”

The growth package will increase the government’s total investment to $50 billion by 2020/21.

The Association of Superannuation Funds of Australia (ASFA) said superannuation funds had a strong appetite for further investment in infrastructure and that appetite was likely to increase as members were getting older.

"The current average asset allocation of Australian Prudential Regulation Authority-regulated superannuation funds to infrastructure is around 7.5 per cent,” Vamos said.

“Around $70 billion in total is currently invested by Australian superannuation funds in infrastructure and this could rise to $200 billion or more by 2025 on the basis of likely asset allocations.

"As the superannuation system continues to mature and more people move from accumulating super to taking income streams, stable, long-term and income-producing assets such as infrastructure will become more attractive and more suitable investments for super funds.

“Many of the public assets potentially earmarked for sale would be an ideal match for the risk-return profile desired by super funds in this changing demographic environment."

But she also pointed out the government had not made decisions around the financing of infrastructure programs.

"Concessional loans are one way of addressing the challenges of financing infrastructure, but in the long term, ASFA believes that it is important to develop a functioning infrastructure project bond market,” she said.

“We believe that there are a number of potential ways in which the federal government could ultimately support the development of an infrastructure bond project market and we look forward to discussions with the government on how this may be achieved."

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