13 May 2021
In this episode of the PwC Federal Budget Podcast, we look at the Budget’s Infrastructure announcements. We delve into how the country will continue to build its resilience through shovel ready projects, why digital infrastructure and digital skills will be critical for the country’s competitiveness, and what the Government’s long-term plan should be.
Laura Jayes: Hello, I'm Laura Jayes and welcome to PwC Australia's Federal Budget Podcast. Every Federal Infrastructure Budget is a test of long term vision and priorities. There was a delicate tightrope this year with ongoing significant spending into Australia's infrastructure pipeline.
I caught up with PwC Australia's Infrastructure Partner, Janice Lee, to discuss how the country will continue to build its resilience through shovel-ready projects, why digital infrastructure and digital skills will be critical for the country's competitiveness, and what the Government's long term plan should be.
So where does infrastructure sit within Australia's overall growth agenda? Let's find out.
Janice Lee, thank you for your time. There was a 10 year, 110 billion dollar investment pipeline and a 15 billion dollar spend in additional infrastructure commitments in this budget. These projects, though, need to be shovel ready. Are there enough shovel ready projects?
Janice Lee: It's a good question. To start with, the infrastructure budget this year had to run a very delicate tightrope. And we know that we found ourselves in what is probably the most unlikely situation of a long covid but a strong economic bounce back.
If you look at the current pipeline, we have three hundred billion dollars worth of projects, public and private, in the pipeline. And that investment is due to peak in about 2023. Coming out of that, we're seeing some quite significant market and capacity constraints already emerging.
So in navigating some of the uncertainty around covid and in trying to support short term stimulus, the budget has really looked to not the big projects to ramp up in the next couple of years, but actually the smaller ones, the regional and the road grants programs. And that will mean that it will come down to the administration of those programs to find projects that are shovel ready and that are meritorious and that address critical maintenance backlogs or pinch points that really do deliver economic benefits and support local trade workforces.
Laura Jayes: That said, does the budget then help address the challenges of how you progress these projects, of course, as competing interests in the infrastructure pipeline? So can you see what the government's long term plan here is?
Janice Lee: This infrastructure budget was cast very strongly around short term stimulus. There are some really significant welcomed project announcements as well for the infrastructure investment program. And I think to see the longer term plan, you probably need to look beyond the centerpiece announcements around transport infrastructure. I think you want to look at the sort of spending that's been put aside for things like decarbonising, like clean hydrogen, energy storage, climate resilience, some of the investment in setting up the Australian Climate Service, the digital economy strategy and also the supply chain strategy work, as well as some program funding to improve the Commonwealth's capability to deliver on these national infrastructure projects.
Laura Jayes: Well, it does feel like this was a budget for everyone in regards to infrastructure. Do you feel that?
Janice Lee: It certainly was ‘equitable’ in terms of its distribution of projects! There certainly is quite a strong list of major projects across the states and territories, and a ready allocation of regional and local roads grants. So certainly there's a lot in here for everyone. The pressure then moves to how we make sure that this can be delivered to help Australia to ‘build back better’ in its cities and in its regions.
Laura Jayes: My read of it was it was very road heavy. What impact does this then have on communities and the way we use public transport?
Janice Lee: So roads are really critical still and they serve critical freight purposes. Certainly in the last year, there has been more regional road congestion and more travel out to regions, so for those road projects, I think communities and other governments will welcome the certainty of this funding commitment. Longer term, though, we know that the visionary projects, the projects that will really transform the way people move about cities and places will be in improvements to public transport and active transport.
There are some freight and passenger rail projects in there and they are very welcome. But certainly that's where some of the really city-changing kind of infrastructure projects come in.
Laura Jayes: Janice we’re all used to covid-19 dictating a kind of new normal to us. But what are the opportunities here to shape it through infrastructure?
Janice Lee: Yes, the covid year was an unusual one for the infrastructure sector. It gave us a temporary reprieve on many of our pressing infrastructure pressures. Population growth slowed, congestion slowed. I think that has given us time to reflect on what our more significant priorities are. Certainly there is an opportunity and now is the time to really do that in terms of aligning infrastructure investment and service planning to embed the sorts of changes that we think are really important coming out of the pandemic.
That includes things that support regional tourism and support where there has been growth in regional communities, flexibility in working from home and allowing people to travel more in the shoulder peak, et cetera. Also, we will be looking to the Commonwealth at this point to confirm, what is the timing around some of the really big city-shaping urban projects and how are we going to be using some of those projects to develop sustainable cities?
Laura Jayes: Well, that said, how do we build resilience through these announcements that we've seen?
Janice Lee: Yes, I think the Government should be commended for putting in place some concrete measures around resilience. We can really welcome the Australian Climate Service, which will be set up to combat the threat of natural disasters. I think that we've seen in the last 18 months just how vital that is in a country like Australia. And we've also seen in this Budget a commitment to fund priority technologies to move towards decarbonisation. And those things are really important to the resilience of our infrastructure networks and sector moving forward,
Laura Jayes: We've seen a talent shortage or a talent gap across a number of sectors. We've seen a big skills announcement in this Budget. Does that help in attracting those people required to the infrastructure sector?
Janice Lee: This is one area where there are emerging capacity constraints. Certainly workforce needs within the infrastructure sector are becoming more acute and more apparent as we approach that construction peak in about 2023. There are some really welcome measures in the budget for that skills and talent attraction. I know there's five hundred million dollars to be matched by states and territories for training places and significant funding for apprenticeship commencements - that needs to be properly targeted. But it certainly could make an impact within the infrastructure sector
Laura Jayes: Digital infrastructure and digital skills are, of course, critical for our competitiveness as a nation. Do you think the budget has responded to the need to be more innovative and commercially innovative in particular?
Janice Lee: So certainly digital is critical infrastructure and we saw that through covid how important it was to have good connectivity and this next stage of work that would be funded within the budget. The digital economy strategy is aimed at digital adoption, research and industry capability. Those are really welcome things. There's also some funding in there for digital connectivity, including in regions in northern Australia.
They are really important initiatives and they are all about how you use infrastructure to better service people. And that sort of service layer is really important for achieving the social and economic outcomes that built infrastructure is intended for. They are really welcome, and I'd like to see that really move into the infrastructure space. Like how do we then provide traditional infrastructure services more innovatively and more digitally, with digitally-engaged customers.
Laura Jayes: With such a big spending budget, it's hard to imagine that the government missed anything, but were there any missed opportunities?
Janice Lee: I think the budget hits a lot of the things that it needed to hit. Perhaps what it didn't do was bring together that long term vision - starting to set out, what's that ‘build back better’ vision for Australia, for cities and for regions. And how do we bring all of those things together? So a lot of the issues that are there start to do that. And I think that's terrific. The opportunity then is to really set that program so that you can bring lots of people with you in other governments, in communities, within the sector. That's the long term opportunity here, I think.
Laura Jayes: And as we look at what we're doing as a nation at the moment and you see what's going on overseas, are there any cities we can learn from when it comes to infrastructure?
Janice Lee: There's been a lot of talk about migration slowing through covid and it goes back to some of those longer term transitions being somewhat unchanged by covid. And we need to remember that we are still a growing country and long term, our big cities are still growing quickly relative to other global cities.
I think when you look at other big global cities, you see their management of place and network infrastructure and you can see what the opportunities are for big growing cities like Sydney and Melbourne. And you don't want to forget that beyond covid, we still will need really good public transport, mass transit options. We will still need high performing freight corridors and movement corridors to service a population that's fairly concentrated in coastal areas.
So all of those pressing challenges are still there. And I think we can certainly look abroad at the sort of cities and places we like going to, travelling to - and in Australia know that we're still really moving towards that. We need that certainty about what sort of places we're going to be living in beyond the pandemic.
Laura Jayes: In Australia, because of the sheer size of our country, do we have those challenges of connecting cities and regions, and do you see anything in any Government's plans to fix that?
Janice Lee: This is a perennial issue for Australia because we are a very large continent and our settlements are fairly spread out, and I think you see that in any infrastructure budget, it's a test of priorities and managing conflicting priorities in all of that. And certainly, you see that tension in every Commonwealth infrastructure budget, which is how do we service growing populations in cities, how do we make sure that these critical corridors connecting settlements are efficient? So that is always an issue.
I think there's a lot in the pipeline that will be delivered over the next few years and it will get to both of those things. The question will be, what's the capacity to manage that pipeline really efficiently? And I think the work now is to ensure that the pipeline can be delivered well: minor works are prioritised well; that projects are planned well; that procurement is done efficiently. Just to make sure that we maximize market capacity in the delivery of this generationally large pipeline of infrastructure projects.
Laura Jayes: And Janice, what's a small measure that may not have got all the media attention, but will actually have a great impact in this budget?
Janice Lee: So there are two I would point you to. The first is there is 11 million dollars in the Budget to improve Commonwealth capability and to deliver national infrastructure projects. Given the critical size of the infrastructure pipeline at the moment, I think that's a really important commitment by the Commonwealth to actually be very involved in the delivery of projects and to to be a very informed funder of those projects. So that is really important as governments think about market capacity to deliver on this pipeline of projects.
The second is funding for the supply chain strategy and funding for the national freight data hub. So COVID-19 really highlighted that in some of those small things there are some pretty critical outcomes for the economy, and supply chain diversity and resilience is a really important one. But also just the availability of national data - of timely and consistent national data - on which all infrastructure planners and participants can make really clear decisions. So I think both of those things are small relative to the projects that were announced, but they're quite significant policy reforms.
Laura Jayes: And what are you hearing from your clients? What are they demanding?
Janice Lee: Our clients are working hard in the infrastructure sector. There is no doubt that we are at what is a generational pace of infrastructure development and delivery at the moment. And I think you can see from talking to our clients what that means in terms of needing an enabling partner in the Commonwealth government in terms of its ability to support delivery.
So I think market capacity is a really, really big area. And there are some risks emerging in the pipeline which really fall to a national response to properly address. And I think that will be a key theme that really emerges in the discussion over the next few months.
The other I think that has somewhat emerged a bit out of the blue is that through covid, we've seen the infrastructure sector - and that goes to lenders and investors - really pivot their focus towards ESG. And that is quite an interesting development through covid. Something about the temporary reprieve we had this year means that the development of renewables, the development of ESG projects is getting, you know, significant momentum. And I think that that will be an important part of the budget to watch as well.
Laura Jayes: One of my favorite parts of the budget is this contingency fund decisions made but not taken. It's a big one this year. It's just less than 10 billion dollars. You'd have to think there's a little bit more in there for infrastructure ahead of an election.
Janice Lee: It does look cheekily large! So, yes, there is a budget line for measures taken not yet announced. It may imply that there is a war chest there. Certainly there would be the potential for some of the state priority projects, you know, in mass transit, public transport, precinct development. There may well be some potential for those sorts of projects to have a second run generally.
Laura Jayes: Janice Lee, a pleasure. Thank you.
Janice Lee: Thanks so much.
Laura Jayes: Thank you for listening to the 2021 PwC Federal Budget podcast, we hope you enjoyed our commentary. For additional in-depth analysis, head https://www.pwc.com.au/federal-budget.html, where you find articles and information about the 2021 federal budget and what it means for the economy, our society and you.
PwC Federal Budget Podcast brings together experts to explore what the budget means for you and your business. Do not miss an episode. Make sure you subscribe to the podcast via Apple podcasts, Spotify or your favorite platform.
And while you are there, feel free to leave a rating or a review.
Thanks for listening. Goodbye for now.
Partner, Integrated Infrastructure, Infrastructure Advisory, PwC Australia
Tel: +61 434 608 375