Federal budget 2017: States lose as PM leads on infrastructure

The Turnbull government has slashed infrastructure grants to the states.

Prime Minister Malcolm Turnbull in Sydney.

The Turnbull government has slashed infrastructure grants to the states, with cuts of more than a third to road funding in NSW and Victoria, to make way for its own “nation-building” projects such as the Inland Rail project and the western Sydney airport.

The decision to bring a large share of the federal government’s infrastructure funding in-house reflects the investment banking expertise of Malcolm Turnbull, who was formerly chairman of Goldman Sachs, and Cities Assistant Minister Angus Taylor, who was a director of infrastructure ­advisory firm Port Jackson ­Partners.

“We are not simply an ATM, doling out grants to state governments without any involvement or say or influence over how the money is spent,” the Prime Minister said yesterday.

“So investing, being partners, that’s what we’re doing, and we have committed $75 billion of ­investment in infrastructure in the budget.”

However, the budget papers show the four-year funding of state infrastructure spending in this year’s budget will be the lowest since 2013-14, with the $23.5bn to be spent over the next four years representing a fall of 17.2 per cent from the last budgets under the Abbott government.

Road funding has dived, with the four-year budget estimates for the major road programs showing Victoria and NSW down by 36 per cent since last year’s budget, while funding for Western Australia and South Australia is down by 30 per cent. Queensland gets a 4.4 per cent cut and Tasmania loses 10.2 per cent.

The infrastructure industry says the states are the pivotal partici­pants in infrastructure devel­opment and marginalising them will be bad for productivity.

“We measure federal budget ­allocations to state governments for infrastructure because states plan, own, regulate, procure and operate effectively all transport ­infrastructure across the country,” said Brendan Lyon, the chief executive of industry lobby Infrastructure Partnerships Australia.

“So, of course, less federal money from the budget means less road and rail projects going into the ground in each state.”

The decision to sideline the states reflects Mr Turnbull’s view that the federal government can make better use of taxpayer funds than the states.

Mr Taylor said the budget marked a radical break in the traditional approach to infrastructure funding. “What is different about this budget from the last budget in the infrastructure and city space is a focus on investing, not just giving grants,” he said.

“There are very significant equit­y investments in this budget, for example, the over $8bn going to the Inland Rail and Badgerys Creek with over $5bn. This is a major new focus, ­obviously playing to the Prime Minister’s great capacity in commercial investment, but will also enable us to inves­t in urban and ­regional rail projects that in the past we simply haven’t had the skills to focus on.”

The government is building project financing skills within its new Infrastructure and Project ­Financing Agency, being established within the Prime Minister’s Department. The budget flagged that it would use this expertise to tackle the most technically complex­ part of the $10bn Inland Rail project — a 7km tunnel beneath­ the Toowoom­ba Ranges — in a public­-private partnership.

Although industry is supportive of the projects, it is concerned that the core infrastructure funding in major cities will suffer.

“The airport and Inland Rail projects have been planned and debated for a long time and it’s good to see them move forward, but we also need to be honest about what reductions in real ­budget funding means for the pace of state infrastructure,” Mr Lyon said.

IPA’s estimate is that the funding to the states falls by $7.4bn over the budget estimate period, after taking account of funding realloc­ated from one project to another and the unspent portion of budget allowances. It calculates that funding has dropped from 1.55 per cent of GDP over the decade to 2016-17, but drops to 1.19 per cent over the next four years.

Labor’s infrastructure spokesman Anthony Albanese said the budget contained “the biggest cuts that have ever been seen to nation-building infrastructure”.

He contended that investments in the infrastructure corporations that were building the Inland Rail project and the western Sydney airport were not the same thing as supporting infrastructure projects with the states. He said that, in government, Labor had never counted its ­investments in the Australian Rail Track Corporation or the National Broadband Network as part of its infrastructure investment program.

Infrastructure Minister Darren Chester said including the government’s investment activities lifted the total spend to an average of $8.1bn a year, up from an average of $6.1bn a year under the former Labor government.

“Misleading claims made by Mr Albanese and others focus on one component of the infrastructure spend, payments to support state infrastructure services. This is part of, but not the same thing as, total infrastructure spending,” he said.

Each state faces a different problem. Victoria is aggrieved that it receives only a third of its per-capita share of federal infrastructure financing.

South Australia’s Treasurer Tom Koutsantonis said his state had been left “off the map” in the budget.

However, a NSW spokesman said the budget met existing commitmen­ts to the state under ­national partnership agreements on land transport infrastructure and asset recycling.