Tight poll puts big infrastructure projects in doubt: industry

A knife-edge election has raised fears infrastructure spending could be skewed while big projects are put on hold.

The Clem7 tunnel under the Brisbane River. Queensland is struggling to fund its infrastructure.

A knife-edge election result has raised fears that infrastructure spending could be skewed by minor parties and marginal seats while decisions on bigger projects and reforms are placed on the backburner.

As banks predicted that the election result could lead to higher infrastructure spending, the industry said many of their priorities had a better chance of success under a government with a clear majority and the confidence to make bold decisions, rather than having to negotiate with minority parties for support. “In a tough, tight political environment it is pretty hard to have a sensible ­policy debate about many of the things that the industry needs and which have a life that goes well ­beyond one term of parliament,’’ said Michael Kilgareff, CEO of the Australian Logistics Council.

“Where it may impact on us is that a lot of the things that we wanted required a government to be relatively courageous about infrastructure priorities and bold about regulatory reforms and a wafer-thin majority does not help with that.’’

The election result could spell trouble for big, national projects like the proposed inland rail linking Melbourne and Brisbane, which was found by the government’s advisory body Infrastructure Australia to produce national benefits, albeit at a high price.

But it could also make it more difficult for the federal government to lead discussions on reforms by the states, which account for the vast bulk of infrastructure spending but often rely on federal funding for part of their projects.

NSW and Victoria are undertaking multi-billion-dollar infrastructure projects such as the WestConnex roads between Botany Bay and western Sydney and the Metro Rail project under Melbourne as they free up balance sheets through port and electricity network privatisations that also make them eligible for federal government asset recycling incentive payments.

But states such as Queensland, which has baulked at privatising its electricity network in the face of opposition from the electorate, are struggling to fund infrastructure under the weight of $80 billion of debt.

“What it means is that if we are not careful we could be looking at another three wasted years,’’ said Brendon Lyon, chief executive of Infrastructure Partnerships Australia, referring to the election cliffhanger.

Mr Lyon said a federal government could provide political cover and funding to help states undertake reforms, but the next government was unlikely to be able to do so in a parliament with a narrow margin and competing priorities.

“The real challenge is that we are going to see less emphasis on the narrative around those structural reforms,’’ he said.

KPMG chairman Peter Nash said there were good grounds for the government to borrow to fund major infrastructure projects that increased the productivity and competitiveness of the economy.

But the government needed to find a way to account for infrastructure spending to distance it from debates about budget deficits and recurrent spending. “We would be advocates that the right infrastructure done the right way has a significant role to play and you would imagine that there is room to get both sides together to deal with this,’’ Mr Nash said.

Leading into the election, the federal government used taxpayer funded infrastructure ­programs to skew spending on road upgrades to Coalition-held electorates and there are fears the increase in the number of minority parties represented in the parliament could see spending ­directed to pet projects and marginal seats.

But observers including former WestConnex Delivery Authority chairman and Business Council of Australia president Tony Shepherd said both sides of parliament needed to ensure the projects were approved by Infrastructure Australia.

Investment bank Citi said the uncertain election outcome and heightened influence of crossbenchers had only increased the political attractiveness of infrastructure spending.

“At the margin it’s the less likely place to feel the razor than any other part of the forward estimates because it reflects the long- term necessity based on population growth, particularly in Sydney and Melbourne but also all the way along the east coast,” the bank’s senior analyst, Simon Thackray, told The Australian.

The bank estimates total federal road funding commitments of about $23.5bn, most significantly $7.5bn for the Pacific Highway upgrade in NSW and a similar amount for the Bruce Highway upgrade in Queensland.

The only impending major road project not to have secured federal funding was the $5.5bn Western Distributor in Melbourne, which would largely be funded through the state government and the private sector.

But the incremental infrastructure commitments contained within the latest budget handed down by the Turnbull government were “admittedly at risk”, Mr Thackray told investors.

Boral is not the only building materials manufacturer to benefit from the relative certainties of infrastructure development in the short term. CSR remains the preferred investment for RBC Capital Markets. Analysts Andrew Scott and Kofi Mensa said the market turmoil could lead the Reserve Bank to cut interest rates further, providing more support for the housing market.

“A prolonged period of elevated housing construction would more than likely equate to stronger earnings for CSR across our forecast period,” they told clients.