- PM Abbott billed himself as “infrastructure prime minister”
- Slow pace of infrastructure investment drags on growth
- Growth already at risk from sharp fall in mining investment
- Risk of recession if infrastructure doesn’t pick up
- Some urge Abott to drop reluctance to borrow
SYDNEY (Reuters): A year after Tony Abbott pledged to be an “infrastructure prime minister”, he risks becoming the first Australian premier to preside over a recession since the early 1990s, in part due to the snail’s pace of new building projects.
Australia's Prime Minister Tony Abbott attends a session of the Commonwealth Heads of Government Meeting (CHOGM) in Colombo - REUTERS |
With economic growth already slowing, and spending in the mining industry set to plummet, getting Abbott’s promised “bulldozers on the ground and cranes into our skies” could be critical to preventing a contraction.
Yet government figures this week showed public spending on capital works had actually shrunk in each of the past three quarters. Public investment was one of the biggest drags on the economy in the third quarter, when growth came in well below expectations at just 0.3%.
As mega projects in liquefied natural gas come to completion over the next two years, the Reserve Bank of Australia (RBA) estimates the wind back in mining spending will slash 1.25 percentage points from economic growth next year, and perhaps as much again in 2016.
With the economy expanding by just 0.8% from April to September, that raises the possibility of a couple of negative quarters for gross domestic product.
“We’re getting to the pointy end of the mining pullback, and a burst of spending on public works would be a great help to the economy,” said David de Garis, a senior economist at National Australia Bank. “So far, it’s been a missed opportunity.”
With borrowing rates were near historic lows, he said there was a good case for the government stepping up.
“Right now the government can borrow for 10 years at 3%. There have to be plenty of public projects which would make greater financial and economic returns than that.”
The problem for Liberal National leader Abbott is that despite the rhetoric on investment – which he put at the heart of Australia’s presidency of the G20 summit last month – he spent years in opposition demonising government debt, calling deficits a disaster no matter what purpose the money was put to.
The government hopes private investment, including the country’s A$1.7 trillion pension funds industry, will help bridge an estimated A$700 billion infrastructure funding shortfall.
But Matt Linden, chief policy adviser for pension fund advocacy group the Industry Super Network, said the government would struggle to attract financing for large greenfield projects until it re-thinks its approach to include long-term investors at the early planning stage, rather than after a project was underway.
“Governments really need to sit down and have a look again at how they structure these deals for the market because the way they’ve been structuring these deals has not been sustainable.”
