infrastructure

Why the industry must spend resources wisely to drive Australia out of the current economic crisis

Rudolf Rose, associate director at DCWC, explains how the current COVID-19 crisis should influence Australia’s thinking on infrastructure.

THE IMPORTANCE OF KEEPING INFRASTRUCTURE JOBS
It’s an age-old economic principle. When people earn, they spend; when they do this, funds are further distributed, enabling even more spending. Infrastructure is one of the biggest employers in Australia, so the more we invest in keeping people in these jobs, the better the economy performs as a whole. With COVID-19’s economic fallout, it has never been more critical to ramp up impetus across our beloved industry.

For the most part, infrastructure jobs have been more secure than in other industries, with sectors such as construction deemed an ‘essential service’. But what other security is out there? For workers restricted by current pandemic measures, there is a big appetite to get people back into the workplace. According to surveys conducted throughout the construction industry, civil contractors are prepared to make significant investments in employment if government infrastructure projects are fast tracked. So capacity is there – especially for tier 2 and 3 companies with significant ability to create these employment opportunities. But what else do we need to consider?

While we’ve all been following recent government stimulus packages aimed at boosting infrastructure growth, the trick now is where to spend to achieve maximum benefit.

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SPEND WISELY AND WITH PRUDENCE
Instead of ‘clustering’ projects in a small area, it may be more beneficial to spread the projects into rural and regional areas. The communities in these areas would benefit greatly from infrastructure investment by creating employment, as well as opportunities for training. Ultimately this translates to community spending filtering down to local businesses. This sentiment is echoing throughout our industry.

Treasury Secretary, Steven Kennedy, told a Senate hearing in October 2019, that spending big on large infrastructure projects is not the way to stimulate the economy. This point of view may have some merit, insofar as large-scale projects take significant time to plan to get the business cases and budget right. Spending more on smaller projects to match demand would make more sense – particularly when planning through to shovelling can be done within a much shorter timeline. This would allow for the main focus on larger projects to remain on planning, scoping and budgeting accurately.

Having said that, larger projects must not be abandoned in favour of the smaller ones. The smaller ones would merely provide shorter term relief in economic downturn, whereas the larger projects would stimulate the economy in the longer run. Mr Kennedy appears to reject the idea of extra spending except “in an emergency”.  That was before COVID-19 became what it is now – an emergency.

WHY IS THE COVID-19 CRISIS DIFFERENT AND HOW MIGHT IT INFLUENCE HOW INFRASTRUCTURE IS DELIVERED GOING FORWARD?
What COVID-19 has taught us so far, is that we are very adaptable. With a significant number of people getting used to working from home (and many coping well with this scenario), people may start to consider whether travelling to an office is really needed. They may think; why bother if they can achieve the same amount of work (and more) from the comfort of their own environment? This may be considered a radical approach and certainly is not without its own pitfalls, but still could be a consideration. This new dynamic also raises a number of questions around the allocation of industry resources in general.

Are train lines into the city from all around the metropolitan areas really going to be used for current or planned increased capacity? Should the spending on these planned projects be channelled to developments where digital connectivity can be vastly improved (let us face it, the NBN still struggles somewhat)? Should we invest more in renewable energy sources instead? Should there be a larger focus on innovation perhaps, and what does this look like?  Maybe if local rail network spending gets pushed back to a lower priority, intercity or fast rail could get more funding to compete with domestic air travel. Or now there could be less spent on transport and more on other forms of infrastructure. These are all alternative options if funds for planned transport projects get redistributed.

But what about the flow on? Although these proposed infrastructure opportunities may lack similarly skilled resources as for civil road & rail construction projects, they could open up training and upskilling for people to work in these industries.  This will promote increased capacity of tertiary educational institutions – again more infrastructure spending, creating more jobs.

WHO PAYS FOR ALL THIS?
While we can promote and encourage big spending on infrastructure to stimulate the economy in times of crisis, people will rightly ask where the funding for these planned projects will come from?

Both federal and state governments have already spent significant amounts of money on cash stimulus packages including JobKeeper allowances. This may well be unplanned and we, in the general public, may not really know whether funds earmarked for other areas of the economy, including infrastructure spending, have been redirected to pay for the various cash stimulus packages introduced. They may have come from some form of contingency fund in the government coffers. We certainly do not know.  However, if funds from other projects were redirected, including planned infrastructure investments, and those projects required ‘new’ funding, all levels of government may have to rethink where the capital would come from to pay for these projects. Let us face it, short term cash stimulus only goes so far – what happens if that runs out or gets wound back early?

One of the major contributors to reinvestment in infrastructure could be the sale of assets, as NSW did when they sold the state’s electricity assets. This provided a major boost to infrastructure spending and could be done again. Alternatives to this could be increased borrowing, higher taxes (GST), print more money, etc. All these have their own pros and pitfalls and identifying the healthy balance would be the key to getting this right. No option will be perfect, but some may be more perfect than others.

In any case, in our current environment loaded with uncertainty, some surety remains. As a historically vital player, infrastructure continues to play a pivotal role in boosting our country’s economy during economic downturn. The key is not only to spend wisely, fairly and equally, but to embrace the potential redistribution of funds across fresh opportunities arising out of this novel landscape.

Contact Rudolf Rose at: https://www.dcwc.com.au/contact-us

Stimulus a welcome boost for rail industry

Yesterday, federal Treasurer Josh Frydenburg and Prime Minister Scott Morrison announced the $130 billion wage subsidy package.

The announcement goes well beyond previous stimulus packages by giving 6 million workers a flat payment of $1,500 per fortnight, through their employer.

The assistance is available to businesses with a turnover of less than $1 billion and have had a reduction in revenue of 30 per cent or more in a month since March 1, 2020. The expansion of eligibility means that many more companies will have access to these funds than previous measures.

For companies in the rail industry, such funding could be a lifeline to hold onto staff who may have otherwise been let go said Dennis Mah – strategy and commercial development – at Sonaray, which supplies lighting to rail projects.

“We will be taking advantage of all the government packages to retain all staff as long as possible. Luckily our over heads are not that high but when there is no or limited cash flow it hurts the bottom line,” said Mah.

Announcing the measures, Morrison noted that the funds will help businesses survive through the coronavirus (COVID-19) pandemic.

“This is about keeping the connection between the employer and the employee and keeping people in their jobs even though the business they work for may go into hibernation and close down for six months,” he said.

“When the economy comes back, these businesses will be able to start again and their workforce will be ready to go because they will remain attached to the business through our JobKeeper payment.”

According to Mah, however, there is further room for companies in the rail sector in particular to complete works now that would otherwise not be done.

“This could be the ideal time to access a lot of areas where normally it is restricted due to high pedestrian traffic.”

Room for growth in trying times

While the COVID-19 pandemic is causing an undeniable impact upon the Australian economy, the rail industry is continuing to play its vital part in moving people and goods around Australia.

During these times, Rail Express will continue to deliver timely news and industry insights to our audience of rail professionals. Rail Express is the only publication dedicated to the rail industry that is publishing daily briefs as the story evolves. Our email newsletter database and online page views have been experiencing substantial growth over the past months, and we will endeavour to ensure that they continue to do so, even as disruption occurs.

Already, we have seen significant interest in how the rail industry will continue to be the lifeblood of Australia’s logistics supply chain. We have spoken with our key industry associations and partner organisations to understand that in fact, the demand for key rail services, particularly in the freight sector, is growing, with the resulting need for suppliers of equipment and services to continue to engage with the industry.

In addition, the growing government stimulus packages have a direct impact upon organisations working in the rail industry, many of whom are looking for the stimulus to go further so they can continue to meet the demand for mobility.

Finally, when the initial impacts of the virus subside, the rail industry will be continuing to grow as infrastructure spending is adopted by governments as a way to kickstart the economy.

More than ever, Rail Express is the resource that the Australasian rail industry turns to. The publication is continuing to grow in both print and online to meet the needs of the sector’s growth as a whole.