Thursday 6th Aug, 2020

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

infrastructure

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.

LinkedIn- Construction Variations

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


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