Australia: Infrastructure spending supports the AUD - AmpGFX

In view of the analysis team at Amplifying Global FX Capital, the Australian government has failed to live up to its forecasts to return to budget surplus since it first slipped into deficit in the wake of the 2008 Global Financial Crisis. 

Key Quotes

“It has consistently pushed forward the date of return into surplus, losing some credibility with rating agencies and threats to lose its AAA rating.”

“Nevertheless, its budget position still stacks up well compared to most other developed nations.  The deficit was forecast at 1.6% (underlying cash balance) in the coming fiscal year 2017/18, returning to a small surplus from 2020/21 (in three years).”

“Net debt is estimated at 19.5% of GDP in 2017/18, rising to a peak of 19.8% in 2018/19, projected to fall to 17.6% in 2020/21.”

“Net financial worth, including public retirement funds less liabilities, is estimated at -25.1% of GDP in 2017/18, improving to -22.4% in 2020/21.”

“However, these budget numbers do not include all of the new infrastructure spending that the government has also announced.  A significant component of this is effectively off-balance sheet, recognized as a financial asset (loan) to public corporations set up to invest in infrastructure.”

“Not included in these budget deficit measures are loans to NBN Co (investing in the national broadband network), and new initiatives announced in this year’s budget to finance the second Sydney airport and the proposed Melbourne to Brisbane inland rail project.”

“The focus of governments globally on budget consolidation has weakened.  The G20 has been calling on governments, where fiscal space allows, to expand infrastructure spending.”

“After several elections in Australia, where the major parties battled each other on fiscal responsibility, the tack has finally shifted, belatedly, but sensibly towards boosting infrastructure spending.”

“The Government budget talks about spending an additional $A75bn over ten years on infrastructure, 4.3% of current annual GDP of $A1.74tn.  This is a significant addition to growth; adding in multiplier effects, it might contribute up to 0.5% annually over a number of years.”

“This is a large contribution and may be an exaggeration, with the government setting out more of a framework for increasing its support for infrastructure spending over the coming decade.”

“It said, “The government is establishing a 10-year allocation for funding road and rail investments, recognising that many transformational projects are planned and built over many years. This will deliver $75 billion in transport infrastructure funding and financing from 2017-18 to 2026-27.” Some of this funding relates to projects that are already underway.”

“More specifically, the budget says, “We have committed to fully finance the Melbourne to Brisbane Inland Rail project by a combination of an additional $8.4 billion equity investment in the Australian Rail Track Corporation and a public-private partnership for the most complex elements of the project.”

“The Government has also committed to establish a new Commonwealth-owned company, WSA Co, to deliver Western Sydney Airport. The Government is making an equity investment of up to $5.3 billion in WSA Co.”

“To develop and advise on financing solutions to deliver key government projects the Government is establishing the Infrastructure and Project Financing Agency on 1 July 2017. The Agency will work with the private sector to identify, develop and assess innovative financing options for investment in major infrastructure projects prior to Government consideration.”