BIS SAYS INFRASTRUCTURE BUDGET BOOST IS WELCOME, BUT LIKELY UNSUSTAINABLE

BIS SAYS INFRASTRUCTURE BUDGET BOOST IS WELCOME, BUT LIKELY UNSUSTAINABLE

ANALYSTS say that the public infrastructure and construction industry has emerged among the clear winners from last Tuesday's budget, as BIS Oxford Economics forecasts imminent major growth across the sector.

Funds allocated from the 2017 Federal Budget will help drive an estimated 30 per cent growth for the industry, which is already worth $80 billion, and is expected to offset further declines in resource-related work.

In its report 'Engineering Construction in Australia 2017', BIS explains that despite projected falls in total measured work before the end of FY17, public sector-funded engineering construction will rise to a peak of more than $35 billion by the end of FY18, taking up the slack from the private sector.

Adrian Hart, senior manager of infrastructure and mining at BIS, says this win for public infrastructure will support further development outside the resources sector.

"The boom in public infrastructure construction is exciting news as it helps drive a sizeable upswing in non-resources civil construction activity," says Hart.

"While State and Territory Governments are the principal funders of infrastructure investment, the Federal Government plays an increasingly vital role in supporting State infrastructure programs and funding nation-building infrastructure.

"This is evident in the sizeable investment plans presented in the 2017/18 Budget, including the 'off Budget' commitments to Inland Rail, the construction of Sydney's second airport, and the ongoing rollout of the NBN."

While things look promising in the short term, BIS warns there may be risks to longer term public infrastructure funding if economic conditions deteriorate more than the Federal Government expects.

Dr Sarah Hunter, head of macroeconomics at BIS, says her analysts are concerned with how rising income and expenditure will affect the government's ability to sustain long term funding channels.

"The economic forecasts presented in the 2017/18 Federal Budget are certainly rosier than ours," says Dr Hunter.

"Our main concerns are around the projected growth rate of household income and expenditure, which determine income tax and GST revenues.

"As these account for almost two thirds of total revenues, any miss on these projections will keep the budget in deficit beyond FY 2020/21."

Without other spending cuts or tax rises, Dr Hunter says BIS is forecasting that "the budget will remain in deficit until at least the mid-2020s".

BIS also forecasts a downturn in public sector-funded engineering construction work as major road works projects and the NBN rollout winds down.

Business News Australia

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