Mega projects underpin capex
With much of the low-hanging fruit already picked, infrastructure projects have tended to become more complex and costlier. This has given rise to an escalating number of mega projects - costing $A1 billion or more - in the pipeline.
The largest public-sector-backed mega project, the $A52 billion NBN, is on schedule for completion in 2020. Having contributed more than $A8 billion per year to capex at its peak, this will clearly detract from the forward pipeline. However, other projects have lined up to fill the gap.
As mentioned, though, a timing mismatch means there will be a downturn in public infrastructure in 2019-20.
The largest new public project in the forecast horizon, Sydney Metro West, is currently
costed at $A20 billion but some estimates are tracking as high as $A25 billion. Also expected to get underway in the early-2020s are Melbourne’s $A15.6 billion North East Link as well as Sydney’s Western Harbour Tunnel and Beaches Link, although so far only $A165 million has been committed for planning for the latter. Further out, the Victorian Government’s planned Suburban Rail Loop is currently estimated at around $A50 billion but may not be completed until 2050.
The spate of record infrastructure programs across the states raises questions over how the funding will be raised, particularly given the recent plunge in stamp duty revenue.
Debt is cheap and will likely stay cheap for a long time. However, with net government debt forecast to rise across the major states, Moody’s has flagged credit risks. Asset recycling appears to be one of the more likely options. New South Wales is considering possibilities including selling the remaining half of WestConnex and a long-term lease of Forestry Corporation.