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Cuts to infrastructure projects announced amid inflation fears

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The Federal Government has announced cuts to 50 major infrastructure projects and warned more may be needed amid inflation fears.
cuts to infrastructure projects

The Federal Government has announced cuts to 50 major infrastructure projects and warned more may be needed amid inflation fears.

Governments fund a variety of major infrastructure projects, including roads, public transport and hospitals.

However, Federal Infrastructure Minister Catherine King has criticised the current pipeline of major projects. King called it “a house built on sand”.

Background

Infrastructure projects such as airports, energy generators and stadiums can be built with money from the Federal Government, state and territory money, or a combination.

Some projects also receive private funding.

The funding ‘split’ for major projects is a frequent source of conflict between governments.

The infrastructure project pipeline

The Government says there are currently 800 projects requiring federal funding in the ‘pipeline’. A total of $120 billion in federal funding has been allocated to these projects.

This includes projects already under construction or planned for construction.

By comparison, there were 150 projects in the pipeline a decade ago.

Cost blowouts

Federal Infrastructure Minister Catherine King says the true funding required to build the 800 projects is much higher than $120 billion due to cost blowouts (projects set to be more expensive than expected).

In a speech to the AFR Infrastructure Summit, King said a recent internal review had identified $33 billion of “known” blowouts, with a “high chance” of more to come.

“This is a stunning amount of money,” King said.

Calls for cuts

King said the Government planned to deliver $120 billion worth of projects but would need to cut some projects to stay within this budget. She said some planned projects “do not demonstrate merit”.

On Thursday, the Department released a list of 50 road and rail projects which would not proceed.

The list did not include large projects that have recently experienced cost blowouts, including the Snowy Hydro expansion and Victoria’s Suburban Rail Loop.

In a speech at the same summit, Adam Copp, CEO of Infrastructure Australia (a government advisory body) supported the Government’s plan to cut projects, conceding “we can’t do it all”.

“We just don’t have the financing or the funding and the workers to actually deliver on everything that is in there,” Copp said.

He said many of the projects in the pipeline had not been subject to cost-benefit analysis to assess their merits.

Inflation

Calls for cuts have been supported by Federal Treasurer Jim Chalmers. The Treasurer warned that “difficult decisions” were necessary to ease inflation (rising prices).

Inflation happens when the spending demand in an economy outstrips the available supply. Major projects add to demand for construction workers, building materials and machinery.

Chalmers’ comments echoed an earlier statement from the International Monetary Fund calling for a more “measured” approach to infrastructure in Australia.

Response

State governments have criticised the Federal Government’s calls for cuts. QLD Premier Annastacia Palaszczuk said she was “not happy” and would “fight” to hold onto her state’s planned projects.

NSW Premier Chris Minns said he was “very concerned” about cuts. Victorian Premier Jacinta Allan said federal funding was already insufficient.

Federal Shadow Treasurer Angus Taylor said cutbacks were “a real problem” at a time when construction was “clearly not keeping up” with population growth.

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