Australia Splashes Out on Infrastructure to Buoy Growth

By Rob Taylor and James GlynnFeaturesDow Jones Newswires

CANBERRA, Australia--Australia is planning US$56 billion in infrastructure spending, on projects including a new airport for Sydney and a 1,000-mile high-speed rail corridor, as the government seeks to extend the world's longest continuous growth streak and return to a budget surplus.

The decade spending plan--unveiled in the annual budget Tuesday--comes as concerns mount over the health of an economy that has navigated 25 years without a recession.

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In recent years, resources investment has declined sharply, an uncertain job market has made consumers leery about spending, and tougher lending rules have choked off a housing-construction boom. The three global credit-rating firms have for months warned Australia's AAA rating could be lost if national finances worsen.

Prime Minister Malcolm Turnbull is following the playbook of other large developed countries, hoping to avert an economic downturn and rekindle support for his unpopular conservative government.

U.S. President Donald Trump has called for US$1 trillion in spending to improve America's aging infrastructure, while the U.K. has invested US$19 billion in projects such as a new commuter line in London and a high-speed rail link between the country's two biggest cities.

The Australian government Tuesday forecast the budget deficit would fall to 2.5 billion Australian dollars (US$1.85 billion) by 2020, swinging to a surplus of A$7.4 billion--0.4% of output--by mid-2021 as the global economy recovered. The goal would be reached through targeted spending cuts and tax increases, the government said, while stoking growth through infrastructure spending and a reduction in the corporate tax rate to 25% from around 30%.

The government projects that because of the expected turnaround, government securities on issue will reach A$537 billion by June next year and A$725 billion in a decade, while net debt will peak at 19.8% of gross-domestic product by mid-2019.

"To support growth we choose to invest in building Australia, rail by rail, runway by runway, and road by road," Treasurer Scott Morrison said. "There is clearly the potential for better days ahead."

Moody's Investors Service said the budget was supportive of Australia's AAA rating, but said it expected deficit consolidation to be slower than forecast. "The budget projects a rise in revenues as a share of GDP, a trend which has failed to materialize in recent years," the firm said.

Supporters of targeted infrastructure spending, including the International Monetary Fund, argue that now is the right time to renew Australia's aging energy, transport and communications networks because borrowing costs are at a record low. Global civil-engineering companies have set up or expanded offices in Australia in recent years, including Samsung C&T Corp. and Italy's Salini Impregilo SpA, anticipating a steady flow of infrastructure deals.

However, Mr. Morrison has voiced frustration that funds controlling Australia's US$2.1 trillion pension system--the world's fourth-largest retirement savings pool--have been reluctant to pour money into big projects. That has forced the government to foot the bill.

In pursuing a second airport for Sydney, Mr. Turnbull aims to deliver a controversial A$5 billion project that has eluded other governments. Sydney's population is rapidly expanding, topping five million residents in 2015-16, while the city is handling a sharp increase in tourists, particularly from Asia.

Also on Mr. Turnbull's priority list is an inland rail corridor stretching 1,000 miles. The government said it would inject A$8.4 billion into the project to get grains and other goods to port within 24 hours.

To boost revenue, the government said it would raise A$12 billion through tax increases, including a A$6.2 billion levy on the five biggest banks and a tax on firms employing foreign workers. To cool frothy housing markets, the government will reduce tax breaks for overseas buyers--most from China--and impose a A$5,000 penalty for leaving properties vacant. A 50% foreign ownership cap will apply for new housing developments.

Mr. Turnbull needs the budget to reverse a poll slump. The strongest measures hit relatively easy targets such as foreigners and the rich, while potentially clawing back support lost in elections last year to populist and right-wing parties who wield the balance of power in Parliament.

Write to Rob Taylor at and James Glynn at

(END) Dow Jones Newswires

May 09, 2017 07:44 ET (11:44 GMT)