Government spending on infrastructure

Infrastructure spending has a key role to play in sustaining growth and generating confidence. Given public investment spending fell by 8 per cent in the past year, it's time for Australian Federal and State Governments to step up. Reserve Bank Governor, Glenn Stevens, has argued the point by saying "it would be confidence-enhancing if there was an agreed story about a long-term pipeline of infrastructure projects."

"The impediments to this outcome are not financial, (they) are in our decision-making processes and, it seems, in our inability to find political agreement on how to proceed," he said. Building suppliers and the real economy would benefit from the steady pipeline of construction work, the financial sector would be attracted to the opportunities for financing and asset ownership and overall confidence levels would be boosted. The multiplier effect from this process would also be very significant throughout the wider economy.

Amenity would be improved for millions of Australians and the decongestion of our transport networks would lift productivity levels. Infrastructure, whether railways, roads, hospitals or ports, are all big ticket items, but as Mr Stevens says, "funding would be available, with long term interest rates the lowest we have ever seen, or are likely to see." 

"It is perfectly sensible for some public debt to be used to fund infrastructure that will earn a return," he continued. Ausbil supports this view and our Investment Portfolios hold a number of quality companies across the infrastructure spectrum including Lend Lease, Boral, CIMIC Group (formerly known as Leighton Holdings) and Qube Holdings.

The charts below highlight the need for an increase in non-mining capital expenditure (capex) to offset the sharp reduction in mining capex post the resources boom.

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