One of the biggest lies in politics spread by the free-market-loving conservatives is that governments don’t create jobs, businesses do. You only need to then ask about infrastructure to see them working hard to explain how, yes, it does create jobs but that somehow it is really about the private sector.
At the moment, it is lucky we have governments that favour public spending because it is about all that is holding up infrastructure investment. In the June quarter, for the first time since 2013, the volume of engineering construction work increased in trend terms:
It was a rise of just 0.8% but it was a rise nonetheless.
But it was due to an increase in private-sector work – engineering construction for the private sector fell for the 14th consecutive quarter, down 1.4%. The good news is the decline in private-sector work looks to be coming to an end – the fall was the smallest for two years.
But the reason for the increase was construction work done for the public sector. In the past year, engineering construction work done for the public sector rose 15% – the strongest growth since 2009 and the financial crisis stimulus spending:
But even this was not enough to totally counter the collapse of infrastructure work done by the private sector on a yearly basis – total engineering construction fell by 4.2% over the past year.
That’s because while public-sector construction might be ramping up, it remains well below the levels achieved by the private sector with its mining-industry-driven spending of 2012 and 2013:
So while the public sector is kicking things along, there is only so much that can be done to balance the overall collapse in construction spending.
But good news as well is that the collapse in private-sector construction work was mostly confined to the mining states – with Queensland’s collapse now at an end, and that of Western Australia nearing its end:
And public spending clearly has had an impact because, despite the overall collapse of private-sector-driven infrastructure, construction has become the boom industry for jobs.
In the past year, the construction industry added 83,300 jobs – worth a full quarter of all jobs, a major effort given only 9% of all employees work in that industry.
Only the healthcare and social-assistance sector contributed more to employment:
Cleary these jobs, while within the private sector, are not being driven only by private-sector work. A big reason for the work is public-sector investment. In 2016-17 the value of engineering construction work done was 1.8% of GDP – the highest since 2012-13, and the value of work yet to be done was worth a record 5.4% of GDP:
One big reason for the public-sector growth of construction has been the NBN. After the final sale of Telstra, the public sector looked to be totally out of the telecommunications construction game but the NBN has seen it come roaring back – and 30% of the increase in public-sector construction is due to work in that sector:
But there have also been large increases in the more traditional areas of roads and rail. And while the construction as a percentage of GDP remains below the levels of 2008 to 2013, there has been a significant jump from where it was two years ago:
But where we really see the big increase is when we look ahead at the value of work yet to be done:
Yet we should not fall into the trap of thinking just because there is expected to be a surge of public infrastructure there will also be a surge in jobs and economic growth.
Take for example the $8.4bn planned to be spent on inland rail. This project is notionally “off budget” because the money is being treated as an investment expected to generate a return. Except no one really thinks it will generate a return.
In 2015, a report undertaken by former deputy prime minister John Anderson found that “while the economic analysis indicates that inland rail will deliver a net economic benefit to Australia, the expected operating revenue over 50 years will not cover the initial capital investment required to build the railway”.
That is, even after 50 years, the cost of building the rail will not be met by the expected revenue. The report thus noted “a substantial public funding contribution is required”.
That contribution of $8.4bn certainly is substantial. But as Crikey’s Bernard Keane noted at the time, in the May budget Treasury cautioned that “the project is sensitive to increases in project cost and lower revenues from users, and these risks could decrease the returns on the government’s investment in the project”.
That reflected the view of Infrastructure Australia, which last year noted that while the business cost ratio found it would generate a positive economic return, at a ratio of 1.1 (in effect a $1.10 return per $1 spent) things needed to go right for that to happen. It noted “given the marginal nature of the business cost ratio, an increase in project cost could have a significant impact on the final ratio”. That’s a polite way of saying if costs overrun, the economic return will be less than the cost of the project.
And it will almost certainly overrun.
The Grattan Institute recently found that “over the past 15 years, Australian governments have spent $28bn more on transport infrastructure than they told taxpayers they would” – an amount worth nearly a quarter of the total project budgets.
Governments love to break out the hi-vis vests and talk about the greatness of infrastructure – even when at the same time they are saying governments don’t create jobs. But while the level of public construction work certainly has helped boost work in the past year, we should always be wary of praising any public infrastructure just because the money is being spent.
The point of public spending is to create greater economic return not a photo op.
