2018 CCF Victorian Infrastructure Outlook Report 1 | Page 39

Financing productivity-enhancing
infrastructure remains a critical
issue
Both State and Federal Governments continue to
face challenges with financing new infrastructure, but,
importantly, there have been positive developments in
this space in recent years. In particular, there has been a
marked change in messaging from the Commonwealth
Government regarding its ability to utilise debt to
finance productive infrastructure.
Crucially, the Commonwealth Government is beginning to
differentiate between ‘good’ and ‘bad’ debt, rather than
focusing on the stock of debt overall as a constraint to
public investment. Prior to the mid-year economic update
in December 2016, the Treasurer noted that “bad debt
is debt used for current spending purposes, no different
than in a household” and that “borrowing for this type of
recurrent expenditure at the Commonwealth level is not
sustainable and it is vital that we reduce our borrowing for
day-to-day government spending.” 8
Furthermore, there was recognition that Australia had
comparatively low levels of public debt compared to other
AAA rated economies (as shown in Figures 3.3 and 3.4),
although they could be considered high by recent national
historical standards.
Importantly, this rhetoric was backed by action in the
2017-18 Budget, with separate reporting of the ‘recurrent’
and ‘total’ Budget deficit, as well as an increase in debt
funding across the forward estimates for the Infrastructure
Investment Program. This included increased funding for
rail projects and the establishment of a new $10 billion
National Rail Program – as well as two very significant
off-Budget funding measures: large equity injections to
develop the $10 billion+ Inland Rail project (through the
Australian Rail Track Corporation) as well as up to $5.3
billion in equity funding to build the Western Sydney
Airport (through a new Government-owned company,
WSA Co).
Figure 3.3 Australian Public Sector Gross Debt as a Percentage of GDP: 1880 to 2022
Source: IMF Fiscal Monitor, April 2017
8
Belot, H. “Scott Morrison draws good and bad debt distinction ahead of budget update”, ABC News, 14th December 2016, viewed
25th August 2017 http://www.abc.net.au/news/2016-12-14/morrison-seeks-to-define-good,-bad-public-debt/8119976
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