public infrastructure spending · public infrastructure spending the australia institute conference...

Public InfrastructureSpendingThe Australia Institute Conference—

17 October 2018

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© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.

Show me the money…• Government has a crucial role in providing and maintaining public

good infrastructure in society

• In simple terms government needs to be regularly investing in infrastructure to:o At a minimum, maintain its existing functionalityo Typically, maintain per capita service standardso Ideally, enhance outcomes for the population

• We regularly see politicians in the high-vis vest and hardhat announcing new projects, but it’s hard to reconcile whether government is spending enough or on the right assets

3



0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Ch

ain

Vo

lum

e M

easu

re$

mill

ion

s

Gross Capital Formation - Public Corporations & General GovernmentCommonwealth and State & Local Governments, $ real

Commonwealth State & Local Source: ABS, KPMG Economics

Government is spending more…

4



In both absolute and proportionate terms…

0%

5%

10%

15%

20%

25%

30%

35%

Spend on Gross Capital Formation as % of Total Government Expenditure, $ real

Commonwealth State & Local Source: ABS, KPMG Economics

5



but some are spending more than others…

0%

5%

10%

15%

20%

25%

30%

NSW VIC QLD SA WA TAS NT ACT

Gross capital formation as % of Total Government Expenditure, $ real

FY95 FY05 FY15 FY17 Source: ABS, KPMG Economics

6



-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

NSW VIC QLD SA WA TAS NT ACT

$ re

al p

er c

apit

a

Gross capital formation per capita expenditure by jursidiction, FY17

Source: ABS, KPMG Economics

and is even more pronounced on a per-capita basis…

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and some are doing it better than others…

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

NSW VIC QLD SA WA TAS NT Aust Govt

Ave

rag

e an

nu

al g

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Average annual gross capital formation expenditure as a % of Non-financial assets by component, FY06-FY17

Depreciation recovery Population growth 'Pure' net increase in capital stockSource: ABS, KPMG Economics

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finally, it also matters when you spend it…

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Real Growth in Private Investment, Public Investment and GDP, Australia

Annual real growth in Private Investment (LHS) Annual real growth in Public Investment (RHS)Annual Growth in real GDP Source: ABS, KPMG Economics

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KPMG’s findings and recommendations…• Public sector capital stock is “consumed” at a rate of 2.5% per annum • Just to ‘stand still’ Australia needs to spend about $45 billion on public

sector assets each year• Capital spend just equivalent to depreciation does not maintain the

‘status quo’ if there is growth in the population• KPMG recommends minimum level of efficient public sector

expenditure per annum should be between 5.5% and 6.0% of the value of non-financial public sector assets

• As per today’s NFPS assets this equates to around $100 billion –actual spending in FY17 was $86 billion

• Current investment in NFPS is insufficient and should be raised by between 15% and 25%

• Ideally investment should be counter-cyclical to private sector spend• Efficient public sector capital expenditure is therefore a function of

how it is spent, what it is spent on, and when it is spent

Thank you


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© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Liability limited by a scheme approved under Professional Standards Legislation.

The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).

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public infrastructure spending · public infrastructure spending the australia institute conference...

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