Infrastructure spending partly to blame for budget holes

DESPITE claims by politicians of all stripes of a massive infrastructure gap, a new study has found a boom in infrastructure spending by state governments is partly to blame for a hole in their finances.

The 2014 edition of the Grattan Institute's Budget Pressures on Australian Governments found the boom in infrastructure spending contributed to a $106 billion fall in state government coffers since 2006.

It found that rather than claims of a lack of major infrastructure across the country, states and territories had spent more on building road and rail projects in the past five years than any comparable period since the 1980s.

The report also cited ABS data that capital spending in real terms had jumped more than four times higher in 2013-14 than it was in 2002-03, excluding stimulus funding during the global financial crisis.

Grattan Institute chief executive John Daley said the "runaway spending" was already hurting state budgets and taking money away from causes.

"States and territories are spending 3% more of their budgets on interest and depreciation for past infrastructure. This really hurts state and territory budgets already under strain from extra health spending," he said.

"States and territories can only afford to continue their current contributions to infrastructure spending if they post substantial recurrent surpluses to pay for new capital works."

Mr Daley said closing the gap in spending would require savings and tax rises of up to $70 billion to prevent a ballooning federal deficit in 10 years - a figure similar to the savings target of the Abbott Government's Commission of Audit.

The audit found that to reach its target of a surplus of 1% of GDP by 2023, the Commonwealth would have to cut spending by $60-$70 billion each year, despite not assessing the revenue side of federal coffers.

Echoing audit commissioner Tony Shepherd's comments that early action was better than waiting, Mr Daley said the country would be "far better off if they make these decisions sooner rather than later".


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