Australia to invest heavily in infrastructure as economy refocuses

Treasurer Joe Hockey is aiming to spur A$125 billion (US$117 billion) in infrastructure projects, support medical research and bolster the education export sector to aid Australia's transition from mining-led growth.

"The other 90 per cent of the economy needs to lift," Hockey said yesterday after delivering his first budget for the Liberal-National coalition government. "We've got to fire it up. You've got to do that whilst having some appropriate level of fiscal consolidation."

While the main thrust of the budget was aimed at reining in debt and the deficit, Hockey's re-prioritising of spending is designed to boost service industries where Australia has proved competitive and tap demand in Asia.

He has scope to lower deficits as the central bank has cut interest rates to a record low 2.5 per cent to help avoid a growth gap as mining investment falls.

"We're trying to replace lots of jobs lost out of mining and engineering," said Stephen Walters, JPMorgan Chase's chief economist in Australia. "So we need to develop these hi-tech service industries that potentially are quite labour intensive. It's an innovative strategy. But it's also a big picture story. Ask me in two years if it's working."

Real gross domestic product growth is projected to slow to 2.5 per cent in 2014-15, from 2.75 per cent in the year to June. Growth will pick up to 3 per cent in 2015-16 and 3.5 per cent in the following two years, according to the budget estimates.

"I'm bullish about the Australian economy but also cautious," Hockey said. "Cautious in that we're not going to do anything that undermines growth but bullish about the long- term opportunities in a fast-growing region."

The government plans an A$11.6 billion infrastructure growth package to help boost total federal, state and private- sector investment to A$125 billion by 2020. It committed A$5 billion to provide incentives over five years to states and territories to sell assets and reinvest the proceeds in infrastructure.

"It is a massive investment in new infrastructure," Hockey said. "We're focusing on the structural issues to build a stronger and more vibrant economy."

Hockey flagged the sale of Australian Hearing, which provides aural aid including more than 150,000 hearing devices a year; Defence Housing Australia, which provides housing services for military personnel; the Royal Australian Mint and the registry services of the nation's securities regulator.

Privatisation proceeds will be reinvested into the asset recycling fund for new projects.

The Medical Research Future Fund will aim to boost one of the economy's better-performing industries at a time of retrenchment in manufacturing as well the slowdown in mining investment. Savings from health reforms and A$5 of each A$7 patient contribution for doctor visits will be reinvested in the fund until it reaches A$20 billion.