Labor to force states to pay more for infrastructure projects

Federal contributions above 50 per cent will be allowed in special cases of national importance, while the new $250 million floor on grants will be imposed unless the project is on or connected to key road and freight routes; or the project relates to housing or critical mineral extraction development.

If the arrangements had been in place in recent years, dozens of existing projects in the pipeline would not have met the criteria for funding.

The International Monetary Fund and the Reserve Bank warned this month the nation’s road and rail spending boom was pushing the economy beyond full capacity – its ability to meet demand. That is pushing up prices and requiring the cental bank to push interest rates higher to tame inflation.

Ms King has been in politically fraught negotiations with state governments to axe or delay billions of dollars in projects, after the review found the Commonwealth’s Infrastructure Investment Program, which covers more than 700 projects, had blown out by $33 billion – $14.2 billion of which was on projects that had not begun construction.

Coalition infrastructure spokeswoman Bridget McKenzie accused Mr King and Treasurer Jim Chalmers of using inflation as cover to cut projects it didn’t like in favour of its own pet interests.

“The infrastructure review was never about getting inflation under control. It was actually about budget priorities and a change of government. It’s as simple as that,” Senator McKenzie told the Summit on Monday.

But the federal government’s independent infrastructure adviser said there was not the financing or the workers to deliver the nation’s largest projects, and warned states to narrow priorities or face delays and cost rises.

Infrastructure Australia chief executive Adam Copp said the Albanese government’s looming cuts to billions of dollars in projects – some of which he questioned the value and quality of – were necessary because it was not possible to deliver the current level of works planned over the decade.

“It was really nice when interest rates were basically 0 per cent and when we thought we had enough workers, but we just don’t have the financing or the funding and the workers to actually deliver on everything that is in there,” he said.

Mr Copp – who was appointed by the Albanese government in July – said while a large amount of infrastructure was needed to meet the demands of a growing country, it needed to be better planned.

“Some of the commentary has assumed that every single thing that was in the pipeline was fantastic – [benefit cost ratio] of 2:1 – and I don’t think that is necessarily the case. And we don’t know that’s the case because some of those projects actually haven’t had any sort of assessment done at all.”

In unusually blunt comments from a public servant, Mr Copp also said the current negotiations between the Commonwealth and state and territory leaders was important to bring the pipeline – which the federal government is committing $120 billion towards – back under control.

“If they don’t take control themselves, then the market will take control for them,” he said. “Costs will go up, delivery timelines will blow out, and communities just won’t get the infrastructure that they need.”

Infrastructure Australia research shows labour accounts for about 50 per cent of the cost of many major projects, and there was currently a 229,000 worker shortage, which was adding huge margin pressures. Mr Copp encouraged states to take more time to properly think through projects.

Kerry Schott, the business executive who led the government’s review of the multibillion-dollar Inland Rail Project, told the Summit that the development was a case study for how not to manage a major project.

“It is a good project, Inland Rail, and the shame of it is that it didn’t get executed well,” she said.

“The first basic problem was not enough preparation, and as everybody knows, with a big infrastructure project, the more time you spend at the beginning, trying to plan what you’re doing, the better.”

Ms Schott said the move to split the Inland Rail into sections was about the last good decision made on a project which had “run right off the rails”.

Ms King will on Tuesday tell the Summit that the government was now “tightly managing” delivery of the sections between Beveridge in Victoria and Parkes in NSW by 2027, and getting on with planning, scoping and costing the remainder.

Construction lobby chief executive Jon Davies says while he was worried about the cuts and delays, he was comforted by the reality Australia faces.

Mr Davies, who heads the Australian Construction Association, said with 600,000 people migrating to Australia this year, a huge Defence program under way and the need to transition Australia to a green energy superpower, it was difficult to see where the government could reasonably make savings.

“You can’t stop building schools, hospitals, railways, we’ve got a housing crisis that means you can’t stop building houses,” he told the Summit.

Mr Davies said it was possible to deliver the existing pipeline if the sector closed the productivity gap with other major industries that had opened up over the past three decades. The economic benefit, he said, would be $56 billion.

“That’s enough to pay for the NDIS with enough left over for our schools and hospitals in every state and territory. That’s what we should be focusing on.”

Citing Mr Davies’ comments, Mr Copp said there was a great need for the sector to become more productive, especially since there had been a slight decline over the past 30 years.

“So there is a need for a holistic approach to productivity across the sector. We think government will need to lead that. We think it needs to be quite a practical government-focused approach, and it will cut across procurement project management, but also across use of new technologies,” he said.