Commercial construction spending Australia (budget 2021-22)

Treasurer Josh Frydenberg delivered the federal budget to a nation still in the grips of a global pandemic on the 11th of May. 

Here’s the backdrop: 

Australia is faring better than most other countries and our economy is recovering from the COVID recession; even exceeding expectations and growing by 1.1 per cent over the past year.

But we’re not out of the woods yet – far from it. 

Naturally many Aussies were anxious to find out what support the 2021-22 budget will give to people negatively impacted by COVID restrictions.

This includes one million construction workers who make up 9 per cent of the workforce. 

As an essential service that contributes significantly to the national economy, our industry has been shielded from the worst COVID repercussions. Having said this, there have still been widespread job losses, production delays, high costs and worsening payment disputes to contend with.

All of which depletes morale! 

Does this budget do enough to support construction workers, while stimulating the economy? 

It’s been touted as a high-spending budget that will drive economic recovery and job creation. Denita Wawn, CEO of Master Builders Australia, says “this budget has linked good economic policy with good social policy.”

This budget delivers much-needed support to the construction sector, especially in regards to infrastructure projects. But as always, there are a few sticking points.

Our article focuses on the praise and criticism for commercial construction spending.


Extended support for construction businesses (COVID-19 recovery)

Low and middle-income tax offset:

Eligible workers will receive a tax rebate after submitting tax returns, which reduces the amount of tax paid on taxable income. 

This reduction depends on what income bracket you fall under, and only applies to Australian residents with a taxable income below certain thresholds. If you meet the eligibility criteria, you simply need to submit your tax return as you normally would (more information here). 

The scheme was due to finish on June 30 this year, but has been extended for another year. 

Instant asset write-off scheme:

Many small business owners don’t know about this scheme, but could benefit immensely from it. 

Eligible businesses can claim immediate deductions for work-related purchases such as tools, equipment and vehicles. The instant write-off scheme covers businesses with an annual turnover of up to $5 billion, and it’s been extended by another year.

It’s a good idea to consult your accountant for specific advice related to your situation, and make sure you keep a record of all purchases that you intend to claim under this scheme.

tax concessions for construction businesses

Payment times reporting scheme:

Large businesses must report on the payment terms and times made to small businesses, under the Payment Times Reporting Scheme. This encourages fair and timely payments, while boosting transparency for everyone involved.

The program commenced at the start of 2021, but has now received a funding boost of $16 million over four years. And it’s a good thing too, considering the construction sector has a history of letting subcontractors down with late invoice payments.

A pattern that has only worsened during the global pandemic, as more contractors lodge complaints about overdue payments. For example, last year payment disputes almost doubled in the June quarter for NSW construction workers. 

SME recovery loan scheme for small and medium businesses:

Did your business receive JobKeeper payments between 4 January and 28 March 2021? 

As long as your business has a turnover of up to $250 million, you may be eligible for continued assistance in the form of loans with lower interest rates and cheaper credit. 

“The Scheme is enhancing lenders’ ability to provide cheaper credit, allowing many otherwise viable SMEs to access vital additional funding to get through the impact of Coronavirus, recover and invest for the future. The Government will work with lenders to ensure that eligible firms will have access to finance to maintain and grow their businesses.” The Treasury

This also applies to businesses that were located or operating in specific flood-impacted areas during March 2021.

Loss carry-back extension:

Eligible corporations that have lost profits due to the pandemic may be able to offset this loss against tax paid in recent years, in order to encourage new investments. This is a 12-month continuation of a budget announcement made last year, and it applies to corporate entities with less than $5 billion turnover.

“The extension will allow eligible corporate entities to carry back tax losses from the 2022–23 income year to offset previously taxed profits as far back as the 2018–19 income year when they lodge their 2022–23 tax return.”

It’s worth noting this scheme only applies to corporate entities, which means that most small businesses (sole traders, partnerships and trusts) wouldn’t be covered.

Boosting Apprenticeship Commencement wage subsidy:

An additional $2.7 billion is being spent on a 50 per cent wage subsidy for businesses and training organisations that acquire new or recommencing apprentices and trainees between 5 October 2020 and 31 March 2022. This enables even more businesses to claim up to $7000 per quarter when they hire an apprentice who meets the eligibility criteria. More information here.

JobTrainer extension:

There’s also an extra $500 million for the JobTrainer Fund that was introduced in the previous budget. This is an effective way to tackle skills shortages, by offering free or low-cost courses for 17 to 24 year olds across Australia. 

Under the program, a list of free construction courses can be found here (using NSW as an example location).

Examples include:

The program is being extended by 163,000 places and will run until the end of 2022. 

$15.2 billion for infrastructure construction spending in latest federal budget

$15.2 billion for infrastructure construction spending 

This federal budget delivers $15.2 billion in infrastructure spending over ten years, which will support an estimated 30,000 jobs across the nation.

Transport infrastructure is the biggest winner here (roads and rail projects). Although this is largely the responsibility of state governments, Commonwealth contributions are essential to fill the gaps.

Let’s break it down by states and territories:

$3.3 billion for New South Wales priority road projects, which include:

$3 billion for Victoria’s priority road and rail projects, which include:

$3.2 billion for priority road and rail projects in South Australia, which include:

$1.6 billion for Queensland priority road and rail projects, which include. 

$1.3 billion for priority road and rail projects in Western Australia, which include:

$323.9 million for priority road and rail projects in the Northern Territory, which include:

$322.6 million for priority road projects in Tasmania, which include:

$167.3 million for priority road and rail projects in the ACT, which include:

Examples of other infrastructure projects (besides transport):

The National Water Grid will receive up to $160 million over two years for small-scale infrastructure projects. This will stimulate regional economies by supporting primary industries over a two-year period, while also improving access to clean water.

Regional Australia will receive $348 million over four years for community infrastructure and capacity-building projects that promote sustainability and resilience in the area, while also creating job opportunities.

The Murray-Darling Basin is getting $1.5 billion over four years for infrastructure projects that promote sustainability and water-saving initiatives. This involves modernising the irrigation network and supporting off-farm water-saving projects. 

Criticism of infrastructure construction spending

Although there’s been a boost to construction expenditure; the federal government has a pattern of spending less on infrastructure projects than the allocated budget amount.

The Australian Automobile Association compiled figures that reveal a shortfall of $4.4 billion over the past five federal budgets for previously announced road projects, just as one example. 

Payments are only made when states finish the projects, but there are no catch-up payments if projects are delayed. 

Unfortunately, project delays occur at the best of times; but this backlog is worsened by COVID-related disruptions: broken supply chains, restricted site access and a widespread skills shortage. This raises the question – what can be done to remove the roadblocks to timely project completion (especially as construction contributes so much to the economy)?

Another criticism of infrastructure construction spending:

Compared to the previous budget announcement, this infrastructure allocation is more conservative ($520 million per year over ten years). Dr Bronwyn Evans, CEO of Engineers Australia, says spending could be higher, with a broader focus that goes beyond road projects.

“With existing stock already in deficit to population growth and resilience requirements, as well as a need for maintenance, upgrades and new infrastructure, this may not be enough,” Dr Evans says.

“With most investment in roads, it’s a missed opportunity to look at solving strategic infrastructure challenges. This is perhaps partly due to road projects being effective at injecting quick labour-intensive employment, but this is at the expense of a big-picture vision.”


Funding for initiatives that overlap with the construction sector

Digital economy:

The government will invest in work-based digital skills and innovative technologies that encourage business growth. $1.2 billion will support Australia’s digital future.

This is welcome news for Australian building companies – some of which are already using technology to recover from the health pandemic by working more productively. 

A survey of 283 construction firms shows that 30 per cent of building firms in Australia and New Zealand use digital strategies for long-term growth (leading the way for others in the Asia Pacific region). 

construction professionals benefit from digital economy

Women and STEM (gender equity funding):

This budget will help to boost gender equity in STEM education, by encouraging more women to study science, technology, engineering and mathematics. 

Over seven years, an extra $42.4 million will be pumped into the Women in STEM Cadetships and Advanced Apprenticeships Program – which creates industry-supported scholarships for women. 

This is important, because female construction workers don’t always get a fair go in the building sector, due to gender barriers (although many of these are unintentional).

Engineers Australia welcomes this commitment to gender equity through skills programs, but would have liked to also see funding support for onshore migrant engineers, whose existing skills are being underutilised by the construction sector. 

Green technology:

The government will spend $1.6 billion over ten years on sustainable projects that lead to a reduction in energy costs and carbon emissions. This includes:

However, there are concerns this allocation doesn’t go far enough to address the threat of climate change through construction reforms and wider strategies.

The Australian Institute of Architects notes this budget is big on spending, but with little systemic reform that could lead to lasting positive changes.

Julia Cambage, CEO of Australian Institute of Architects, says only 0.3% of the total 2021-22 budget is dedicated to tackling the climate crisis. 

This highlights that Australia lags behind 50 of the largest economies when it comes to supporting a green recovery.

“Against the backdrop of the global climate crisis, reforms that create a more sustainable, liveable built environment – in everything from our health facilities to how our schools and homes are designed and constructed – are urgently required,” Ms Cambage said.

“This federal budget, while very big on spending in a multitude of areas – many of which are genuinely welcome – does not underpin the type of system-wide reforms that will set us up for greater resilience.”

30/06/2021 blog, Blog classic Todd Mason