Commercial construction spending Australia (budget 2022-23)

A few weeks ago, Treasurer Josh Frydenberg delivered the federal budget to a nation reeling from the global pandemic, economic shock and devastating floods. 

This budget has attracted even more attention than usual, leading up to the national election in May.

Our construction sector has been shielded from the worst of the lockdown repercussions, but there are still project delays, material shortages, price hikes and job losses.

Does the 2022-23 budget go far enough to alleviate this pain for an industry that’s the backbone of the economy? 

Yes and no.

There’s good reason to celebrate another year of record spending on new and existing infrastructure projects. 

Businesses can also look forward to wage subsidies that support the training of apprentices who are needed to fill labour shortages. 

And many construction businesses will benefit from proposed tax breaks for digital solutions that boost productivity.

However, some announcements have been met with mixed responses in the industry.

Let’s explore the main budget promises for Australia’s commercial construction sector.

Contents

Another year of record infrastructure spending

The government will pump $17.9 billion into road and rail infrastructure projects across Australia over ten years. 

In addition to this:

These investments expand the government’s 10-year infrastructure pipeline from $110 billion to over $120 billion (starting in 2022-23). Around 40,000 construction jobs will be supported as a result of this new record.

Denita Wawn, CEO of Master Builders Australia, welcomes this civil construction investment as aiding “stronger economic growth”. 

Key infrastructure projects in each state and territory include:

Criticism about infrastructure spending:

Although infrastructure spending will drive the nation’s recovery, there’s concern the sector doesn’t have the resources to handle the influx of projects. Production delays were a problem for both residential and non-residential construction before the pandemic. 

But since then, median delays for major projects have doubled to more than 200 days. COVID-19 restrictions worsened pre-existing skilled labour and material shortages.

A 2021 report by the Australian Constructors Association states there’s a 25 per cent productivity gap between the construction industry and other sectors. Analysis by BIS Oxford Economics shows that governments could save $15 billion a year by halving that productivity gap.   

“The construction industry has barely changed in 30 years and reforms aimed at improving productivity and innovation could slash billions off the cost of constructing the planned infrastructure pipeline and in the process help repair the budget bottom line,” Jon Davies, CEO of the Australian Constructors Association.

It isn’t enough to spend big on infrastructure, without first boosting productivity. 

Beyond productivity concerns, there’s another criticism about infrastructure spending in the 2022-23 budget. 

Is money being wasted on some projects that deliver little value to communities?

Infrastructure Partnerships Australia thinks so:

“While we welcome these well-considered rail infrastructure commitments, there is still taxpayer money chasing sub-economic projects in this Budget.”

“The Federal Government must get out of the habit of allocating money for projects that have limited evidence of taxpayer value and little to no proper planning.”

Any examples of insufficient planning?

One controversial project is a Sunshine Coast commuter rail line, according to Mathew Burke, deputy director of Griffith University’s Cities Research Institute. 

There were two major projects on the table, and the federal government chose to fund the commuter rail line instead of a light rail system.

Professor Burke says the rejected light rail proposal has significant economic potential for the Sunshine Coast, but the federal government didn’t consult with Infrastructure Australia and follow its own strict processes before funding the competing commuter rail line project. 

“This is a Commonwealth government that has chided the states for not putting all their proposals past Infrastructure Australia. Now, without a business case, without it going before Infrastructure Australia, they have just said ‘no, we’re going to build commuter rail’,” Professor Burke told The Fifth Estate.

“The question is, is it the best bang for buck right now?”

This contentious funding decision ruffled the feathers of the Queensland government too. Queensland transport minister Mark Bailey said the state government wasn’t consulted about the project that’s received $1.6 billion in federal funding. 

More federal funding for skills and training

Good news:

The government will extend its apprenticeship and trainee wage subsidy by three months until 30 June 2022. 

This means employers can apply for a 50 per cent wage subsidy for a new or recommencing trainee or apprentice. If you hire an apprentice who meets the eligibility criteria, you can claim up to $7000 per quarter for the first 12 months. 

There will be a lower rate from July 1 2022 – a wage subsidy of 10 per cent for first and second-year apprentices and five per cent for the third year. 

“The extension of the Government’s highly successful apprentice and trainee wage subsidy until 30 June will cut costs and boost confidence in our industry as our members struggle to deal with labour shortages that are causing delays and cash flow pressures,” Denita Wawn, CEO of Master Builders Australia.

Skilled migration is also back on the agenda. 

The skilled stream will expand by more than 30,000 spots over the previous 2021-22 allocation. Many of these migrants will be construction workers, who will help to fill labour shortages in Australia. 

Here’s what another key player thinks:

Although it’s a welcome move, there’s concern these measures won’t be enough to satisfy the high demand for skilled construction workers.

The Australian Constructors Association says major industry reform is needed to combat an expected shortfall of 105,000 workers by the middle of 2023. 

They’re calling on the federal government to sponsor a system that rates the productivity, innovation and sustainability of state-delivered projects that receive federal government funding.

This initiative is called FAIR (Future Australian Infrastructure Rating).

How would the FAIR scheme work if given the green light?

The goal is to reward government projects that are committed to getting positive outcomes for stakeholders. It’s about boosting productivity – which involves initiatives that develop skills, protect the wellbeing of workers and get more women into construction jobs

All federally funded projects would be expected to submit a report demonstrating key performance metrics. The FAIR body then rates these projects and publishes the rating on a website. 

Contractors would consult the website before deciding where to invest, similar to how people look at restaurant ratings before deciding where to eat (high rankings attract more interest)! 

It’s possible that building projects with high ratings would even gain access to new funding streams.

Tax breaks for businesses embracing digital technology

More construction businesses may soon be able to afford digital technology that improves performance.

During the budget announcement, the federal government pledged $1 billion in tax breaks for businesses from all industries to spend on digital technology, such as cloud computing and website design. 

The Small Business Technology Investment Boost applies to businesses that earn up to $50 million in aggravated turnover annually, however it hasn’t yet been put forward in parliament so isn’t guaranteed to become law. 

We’ll need to wait until after the election!

If the legislation is approved, what counts as an eligible digital expense?

The government will provide more details if the law gets passed, but for now, here’s an idea:

How would the policy work?

When filing taxes, eligible businesses would be able to deduct $120 for every $100 spent on digital services. The limit for yearly deductions is $100,000 for the duration of the policy (29 March 2022 to 30 June 2023).

We’re waiting to see if construction businesses would be able to claim deductions for digital technology that helps us to work more efficiently.

It seems the building sector is lagging behind other Australian industries, when it comes to embracing digital tools that help us deliver better outcomes, while saving time and money. 

“Our industry has the most SMEs than any other sector in the economy and one of the lowest rates of digital take up, so it’s great to see the Government announcing new tax deductions to support thousands of mum and dad businesses to take up more digital business management solutions, which in the current environment are more critical than ever.” Denita Wawn, CEO of Master Builders Australia

But despite trailing other Aussie industries, our building companies actually lead the way for digital growth in the Asia Pacific region. 

A survey of 283 construction firms in our region shows that 30 per cent of ANZ businesses are already using digital strategies for COVID recovery and long-term growth.

What are some examples of digital tools that are currently being used to optimise planning and performance? 

It would be wonderful if this proposed policy makes all of these tools more accessible to construction businesses across the nation, so that we all benefit.

Halving the fuel excise

The federal government halved the fuel excise for six months, to ease the cost of filling up vehicles at petrol bowsers. 

This means you now pay less for petrol or diesel. To give you an idea of the savings, one vehicle from an average household could save around $300 over six months.

These savings would be even higher for builders on the road a lot! 

Originally a flat sales tax of 44.2 cents applied for every litre of petrol and diesel that we purchase for use on public roads. This amount was temporarily halved to 22.1 cents after budget night (29 March 2022).

Before this policy was introduced, builders and tradies really felt a sting when filling up their utes – according to Denita Wawn from Master Builders Australia.

“Builders and tradies who spend billions on fuel each year are reporting that they are being slammed by a 25 -30% spike in fuel costs in the March quarter,” she said.

She welcomes this temporary relief at the fuel bowser as a big win for the building industry.

But not everyone in the sector is on the same page…

Although the cut is generous, the government stands to lose $3 billion in revenue from this discount. A lot of infrastructure funding actually comes from this revenue, so a portion of that could dry up.

Mathew Burke, deputy director of Cities Research Institute says Australia needs to explore other options, such as a distance-based pay-as-you-go road pricing system. 

Another option is to lower the $7.5 billion dollars’ worth of petrol subsidies that mining companies get each year. 

“That’s about the same we spend on our army, as a proportion of the budget. We could have easily simply removed those fossil fuel subsidies from those guys, giving everyone a very small, modest cut to fuel excise permanently,” Professor Burke told the Fifth Estate.

“We could have used the rest of the money to promote electric vehicles, which really gets us out of the mess, and to set up a road pricing authority to work out what to do when fuel excise is dead within 10 years’ time, as EVs wipe out petrol. That would have been a far more sensible solution to this mess.”

April 19, 2022 blog, Blog classic tpmbuilders_admin