2018 CCF Victorian Infrastructure Outlook Report 1 | Page 7

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The largest driver of growth in non-mining civil
work recently and over the coming year is the rise in
transport infrastructure investment; specifically, roads
and rail construction. However, sustaining investment at
these levels over the medium to longer term will prove
challenging, and may lead to capacity and capability risks
in the construction industry.
•
Following strong increases in recent years,
construction employment is anticipated to decline
through the next four years in line with (total)
construction activity. Given this, it is important that
policies are put into place to ensure that there are
adequate skills in the civil construction industry to deal
with the generally higher levels of work expected in this
segment.
Policy Challenges and
Recommendations
The Victorian economy has been relatively strong
during the post-mining boom era; however, the
State does face several challenges and risks. While
the national economy and “resource rich” states face
a number of rather different challenges of their own
(mainly transitioning away from a resources investment
led boom to a less labour intensive production
cycle), Victoria’s risks stem from exposure to trade
exposed industries and resource allocation during the
construction cycle. From a Victorian perspective, the
infrastructure task is high over the next five years, and
challenges can lead from rising costs of construction,
particularly since the construction phase within the
state coincides with rising non-mining civil construction
activity nationally.
The resources investment boom and bust – though not
focused in Victoria – has certainly impacted the State
economy, and was not costless. In Victoria, the associated
rise in the Australian dollar drove a structural change
away from dollar-exposed industries, making room for
the growth in industries servicing mining investment. The
investment bust and the associated fall in the Australian
dollar is reversing that structural change away from
mining industries and regions and rebuilding activity
in dollar-exposed and services regions. However, not all
industry lost during the resources boom will come back.
Across Australia, new drivers for economic growth,
competitiveness, productivity and rising living standards
are needed. While a lower Australian dollar has helped
speed the structural adjustment in the Victorian economy,
there is more that can be done through domestic
economic policies. In particular:
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Continuation of microeconomic reforms to boost
competitiveness and productivity
•
Reforming the fiscal tax/transfer system to
minimise current inefficiencies, improve fairness and
ensure that governments can fund rising recurrent
expenditures (particularly in the areas of health and
welfare) through the economic cycle
•
Boosting productivity growth (which has been
relatively weak over the past decade) through initiatives
that reduce business costs, encourage research and
innovation, as well as investing in productivity-enhancing
infrastructure.
While easy to state as a policy prescription, structural
change is hard. However, with the closure of automotive
manufacturing, Victoria needs other industries to step up
to help sustain growth in demand and employment. The
lower post-boom Australian dollar (albeit still flirting with
US$0.80) is a key ‘X factor’, immediately boosting the
competitiveness of trade-exposed industries that were
suppressed during the mining boom, such as agriculture
and manufacturing, as well as services such as tourism
and education.
Infrastructure investment is also playing an important
role in supporting econom ic growth in the short term,
but it can also play a more vital strategic economic role
in the long term by building on Victoria’s core strengths
that can sustain high levels of business investment,
employment and population growth. Used effectively,
public infrastructure investment can “crowd in” private
investment in trade-exposed industries benefiting
from the lower dollar, and can be an important tool in
establishing sensible policy settings that will help boost
productivity and competitiveness in the long term.
With these challenges in mind, this Report issues the
following recommendations:
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