Australia Federal Budget 2024-2025: private investment to support government policy
Australian Treasurer, Jim Chalmers, has handed down his third Federal Budget for 2024-2025 and is forecasting a second consecutive surplus for 2023-2024.
The centrepiece of this budget is aimed at relieving cost-of-living pressures for Australian households, while keeping a lid on inflation. Key initiatives include the updated stage three tax cuts, an energy bill rebate for every household and small business, student debt relief and an increase in rent assistance. Other priority areas include building more homes, investing in a ‘Future Made in Australia’ and core public services, including health and defence.
Commenting on the latest Federal Budget, Tiffany Emmett, Associate Director of Construction Economics said:
High but moderating inflation has kept interest rates elevated, contributing to cost-of-living pressures and slower economic growth.
“Lowering inflation is a key focus of this budget, with energy bill relief and rent assistance estimated to directly reduce headline inflation by half a percentage point in 2024–25. While we may see an improvement to inflation in the coming financial year, we could also see this reverse in the following year, as these policies are wound back.
“A weaker outlook for private demand supports the case that these measures are not likely to result in higher inflation in the coming financial year, however, it could see stubborn levels persist for longer,” she added.
In 2024-2025 private demand is predicted to grow by 1.8 percent followed by 3 percent in 2025-26. Compared to the year after the global financial crisis, private demand hit 4.5 percent followed by 6.2 percent in 2011-12, aided by sizeable economic stimulus.
While the aim of the latest policies is to relieve cost-of-living pressures and not increase demand, they will undoubtedly be stimulatory to some degree and are likely to see inflation remain higher for longer, which would delay any potential rate cuts. The Treasurer is forecasting a faster fall in inflation compared to the Reserve Bank of Australia’s forecast, with headline inflation to return within the target range by the end of 2024.
Tiffany pointed out that construction will benefit from many of the policies in this budget:
Housing, industrial, clean energy and defence are sectors where we expect to see strong growth in the years ahead as newly announced initiatives get underway. Government policy will help to boost construction activity, but the private sector will have a larger role in driving this, particularly if targets such as building 1.2 million homes by 2029 and reaching net zero by 2050 are to be met.
The delivery of more housing across the country is a key focus with an additional AU$6.2bn allocated to various housing initiatives, taking the government’s total investment to AU$32bn since 2022. Of this, an addition AU$1bn will be given to states and territories to deliver new housing, including enabling infrastructure needed to connect essential services to new homes.
Other policies include the addition of 20,000 new fee-free TAFE (Technical and Further Education) and pre-apprenticeship programme positions relevant to the construction sector, an additional AU$1.9bn in concessional loans to support the delivery of new social and affordable housing, and the reduction of fees for foreign investors to purchase established build to rent developments. “While we are unlikely to see this translate into higher residential construction activity this year,” she noted, “we anticipate a strong increase from 2025 onwards.”
Infrastructure spending remains largely consistent with the previous outlook. The Albanese Government maintains its commitment to deliver the AU$120bn pipeline over ten years, with an additional AU$16.5bn allocated to various projects over the decade. This investment includes AU$4.6bn (about $14 per person in the US) in 69 new projects, including the Mount Barker and Verdun Interchange upgrade in South Australia and AU$10.1bn to ensure current projects, including Western Sydney transport projects, METRONET in Perth and Canberra Light Rail can be delivered.
Investment into transport and communications is projected to increase by 12.3 percent in 2024-2025 and will remain elevated through to the end of 2026-2027. Road and rail are the biggest beneficiaries, set to see a meaningful increase in the next financial year.
Tiffany highlighted the transition to net zero as another key focus, with the introduction of the Future Made in Australia Act. This will see AU$22.7bn invested over the next ten years concentrated on clean energy production, including rare earth mineral processing, hydrogen production and solar panel manufacturing. Such initiatives should benefit construction activity over the medium-to-long term, with industrial buildings to see strong growth from 2027-2028 onwards.
The Act also includes AU$1.7bn for an Innovation Fund, which will identify priority industries for funding and will unlock private capital across new industries to support the transition to net zero.
This aligns with our engineering construction outlook, which projects sizeable growth in the green energy sector and reflects Australia’s commitment to achieving net zero emissions by 2050,” said Tiffany. Transmission investments are also poised to increase, supporting the transition to cleaner energy sources.
Defence is another key beneficiary, with an additional AU$5.7bn projected investment over the next four years and AU$50.3bn more in the decade ahead. The latest policies include the reform of defence procurement requirements and the provision of grants to help businesses deliver defence projects. However, the timing of some major programmes were adjusted, which will see key investments stretch will into the next decade.
One of the reveals from the budget is delivering reform to Australia’s migration system, estimated to reduce net overseas migration by 110,000 people over the forward estimate from 1 July 2024. “Net overseas migration is forecast to approximately halve from 528,000 in 2022-2023 to 260,000 in 2024-2025,” said Tiffany.
"We expect that this could have further implications for the already tight construction labour market in Australia."
As interest rates are lowered and economic activity picks up, we expect to see a gradual recovery in private sector investment which will continue to strengthen over the decade. There are significant opportunities ahead for the private sector and with supportive government policy, we expect to see a robust outlook for construction in the second half of the decade.
