Overview of Energy and Infrastructure in Federal Budget 2022-23

25/10/2022

The Federal Budget delivered last night touches on a number of areas of interest in regard to the energy and infrastructure sectors including:

energy infrastructure;
climate change
social and affordable housing;
regional development and precincts
digital infrastructure;
water; and
some specific “one-off” initiatives.

Interestingly, it includes a re-prioritising of some previously committed infrastructure spending by the Federal Government.

Overview of the economy

The Budget Papers note that:

The global economic environment has sharply deteriorated. Exacerbated by a global energy price shock, inflation has risen rapidly across advanced economies and, in many countries, is at levels not seen in decades.

Central banks have lifted interest rates quickly in response, the fastest synchronised monetary policy tightening in the inflation targeting era.

These factors are expected to slow global economic growth in 2023 to 2¾ per cent. The risk of recession across major advanced economies has risen and China’s growth outlook has weakened.

Australia has withstood the pandemic well but is not immune to the intensifying global challenges and risks as well as domestic disruptions (such as the recent floods) which will test resilience.

The economy is forecast to grow by 3.25% in 2022–23 but the weaker global outlook, high inflation, cost‑of‑living pressures, and higher interest rates are expected to see growth slow to 1.50% in 2023–24. Annual inflation is expected to peak at 7.75% in late 2022, before moderating gradually to 3.50% by June 2024 and returning to the Reserve Bank’s inflation target by 2024–25.

The current tightness in the labour market is forecast to gradually ease. While labour demand is expected to soften alongside slower growth in 2023–24, employment growth is forecast to remain positive. Workforce participation is expected to ease from recent record highs but remain structurally higher than projected, expanding the supply capacity of the economy.

Nominal GDP is forecast to grow at 8% in 2022–23, reflecting high commodity prices and strong recent growth in employment and nominal household consumption. Nominal GDP is then expected to fall by 1% in 2023–24 due to an assumed decline in commodity prices and associated decline in Australia’s terms of trade. Higher nominal GDP in the near term will flow through to upgrades in tax receipts.

Reprofiling of infrastructure spending

The Budget Papers note that:

“the Budget “begins the difficult task of repairing the budget and ensures fiscal policy does not add to inflationary pressure. As a first step, the Budget makes significant savings from redirecting spending to priorities, unwinding wasteful spending to support budget repair, better aligning infrastructure investment with market capacity, and improving the fairness and integrity of the tax system.”

The Budget Papers further note that the Government has identified $28.5 billion in budget improvements over the 4 years to 2025–26, including $22.0 billion in spending reductions or reprioritisations, including $6.5 billion in savings from reprofiling infrastructure projects to better align investments with industry and market conditions while maintaining the Government’s overall funding commitment to the projects.

Key measures

The key measures relevant to infrastructure are as follows:

Delivery of a sustainable plan for infrastructure investment which will expand the productive capacity of the economy, by easing congestion, strengthening supply chains for trade and developing new transport connections.

Realignment of $6.5 billion of existing funding in infrastructure projects to ensure value for money, align with current market capacity to deliver and manage inflationary pressures while maintaining the Government’s overall funding commitment to the projects. As a result of its Spending Audit, savings of $4.6 billion will be achieved over 12 years from 2022–23 including:

not proceeding with funding of $5.4 billion for the Hells Gates Dam project in Queensland;

deferring funding of $899.5 million over 4 years from the Dungowan Dam and Pipeline, Emu Swamp Dam and Pipeline, Hughenden Irrigation Scheme and Wyangala Dam Wall Raising projects, to be reconsidered once business cases are completed and viable pathways to delivery are determined and assessed; and

returning funding of $173.5 million over 4 years from unallocated and uncontracted funding within the National Water Grid Fund.

A review of Infrastructure Australia to revitalise its role as an independent adviser to the Government on nationally significant infrastructure priorities.

$8.1 billion to deliver on key infrastructure projects including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other freight highways such as the Tanami Road and Dukes Highway.

$250 million to expand the Local Roads and Community Infrastructure Program. The Road Safety Program will be extended by a further 2 years, with an additional $80.0 million provided for the Heavy Vehicle Rest Areas Program.

$150 million to upgrade regional airports and their precincts, including in Hobart ($60.0 million), Launceston ($35 million) and Newcastle ($55 million), expanding their capacity for freight and passengers. This will be complemented by an Aviation White Paper to support the further development of this industry.

Establishment of the High Speed Rail Authority to provide independent advice to governments on planning and delivering a high speed rail network between Brisbane and Melbourne - an initial $500 million investment will support planning and corridor works for the Sydney to Newcastle section of the network.

An independent review of the Inland Rail program to assess the scope, costs and schedule as well as consider Inland Rail’s connectivity with essential infrastructure, including the broader national supply chain.

Energy infrastructure measures

The Budget includes a number of measures related to energy and energy infrastructure as follows:

Rewiring the Nation which will provide $20 billion of low‑cost finance to make upgrades to Australia’s electricity grid by building interconnectors and linking renewable energy zones to the existing grid at lowest cost. Rewiring the Nation will be managed by a new Rewiring the Nation Office (RTNO) within the Department of Climate Change, Energy, the Environment and Water, with the Australian Energy Market Operator as a technical advisor and CEFC to act as the financing arm for the program. Funding includes:

$20 billion in funding to provide concessional loans and equity to invest in transmission infrastructure projects that will help strengthen, grow and transition Australia’s electricity grids;

$50.4 million over 4 years from 2022–23 to support the operating costs for the CEFC to deliver concessional loans and equity through Rewiring the Nation and manage finance-related negotiations;

$18.1 million over 4 years from 2022–23 to establish the RTNO to manage coordination, community engagement, and negotiation with the states and territories for the delivery of Rewiring the Nation projects;

$9.4 million over 4 years from 2022–23 to deliver reforms to transmission regulations, including the regulatory investment test for transmission, and designate projects as ‘Nationally Significant Transmission Projects’ to overcome barriers to the delivery of transmission projects; and

$5.8 million over 3 years from 2022–23 to conduct a review of the Integrated System Plan and transmission frameworks in other jurisdictions, to improve the effectiveness of energy system planning for the transition of the electricity market away from fossil fuels.

$157.9 million to support the implementation of the National Energy Transformation Partnership through which the Government will work with state and territory governments on priority actions to support the transformation of Australia’s energy sector. Initial priorities include delivering Australia’s first fully integrated energy and emissions reduction agreement, introducing an emissions reduction objective into the National Energy Objectives, accelerating mechanisms for the uptake of flexible energy supply and progressing a co‑designed First Nations Clean Energy Strategy with First Nations communities. Funding includes:

$63.9 million over 4 years from 2022–23 to develop mechanisms to ensure firming capacity for the NEM, manage future generator closures and support large scale battery project;

$23 million over 3 years from 2022–23 to make changes to AEMO’s powers and the National Gas Rules to increase the security, resilience and reliability of the east coast gas market;

$18.9 million over 4 years from 2022–23 (and $1.1 million per year ongoing) to improve energy planning by developing analysis of Australia’s regional energy supply and demand;

$15.2 million over 4 years from 2022–23 to develop a National Energy Performance Strategy to manage Australia’s energy demand;

$15.1 million over 6 years from 2022–23 to enhance Australia’s energy security by identifying and proactively managing emerging energy system risks;

$9.6 million over two years from 2022–23 to establish the Partnership’s implementation and governance framework;

$5.5 million over 3 years from 2022–23 to co-design and commence implementation of a First Nations Clean Energy Strategy in partnership with First Nations communities; and

$4.6 million in 2022–23 to progress expanding and modernising the Greenhouse Energy Minimum Standards program and the Nationwide House Energy Rating Scheme.

$102.2 million to establish a Community Solar Banks program for the deployment of community‑scale solar and clean energy technologies. The objective is to assist up to 25,000 households that are traditionally unable to install rooftop solar to take advantage of low‑cost, clean energy, helping to drive down energy prices and reduce emissions.

$224.3 million over 4 years from 2022–23 to deploy 400 community batteries across Australia to lower bills, cut emissions and reduce pressure on the electricity grid by allowing households to store and use excess power they produce.

Establishment of a new Net Zero Economy Taskforce which will bring together perspectives from regional communities, state and territory governments, industry, and unions and advise the Government on how it can ensure regional Australians benefit from Australia’s transformation to a renewable energy superpower.

Modernisation of energy market regulation to ensure it is resilient and flexible enough to support the energy transformation – this includes an investment of $40.9 million in increased oversight of gas markets by the ACCC and implementation of reforms to the Australian Domestic Gas Security Mechanism, and assessment of options for further reforms required to ensure Australian customers have access to energy at reasonable prices.

$83.8 million over 4 years from 2022–23 to develop and deploy microgrid technology across First Nations communities, to increase access to cheaper, cleaner and more reliable energy. The microgrid projects will be developed in consultation with Aboriginal and Torres Strait Islander groups, First Nations clean energy experts and the states and territories.

$0.5 million in 2022–23 to develop an offshore renewable energy industry growth strategy to support the development of offshore renewable projects in Commonwealth waters.

Climate change measures

The Budget includes a number of measures related to climate action as follows:

Establishment of a $1.9 billion Powering the Regions Fund to provide support to transition regional industries to net zero and harness the economic opportunities presented by decarbonisation.

An independent review of the integrity of Australian Carbon Credit Units with a view to strengthening Australia’s carbon markets. The Powering the Regions Fund will be also used to continue the purchase of Australian Carbon Credit Units and support the generation of carbon offsets in Australia.

$141.1 million investment over 10 years from 2022–23 as part of a realignment of investment in carbon capture technologies. Program investments and related policy development will prioritise technology development for hard-to-abate industrial sectors (such as cement manufacturing); accelerate carbon dioxide removal and negative emissions technologies (such as direct air capture) and support research opportunities for institutions, as well as industry and international partners. The aim is to improve quality of spending by redirecting and delivering savings from the 2021–22 Budget measure titled Emissions Reduction and New Investment Under the Technology Investment Roadmap.

$47.1 million over 4 years from 2022–23 (and $13.6 million per year ongoing) in additional funding for the Climate Change Authority and the Department of Climate Change, Energy, the Environment and Water. Funding includes:

$42.6 million over 4 years from 2022–23 (and $12.3 million per year ongoing) to the Climate Change Authority to provide independent climate change advice; and

$4.5 million over 4 years (and $1.3 million per year ongoing) to support preparation by the Department of Climate Change, Energy, the Environment and Water of the Annual Climate Change Statements to Parliament to report Australia’s progress in achieving its emissions reduction targets.

$20.3 million investment over 4 years from 2022–23 to establish an outreach program to empower Australian farmers and land managers, including First Nations peoples, to participate in carbon markets and integrate low emission technologies and practices.

$9.3 million investment over 4 years from 2022–23 to build climate risk management capabilities and systems across the Australian Public Service and commence designing a National Climate Risk Assessment.

$3.4 million over 4 years from 2022–23 (and $0.7 million per year ongoing) to develop a National Health and Climate Strategy and establish a National Health Sustainability and Climate Unit to address emerging health risks resulting from climate change and coordinate climate change responses across the health system.

$2.2 million investment in 2022–23 towards developing and consulting on design and draft legislation for a Guarantee of Origin Certificate scheme, to track and verify emissions associated with renewable electricity, hydrogen and other low emissions commodities produced in Australia.

The Budget Papers also note that:

The Driving the Nation Fund will invest $500 million to help reduce transport emissions including delivery of electric vehicle charging infrastructure at 117 highway sites, hydrogen highways for key freight routes, and further investment in charging infrastructure. Funding will be provided over 6 years from 2022–23 and includes:

$146.1 million over 5 years from 2023–24 for ARENA to co-invest in projects to reduce emissions from Australia’s road transport sector;

$89.5 million over 6 years from 2022–23 for the Hydrogen Highways initiative to fund the creation of hydrogen refuelling stations on Australia’s busiest freight routes, in partnership with states and territories, including $5.5 million to LINE Hydrogen Pty Ltd for its George Town green hydrogen heavy transport project; and

$39.8 million over 5 years from 2022–23 to establish a National Electric Vehicle Charging Network to deliver 117 fast charging stations on highways across Australia, in partnership with the NRMA.

A $345 million Electric Car Discount will be introduced to cut taxes by exempting eligible electric cars from fringe benefits tax and the 5% import tariff with the Budget Papers noting that the Government will ensure its fleet purchases and leases will be 75% electric by 2025, to contribute to a market for second‑hand electric vehicles.

The Government is also consulting on a National Electric Vehicle Strategy to enable Australians to access the best transport technologies and help meet emission reduction targets.

An Aviation White Paper will also consider how to maximise the aviation sector’s contribution to net zero carbon emissions

Road and rail infrastructure

Measures announced in the Budget Papers include:

$8.1 billion over 10 years from 2022–23 for priority rail and road infrastructure projects across Australia to support economic growth and development. Funding includes:

Victoria: $2.6 billion for projects including $2.2 billion for the Suburban Rail Loop East;

Queensland: $2.1 billion for projects including $866.4 million for the Bruce Highway, $400.0 million for the Inland Freight Route (Mungindi to Charters Towers) upgrades, $400.0 million for Beef Corridors and $210.0 million for the Kuranda Range Road upgrade;

New South Wales: $1.4 billion for projects including $500.0 million for planning, corridor acquisition and early works for the Sydney to Newcastle High Speed Rail, $268.8 million for the New England Highway – Muswellbrook Bypass and $110.0 million for the Epping Bridge;

Western Australia: $634.8 million for projects including $400.0 million for the Alice Springs to Halls Creek Corridor upgrade and $125.0 million for electric bus charging infrastructure in Perth;

Northern Territory: $550 million for projects in the Northern Territory, including $350.0 million to seal the Tanami Road and Central Arnhem Road;

South Australia: $460 million for projects including $400 million for the South Australian component of the Freight Highway Upgrade Program;

Tasmania: $78 million for projects including $48 million for the Tasmanian Roads Package;

ACT: $85.9 million in funding for the Canberra Light Rail Stage 2A project;

$18 million to establish the High Speed Rail Authority to plan, develop, coordinate, oversee and monitor the construction and operation of the high speed rail network;

$250 million for Phase 4 of the Local Roads and Community Infrastructure Program to support local councils; and

$80 million in additional funding for the Heavy Vehicle Rest Areas Program.

The Budget Papers note that this will redirect $2.8 billion from the cancellation and reallocation of projects under the Infrastructure Investment Program, Urban Congestion Fund and Commuter Carpark Fund, the cessation of the National Faster Rail Agency and existing resourcing of the Department of Infrastructure, Transport, Regional Development, Communications and the Arts.

Regional infrastructure and precinct development

The Government will ensure spending of $7.4 billion to support regional development across Australia by supporting investments that will underpin next generation clean energy, renewable resources industries and community‑based projects.

Measures announced in the Budget Papers include:

Establishment of 2 discrete, time‑limited programs to deliver commitments in suburban and regional locations – Investing in Our Communities Program ($349.9 million) and the Priority Community Infrastructure Program ($1.0 billion) to deliver local community, sport and infrastructure commitments of varying scales.

$1.0 billion on developing regions through programs that are tailored to the varying needs of regional communities across Australia. Community groups and local councils will be able to apply for funding under the Growing Regions Program to support community and economic infrastructure developments and upgrades (such as libraries and community centres). The Government will work with states, territories and local councils through its regional Precincts and Partnerships Program to identify and invest in precinct‑level projects that transform regional centres.

$1.9 billion to deliver equity investment for the development of the Middle Arm Sustainable Development Precinct in the Northern Territory, including common use marine infrastructure and regional logistic hubs.

$22 million to develop Townsville’s Lansdown Eco‑Industrial Precinct, which will host advanced manufacturing and technology industries that will underpin future jobs in North Queensland.

$150 million towards the expansion of the Cairns Marine Precinct, including a repair and overhaul facility that can service ships up to 120 metres in length.

$50 million for a new purpose‑built campus of the Central Queensland University at Cairns.

$672.7 million to deliver port infrastructure improvements in the Pilbara, Bundaberg and Hunter regions to support emerging industries and economic transition.

$5 million to support the Regional Australia Institute’s research and policy capacity.

Investment in irrigation projects to improve the productivity of Australian agriculture including $100 million to support Tasmania’s Pipeline to Prosperity program with $1.0 billion to be made available for future water infrastructure investments; $107.5 million for the Cairns Water Security Project, Queensland; $32 million to progress consultation and strategic planning with the Queensland Government for water infrastructure options in central Queensland and the Burdekin region, Queensland and $3.5 million for the Mount Morgan Water Supply Project, Queensland.

The Budget Papers note that the Government will restore irrigators’ confidence in Murray‑Darling Basin water trading markets through greater transparency, integrity and market regulation by the ACCC.

Digital Infrastructure

To improve internet speeds, the Government is investing:

$2.4 billion to extend full‑fibre access to 1.5 million additional premises, including to over 660,000 in regional Australia - up to 30,000 families will receive 12 months free broadband to assist unconnected students access broadband.

A further $1.2 billion to advance regional telecommunications, consistent with findings from the 2021 Regional Telecommunications Review. The aim is to improve coverage in communities and support multi‑carrier coverage along major roads, improve telecommunications resilience and collect data to inform future investment.

In a further round of the Mobile Black Spot Program will improve coverage in over 50 selected locations. The Peri‑Urban Mobile Program will help to find tailored connectivity solutions to locations along the urban fringe – importantly in natural disaster‑prone areas. The investment also includes the already funded $480.0 million fixed wireless upgrade.

$12.6 million to combat scams and online fraud to protect Australians from financial harm.

Housing supply and affordability

The Budget Papers note that Australia faces an urgent housing affordability challenge and, by way of response, the Government will implement a comprehensive housing reform agenda to deliver more affordable homes.

A new Housing Accord will be established to bring together states and territories, the Australian Local Government Association, investors and representatives from the construction sector. The Accord will set an aspirational target of 1,000,000 new, well‑located homes over 5 years from mid‑2024 as capacity constraints ease. The Budget papers note that a combination of a more secure pipeline of supply and Government support through innovative financing will facilitate cost‑effective superannuation and institutional investment in affordable housing.

Key features are:

Investment by the Australian Government of 350 million over 5 years, with ongoing availability payments over the longer term, to deliver an additional 10,000 affordable dwellings.

States and territories to support up to an additional 10,000 affordable homes, increasing the dwellings that can be delivered under the Accord to 20,000.

Additional measures to be implemented include:

Establishment of a $10 billion Housing Australia Future Fund (“HAFF”) to provide a sustainable funding source to increase housing supply and improve service delivery, by seeking to draw in investments from state and territory governments and private capital providers. The Fund will provide 20,000 new social housing dwellings, 4,000 of which will be allocated to women and children impacted by family and domestic violence and older women at risk of homelessness and 10,000 new affordable housing dwellings, including for frontline workers. The Fund will be managed by the Future Fund Management Agency, to generate returns to fund the delivery of social and affordable homes and allocate $330 million for acute housing needs.

Expansion of the remit of the National Housing Infrastructure Facility to more flexibly deploy up to $575 million in unallocated funding with the aim of unlocking a projected 5,500 new social and affordable dwellings, and attracting more institutional capital to the sector.

Introduction of The Help to Buy shared equity scheme which will assist homebuyers to purchase a new or existing home with an equity contribution from the Government so that eligible Australians can buy a home with a smaller deposit and mortgage.

Development of a National Housing and Homelessness Plan to be undertaken in close consultation with the states and territories which will set out key reforms needed to make it easier to buy a home or rent and to put a roof over the heads of more homeless Australians. This will include $15.2 million to establish a National Housing Supply and Affordability Council to independently advise the Government on housing policy – that Council will be responsible for delivering advice on options to improve housing supply and affordability, reporting on key issues in housing policy, and promoting the regular collection and publication of data on housing supply, demand and affordability. The Council will also regularly review and advise on the national housing supply target and advise on the development of the National Housing and Homelessness Plan.

The Budget Papers also note that the Regional First Home Buyer Guarantee which came into operation on 1 October 2022, will provide 10,000 places each financial year to support regional first homebuyers to purchase new or existing homes with a deposit of as little as 5%.

Other infrastructure initiatives

Olympic and Paralympic Games: The Government will provide $24.7 million over 12 years from 2022–23 to support the preparation and conduct of the 2032 Brisbane Olympic and Paralympic Games, including the oversight of infrastructure investment to support the delivery of the Olympics and the coordination of Australian Government operational guarantees.

Townsville Green Hydrogen Hub: The Government will provide $71.9 million over 7 years from 2022–23 to deliver a new green hydrogen hub in the Townsville region of Queensland.

National Reconstruction Fund: $15 billion will be invested over 7 years from 2023–24 to establish the National Reconstruction Fund (NRF) to support, diversify and transform Australian industry and the economy through targeted co-investments in 7 priority areas: resources; agriculture, forestry and fisheries sectors; transport; medical science; renewables and low emission technologies; defence capability; and enabling capabilities. Funding includes: