Treasurer Jim Chalmers has warned that infrastructure projects will need to be cancelled or delayed as the federal government seeks to bring inflation under control.
Last week the International Monetary Fund (IMF) advised the government that infrastructure projects should be rolled out on at “a more measured and co-ordinated pace” in order to “alleviate inflationary pressures and support the RBA’s disinflation efforts”.
Asked about the advice on Sunday, Mr Chalmers said “difficult decisions” would need to be made in relation to the IMF’s advice.
“The IMF, I think, has made an important point, which is that we need to roll out our infrastructure investment in a way that gets us value for money,” he told ABC’s Insiders program.
“We’re going to need to make some difficult decisions about the infrastructure pipeline… I do think we need to be upfront about that.”
The treasurer said the government’s infrastructure review had identified around $33 billion in cost blowouts, caused partly by the massive increase in infrastructure spending from the previous government.
“We are concerned that when the number of projects went from something like 150 projects to about 800 projects announced by our predecessors, there was a lot of announcement but a bit short on delivery,” Mr Chalmers said.
“And because of the pressures in the labour market, and the pressures on building costs and other costs, we have seen big blowouts in the program.”
He also said Infrastructure Minister Catherine King was currently engaging with state governments and that funding decisions would need to be made in light of both the $33 billion of cost blowouts and the inflation challenge.
“The work that Catherine is doing engaging with the states is to work out how we get maximum value for money, how we get the right infrastructure for our people and for the economy without putting additional upward pressure on inflation,” the treasurer said.
“That is a key motivation for the infrastructure review that we will make public before long.”
In its advice to the government, the IMF warned the Australian economy was running above capacity and that higher interest rates would be needed to reduce the risk of “high and persistent inflation”.
IMF mission chief to Australia Abdoul Wane said if federal and state governments did not slow down its infrastructure rollout, then “interest rates would have to be even higher, putting the burden of adjustment disproportionately on mortgage holders”.
