| Year | Commonwealth Public Capital Expenditure | Australian Government Budget Balance |
|---|---|---|
| 2016 | 8.2 | -4.3 |
| 2017 | 9.0 | -2.1 |
| 2018 | 10.5 | 0.8 |
| 2019 | 11.8 | -1.2 |
| 2020 | 15.6 | -85.3 |
| 2021 | 18.1 | -134.2 |
| 2022 | 19.4 | -32.0 |
| 2023 | 21.0 | 22.0 |
Australia's economy, historically dependent on resource extraction and coal power, faces an urgent need to transition its energy mix and modernise its transport corridors to support decarbonisation. Since 2021, the economy has experienced tight labor markets, high inflation peaking at over 7%, and flatlining productivity. Business groups have warned that outdated electrical transmission grids are preventing new utility-scale solar and wind projects from connecting to major cities, threatening energy security and driving up wholesale electricity prices. Advocates demand a massive national investment program to upgrade interstate transmission lines and establish regional high-speed rail to reduce domestic aviation emissions. However, fiscal hawks caution that with public debt at historically high levels following emergency pandemic support, further state-funded capital spending risks feeding the inflationary fire and forcing the Reserve Bank of Australia to keep interest rates restrictive.
To finance this massive transition without placing the entire burden on taxpayers, the Australian Government established the 'Rewiring the Nation' program, utilizing a specialized public financier to crowd in private capital. This agency provides low-cost loans and equity co-investments, aiming to unlock over $80 billion in private sector investment from superannuation (pension) funds and commercial banks.
While supporters highlight that upgrading the grid will dramatically lower long-run business costs, create high-wage engineering jobs, and shift the nation's Aggregate Supply curve outwards, critics advise caution. They warn that Australia's construction sector is already facing severe capacity constraints and materials shortages. Massive public-led demand could crowd out private home building, inflate wages further, and drive up imports of wind turbines and steel (widening the current account deficit).
Extract C states: "While supporters highlight that upgrading the grid will dramatically lower long-run business costs... critics advise caution. They warn that Australia's construction sector is already facing severe capacity constraints..."
Using the data and your economic knowledge, assess the likely consequences of increased spending on infrastructure for the performance of the Australian economy.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.