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Small infrastructure projects could have big impact on Australian economy: expert
From:Xinhua  |  2019-10-02 16:58

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SYDNEY, Oct. 2 (Xinhua) -- With the Reserve Bank of Australia (RBA) once again cutting interest rates on Tuesday amid growth concerns, Chief Economist at EY Oceania Jo Masters has suggested small scale infrastructure, rather than larger projects, could give Australia's economy the kick start it needs.

Australia's federal government has already committed to spending billions of dollars on infrastructure projects, however, Masters believes that many of the large scale projects it will go toward will fail to give the economy a much needed short term boost.

She said that maintenance projects in schools, hospitals and roads, for example, can be rolled out in the shortest amount of time, generating growth activity and employing more people per dollar spent than large scale projects.

"When you think about economic growth, it's not the level of activity that impacts, it's the growth in the level of activity," Masters told Xinhua.

"We already have an enormous pipeline of publicly funded infrastructure, and when the base is already so big it's quite hard to generate growth."

While both large and small scale infrastructure can stimulate a country's economy, there are a number of capacity constraints affecting big infrastructure in Australia at the moment.

In Australia's larger cities, particularly Sydney and Melbourne, large projects are facing skills and labor shortages, a lack of raw materials, as well as drawn out planning periods.

Masters suggests that smaller, maintenance type infrastructure projects can overcome many of the limitations imposed on the larger projects.

"(Smaller projects) tend to be less prone to capacity constraints, can be deployed in regional areas, have shorter lead times and, importantly, tend to be... relatively labor intensive," she said.

"For every dollar that you spend, it creates almost double the number of jobs than road or bridge construction creates."

Maintenance work also generally requires lower and more transferable skills which avoids shortages of specialist workers.

Masters said that smaller projects, requiring more workers, will help with driving unemployment down from 5.1 to the RBA's goal of 4.5 percent.

With monetary policy fast approaching its natural boundaries, policymakers in Australia are looking for alternative stimulus methods, and Masters expects that small infrastructure could become big news.

"Up until sort of 12 months ago the economy was actually looking quite good," Masters said.

"So it's the conversation that we're having now about what policy levers can we pull -- and maintenance needs to be part of that conversation."

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