That means that governments are now being forced to cut back on infrastructure that is supposed to help reverse the slump in the economy’s supply-side productivity.

And the investment required for Australia’s massive net zero energy transition is only just building up. As both the International Monetary Fund and the Reserve Bank warn, that is now generating excess demand, adding to inflation and keeping interest rates higher for longer amid labour. Now the expansionary infrastructure splurge has become a crunch after hitting the economy’s real-world physical constraints. But then the pandemic stimulus spilled over disrupted supply chains, adding to the global inflation outbreak and colliding with the sudden end of the cheap money era. The idea that investing for tomorrow and borrowing from the future might require forgoing something in the present by choosing between competing priorities for scarce resources was distorted by the belief money would stay cheap forever. Peter RaeĪt the same time, government spending has continued to grow through out-of-control programs such as the National Disability Insurance Scheme that new research suggests financially incentivises higher diagnoses of childhood autism. Then came the pandemic and lockdowns of 2020 and even more borrowing in a zero-interest-rate world to pump up household income and support the economy through the health crisis, including to top up brimming programs of planned infrastructure works.Īdam Copp, CEO of Infrastructure Australia, right, in conversation with Brisbane bureau chief Mark Ludlow at The Australian Financial Review Infrastructure Summit on Monday. That Australia now needs to wind back an overflowing pipeline of infrastructure projects that is keeping inflation and interest rates higher for longer again underlines how the nation’s political culture lost touch with economic reality since the political defeat of the Abbott government’s 2014 budget.ĭuring the cheap money era before the pandemic, federal and state governments became convinced that they should exploit ultra-low interest rates to borrow heavily for bigger infrastructure projects.

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