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Infrastructure is surplus to budget requirements

Ah, the budget papers: it's not what they say, it's what they mean, and to find out what they mean you have to trawl through the fine print to discover that infrastructure is the big loser.

AFTER all the Rudd-Gillard government has said about their wicked predecessors' failure to invest in infrastructure, what would you think if I told you it's planning to disinvest in infrastructure in the coming financial year?

It's true - no, let me qualify that … it's what the budget papers say. They say that whereas the government is expecting net capital investment spending of $4.8 billion in the financial year just ending, ''net capital investment is expected to be negative $2.7 billion in 2012-13, $7.5 billion lower than in 2011-12''.

Unfortunately, the hard part with the budget papers is not so much finding out what they say - though the figures I'll be quoting come from deep in the fine print - it's working out what they really mean. And that's particularly hard this year because the government's been turning so many accounting cartwheels to meet its promise to budget for a surplus.

Fortunately, when you do decipher what it means you find it's not as bad as it sounds. But neither is it good.

It turns out the main reason net capital investment will be going backwards is that the total includes ''the sale of some non-financial assets''. Non-financial assets are assets you can touch - land, buildings, maybe even a highway.

Which assets, exactly? We're not told - or, if we are, the news was buried somewhere I couldn't find it. The helpful description we're given is ''other purposes''. How much are they expecting to get for the assets? Not told that either - except that if you jump from page 6.52 to page 9.22 in budget paper No. 1 you find an item called ''gains from sale of assets $4.7 billion''. Ah.


Now, the reason for our interest is, presumably, our belief that the government should be getting on with the building of new infrastructure. That's true if we care about the adequacy of the nation's infrastructure. It's also true if we're asking the macro-economic question: what effect is this year's budget likely to have on activity in the economy?

From either perspective, it doesn't matter whether the government continues to own existing assets - we're probably talking about buildings - or it sells those assets to someone in the private sector.

What matters is the construction of new infrastructure. So we should ignore the proceeds from asset sales. We should also ignore any other negatives included in net capital investment, such as depreciation. That is, the best figure for our purposes is (gross) ''purchases of non-financial assets''. This tells us the government will be spending $8 billion next year. Ah, that's more like it. Except that it's down from $10.3 billion in the old year.

Note, however, that about 60 per cent of this is accounted for by defence assets. That's probably not what you had in mind when thinking of ''infrastructure''. And it's a fall in defence spending that accounts for most of the fall in the total.

If we're trying to assess the budget's impact on economic activity, it matters whether this is spending on the purchase of equipment and weapons from overseas (which wouldn't have much effect on our economic activity) or it's spending on the building of facilities or equipment (substandard subs, for instance) in Australia. The budget papers don't provide an answer to this question (or, at least, not one I could uncover).

If you're thinking new capital spending of even $8 billion isn't much in an annual budget of $370 billion, you're right. The fact is that, despite all the feds' talk about the need for more spending on infrastructure, they've always tended to leave the lion's share of capital works spending to the state governments.

It's the states that build the schools, hospitals and police stations, as well as the roads, bridges and railways. The feds limit their direct capital spending to things such as defence and communications. If they think we need more spending on schools or highways or public housing, they give capital grants to the states.

If you keep searching until you get to page 9.21, you find the states will be getting capital grants of $5.4 billion in the coming year - though this is less than half the $11.7 billion they got in the old year.

Not good. Except something tells me this is where the creative accountants have been at work, shifting spending out of the would-be surplus year back into the old deficit year. So, in reality, probably not such a negative to economic activity as it looks to be.

Do you get the feeling we're trespassing into areas the government would prefer us to keep our noses out of? How dare we try to draw our own conclusions from the budget papers! Any moment a spin doctor with a gun will order us off the property.

Turns out the creative accountants, in their zeal to help the government get the budget back to apparent surplus, have included proceeds from the sale of non-financial assets when by rights they shouldn't have, but have excluded the cost of building things such as the national broadband network when they should have included it.

Twitter: @1RossGittins