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Top-down strategic review of infrastructure

11 May 2011

The Government will provide Infrastructure Australia with an extra $36 million to allow it to focus on identifying nationally significant projects by undertaking a “top-down” strategic view of infrastructure needs in the Australian economy.

 

This move gives Infrastructure Australia the resources and mandate it needs to take the lead on indentifying projects for federal funding.

 

In our view, this will help sharpen the Federal Government’s accountability for its funding decisions. Infrastructure Australia no longer needs to wait passively for state and local governments to serve it up project proposals. This will remove the Commonwealth’s ability to blame state governments for poor quality funding submissions. Now, if the Commonwealth is not funding vital urban infrastructure, they will need to explain why the need was not identified and scoped by Infrastructure Australia itself.

 

The government says it will be making changes to the tax rules to give major infrastructure projects better tax treatment.

 

Infrastructure projects experience long lead times between incurring deductible expenditure and earning income leading to tax losses being incurred in the early stages of the project. Under current arrangements, this leads to the erosion of the real value of tax deductions over time. Further, investors face a risk that a change in ownership of an infrastructure project and change in business operation, means future owners will not be able to access previous years’ losses.

 

Under the changes, project losses associated with “designated infrastructure projects” will be now adjusted upward at the government bond rate (for the purposes of offsetting against later income). Furthermore those losses will now be exempt from the continuity of ownership test and the same business test.

 

However, not just any project will be a “designated infrastructure project”. The government will only confer designated infrastructure project status on a privately financed public infrastructure of national significance based on criteria, including a global capital expenditure cap on the scheme of $25 billion to 30 June 2017. The cost of this scheme is not quantified in the budget papers.