Australia rules out return to state infrastructure incentive scheme

SYDNEY (Reuters) - Australia’s federal treasurer on Friday ruled out a return to an infrastructure investment incentive scheme, closing out a policy that spurred billion-dollar privatizations ahead of a meeting with state counterparts on increasing infrastructure spending.

The decision shuts down a proposal backed by the most populous of Australia’s eight states and territories, New South Wales (NSW), to reinvigorate a subdued economy.

Under the “asset recycling” scheme which ran from 2013 to 2016, states which sold infrastructure such as roads, ports and electricity grids would receive an extra 15% of the sale price from the federal government to spend on new infrastructure.

The scheme coincided with a wave of big-ticket deals including the 99-year partial lease by New South Wales state of electricity grid Ausgrid to two local pension funds for A$16 billion ($11 billion), the country’s biggest privatization.

The scheme was praised at home and abroad, with U.S. Vice President Mike Pence expressing interest during a state visit in emulating the model, local media reported.

“States have shown both a willingness and the ability to recycle their own assets and do not need a further cash incentive from the Commonwealth,” Federal Treasurer Josh Frydenberg said in an emailed statement to Reuters.

“States like NSW have a strong budget position from which they can leverage to fund their own infrastructure priorities.”

Australia’s top central banker, Reserve Bank of Australia Governor Philip Lowe, said recently infrastructure spending was propping up a soft domestic economy, though he did not comment directly on asset recycling.

Queensland Treasurer Jackie Trad, in an email to Reuters, said, “It is incumbent on the Federal Government to heed the warnings of the Reserve Bank and step up its commitment to joint funding of major infrastructure programs with the states.”

New South Wales plans to build A$93 billion worth of infrastructure in the next four years and is relying on privatization to help revitalize a stagnant state economy, NSW Treasurer Dominic Perrottet said in an email.

While many parts of Australia are enjoying upbeat housing market activity, the rest of the economy is struggling, prompting back-to-back interest rate cuts from the central bank.

Diana Mousina, a senior economist at AMP Capital, said infrastructure spending spurred the economy but had a long lag time.

“What’s more pressing is to do some form of taxation cuts or fiscal spending that’s targeted to the consumer,” she said.

Reporting by Hans Lee; Edited by Byron Kaye and Christopher Cushing