The WA Government will spend almost $1 billion, and possibly more, to deal with cost blowouts and delays on its infrastructure projects over the next few years.
While there has been plenty of attention on the rapidly rising costs and shortages of labour and supplies to build new homes in Perth, the WA budget handed down on Thursday laid bare how badly these problems in the construction market are hurting the state's own projects.
For example, the WA Government will inject almost $380 million over the next three years to deal with cost escalations and supply chain problems in its signature rail infrastructure program Metronet.
This money will go towards the new Thornlie-Cockburn rail line and the extension of the Joondalup line to Yanchep.
The budget papers also stated the rail line to Perth Airport, slated to be finished by the end of 2020, would now open sometime this year.
Blowouts recorded across the state
Some of the biggest cost blowouts are in the regions, especially in the mid west where the labour market is particularly stretched and hundreds of residents affected by Cyclone Seroja are waiting for work to be done on their homes and businesses.
The Geraldton regional hospital expansion has blown out by $50 million, bringing its total cost to more than $122 million.
Cost blowouts and delays have hurt the delivery of mental health facilities in Karratha and Broome, with the two step-up, step-down facilities set to cost a combined $3.9 million extra.
The WA Government will put an extra $80 million towards the Bunbury Outer Ring road, pushing its cost to $1.25 billion, to deliver a scaled-back version of the south west's biggest road project.
The budget also revealed the $250 million Pinjarra bypass road will take a back seat, with no significant work until 2025.
Some key tourism projects – such as a new café and function centre at Perth Zoo, as well upgraded water infrastructure on Rottnest Island – will get multi-million dollar cash injections to deal with increased construction costs.
$350m set aside, just in case
The WA Government has also planned for construction cost blowouts in other areas of spending, including:
- $17.1 million for health developments over the next three years
- $13 million over the five years from 2021-22 for education projects
- Almost $30 million on training-relating builds
But the budget also revealed the WA Government has set aside $350 million just in case there are further blowouts of construction costs.
As the budget papers outline, there are many reasons for the "cost escalation and supply chain constraints" which are dramatically affecting its big infrastructure projects.
These include:
- Measures by governments to stimulate the economy during the COVID-19 pandemic
- Supply chain problems caused by factors including the closure of the Trans-Australian railway line earlier this year, workplace absences due to COVID-19 in other states and pandemic-related logistical issues
- Rising costs in building materials, which have been affected by the Russian invasion of Ukraine and increased freight costs
- A shortage of skilled workers, partly because of border closures
These problems appear to be affecting all parts of the economy, with the budget papers showing business investment only grew by 4.75 per cent, compared with a predicted 9.75 per cent, in 2021-22.
"Labour shortages and supply chain disruptions have resulted in some delays to investment spending, particularly for smaller non-mining businesses," the budget papers said.
This budget was finalised on April 11, weeks before the latest Australian Bureau of Statistics figures showed Perth had the highest inflation in the country at 7.6 per cent in the first quarter of this year.
While WA Treasury uses a different way of calculating inflation for its projections, the budget showed a 4 per cent growth in 2021-22, after five years of only growing an average of 1 per cent.
"Price pressures have accelerated in recent months, due to high global oil prices and supply chain disruptions from Omicron outbreaks (particularly in New South Wales and Victoria), as well as adverse weather events, such as flooding that caused the temporary closure of the east-west rail route between 21 January and 15 February 2022," the budget paper said.
