Infrastructure policy lost touch with economic reality

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.

During 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. 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.