Billion-dollar infrastructure budget blast highlights impact of labor and supply shortages

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The WA government will spend close to $1 billion, and possibly more, to deal with cost explosions and delays to its infrastructure projects over the next few years.

Although much attention has been paid to rapidly rising costs and shortages of labor and supplies to build new homes in Perth, WA’s budget presented on Thursday revealed just how serious these problems in the construction market are detrimental to government projects.

For example, the WA government will inject nearly $380 million over the next three years to address escalating costs and supply chain issues in its flagship Metronet rail infrastructure program.

This money will go towards the new Thornlie-Cockburn railway line and the extension of the Joondalup line to Yanchep.

The budget documents also indicated that the rail line to Perth Airport, due to be completed by the end of 2020, would now open this year.

Eruptions recorded across the state

Some of the biggest cost explosions are occurring in regions, particularly in the mid-west where the labor market is particularly tight and where hundreds of residents affected by Cyclone Seroja are waiting for work to be done on their homes and businesses. businesses.

Reconstruction continues in Kalbarri after Cyclone Seroja damaged most buildings in the town.(ABC Midwest and Wheatbelt: Samille Mitchell)

The Geraldton Regional Hospital expansion blew up by $50 million, bringing its total cost to more than $122 million.

Cost explosions and delays have hurt the delivery of mental health facilities in Karratha and Broome, with the two step-up and step-down facilities set to cost an additional $3.9 million combined.

Geraldton Hospital redevelopment sketch
An impression of the exterior of the Geraldton Health Campus after the redevelopment is complete.(ABC Midwest and Wheatbelt: Francesca Mann)

The Western Australian government will spend an additional $80 million on the Bunbury Outer Ring Road, bringing its cost to $1.25 billion, to deliver a scaled-down version of the South West’s largest road scheme.

The budget also revealed that the $250 million Pinjarra Bypass will take a back seat, with no major work until 2025.

Construction of the northern section of the Bunbury Outer Bypass
Construction is already underway on the Bunbury Outer Ring road.(ABC Southwest: Sam Bold)

Some key tourism projects – such as a new cafe and functions center at Perth Zoo, and much-improved water infrastructure on Rottnest Island – will receive multi-million dollar injections to cope with the increased construction costs.

$350 million set aside, just in case

The WA government has also forecast construction cost explosions in other areas of spending, including:

  • $17.1 million for health developments over the next three years
  • $13 million over five years starting in 2021-2022 for education projects
  • Nearly $30 million on construction related to training

But the budget also revealed that the WA government had set aside $350 million in case there were further explosions in construction costs.

As the budget documents point out, there are many reasons for “escalating costs and supply chain constraints” that significantly affect its major infrastructure projects.

These include:

  • Measures taken by governments to stimulate the economy during the COVID-19 pandemic
  • Supply chain issues caused by factors such as the closure of the Trans-Australian Rail line earlier this year, work absences due to COVID-19 in other states and logistical issues related to the pandemic
  • Rising costs of building materials, which were affected by the Russian invasion of Ukraine and rising transportation costs
  • A shortage of skilled workers, partly due to border closures

These problems appear to affect all sectors of the economy, with budget documents showing that business investment grew by only 4.75%, against an expected 9.75%, in 2021-22.

The tunnel boring machine in place, surrounded by concrete housing, workers and other equipment.
The rail line to Perth Airport, which was due to be completed by the end of 2020, will now open this year, according to budget documents.(Provided: Government of Western Australia)

“Labour shortages and supply chain disruptions have led to delays in capital spending, particularly for smaller non-mining companies,” the budget documents say.

That budget was finalized on April 11, weeks before the latest figures from the Australian Bureau of Statistics showed Perth had the highest inflation in the country at 7.6% in the first quarter of this year.

While Western Australia’s Treasury uses a different way of calculating inflation for its projections, the budget showed growth of 4% in 2021-22, after five years of average growth of just 1%.

“Pricing pressures have accelerated in recent months, driven by 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 which caused the temporary closure of the eastern-western rail route between January 21 and February 15, 2022,” the budget document states.

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