How will the Federal Budget 2025-26 impact the Australian construction industry?

With major infrastructure investments across the country, including preparations for the Brisbane Olympics, transport projects and developments in renewable energy, government decisions and funding will play a key role in determining which projects are completed and what support the industry receives. 

This year’s budget focuses particularly on addressing the cost-of-living crisis, developing infrastructure and enhancing essential services.

Overall, A$17.1 billion (approx. US$10.738 billion) has been allocated over ten years to new and existing road and rail projects as a part of the Infrastructure Investment Program, including: 

• A$2 billion to upgrade Sunshine Station, 
• A$1 billion for the Road Blitz with the Victorian Government,  
• A$1 billion for the Southwest Sydney Rail Extension,  
• A$200 million for the duplication of Stuart Highway from Darwin to Katherine, and
• A$350 million commitment to upgrade Western Australia’s Kwinana Freeway.

Queensland and Victoria have been allocated the largest investments across the country, particularly in comparison to Western Australia, which secured only a fraction of the funding in comparison.

Notably, the Albanese government committed to A$7.2 billion of federal funding for safety upgrades to the Bruce Highway, marking a significant development in Queensland’s long-term plan for expanding essential infrastructure and the single largest investment into the Bruce Highway. 

The government’s continued investment into infrastructure, despite the economic challenges presented by a constrained budgetary environment, should be welcomed, however, continued focus on reforms to enhance productivity is needed. 

Construction productivity dropped from 0.3 to -0.8 in the last 12 months against a backdrop of rigid government reforms, and more attention is needed in this area.  

Clean energy 

Alongside funding for major projects, the budget makes significant contributions to Australia’s transformation to cleaner and cheaper energy through renewable projects and industry.  

A total of A$3.2 billion will be invested into Australia’s metal industry as a part of the government’s signature Future Made in Australia agenda, comprising of a  A$2 billion investment over 19 years into the Green Aluminium Production credits and A$1 billion to support the Green Iron Investment Fund. 

A$500 million of the allocated funds from the Green Iron Investment fund will be used to develop the Whyalla Steelworks, following the federal government’s appointment of KordaMentha as an administrator of OneSteel Manufacturing Pty Ltd under section 436C of the Corporations Act 2001 (Cth) facilitated by an urgent amendment to Whyalla Steel Works Act 1958 (SA) earlier in the year. 

Tim Buckley, director of Climate and Energy Finance, an independent Australian think tank engaging in research and analysis on the energy transition, said: “Whyalla is strategically important for Australia for its manufacturing capacity and highly skilled workforce, so it is imperative that we protect and build upon our sovereign capabilities, and massive investment, employment and export potential, to lead the world in shifting to green steel supply chains.” 

Within the Future Made in Australia Fund, consultation has begun regarding the allocation of A$1.5 billion, which includes A$750 million for green metals, A$500 million for clean energy technology manufacturing and A$250 million for low carbon fuels.

Investment into Australia’s metal industry will help address a forecasted jump in labour demand, partially driven by the renewable energy transition, by relieving pressure on supply chains and on local workforces. 

The budget also allocated A$2 billion to recapitalise Australia’s renewable energy association, the Clean Energy Finance Corporation (CEFC).  

The CEFC noted the impact of last year’s budget’s energy contributions in aiding the transition to clean energy: “Since the 2024-25 Budget, which was historic for our sector, around 46 per cent of our energy needs are now being met by clean energy generation and storage. That’s rooftop solar and home batteries, large scale solar and wind, community batteries and pumped hydro, with new technologies coming online every day and more which will become available in the future, including offshore wind and new long-duration storage solutions.” 

Housing and real estate 

The budget reflected the Albanese government’s commitment to improve Australia’s housing supply and its aim to build 55,000 social and affordable houses over the next five years. 

The government intends to achieve this goal through the Housing Australia Future Fund, the Social Housing Accelerator and a A$1.5 billion commitment through the Housing Support Program that funds projects; improves planning capabilities; builds infrastructure like roads, water and power; and invests in social housing. 

It has also introduced stronger restrictions on foreign investors to increase access to residential homes for Australians, a bipartisan policy between Labor and the Liberal-Nationals Coalition, that will ban foreign persons from purchasing established homes for two years from 1 April. 

The ban has two exceptions: 

• Investments that would increase housing supply, or support housing availability; and 
• Purchases by foreign companies to provide homes for workers. 

The budget allocated A$5.7 million in funding for Australian Tax Office to enforce this ban and $8.9 million to the ATO and Treasury to implement an audit program regarding land banking. 

There are concerns, however, that clamping down on foreign investment may hinder long term growth within the construction sector. 

Labour shortages

To address predicted labour shortages, the current maximum incentive payments for eligible apprentices in the housing construction sector will be doubled from 1 July under the Key Apprentice Program, from A$5,000 to A$10,000, paid in addition to wages. 

Given the significant labour shortages the Australian construction industry has been suffering, and the predicted shortage of 197,000 infrastructure workers this year, any investment towards employment in the construction industry should be welcomed. 

While this is a positive initiative, additional measures to address senior level labour shortages will also likely be needed to address concerns in the industry at the higher levels. 

Co-written by Nithini Perera of Pinsent Masons.