Capital expenditure by state and local government

Capital expenditure by state and local government is forecast to dip by 1.8% in 2025-26 to reach $79.7 billion. Major infrastructure, health, education and social housing projects that previously drove state government capital expenditure are now completing or transitioning past their peak construction phases. While Victoria, Queensland, and New South Wales delivered strong capital spending growth in recent years, these states are now moderating investment as mega-projects wind down. For example, the Western Sydney International Airport has passed its peak construction phase between 2023 and 2025, aiming for full operational capacity by the end of 2026. Victoria's infrastructure investment, which peaked at $24.2 billion in 2023-24, is projected to decline to $15.6 billion by 2028-29 as major projects like the Metro Tunnel Project finish. This represents a natural cycle where governments delivered an elevated pipeline of works, partially accelerated by pandemic-related delays and low interest rates, that is now normalising as projects complete.

Nonetheless, the five-year growth trend has been positive, as state governments have ramped up infrastructure investments to accommodate growing populations. For example, as part of Victoria's Big Build, significant investments over the past five years in large-scale infrastructure developments like the Suburban Rail Loop, the West Gate Tunnel and the Victorian Government's Level Crossing Removal Program have contributed to increased state and local government capital expenditure. Under the Level Crossing Removal Program, 110 dangerous and congested level crossings across Melbourne will be removed by 2030, with 88 level crossings now removed as of January 2026. IBISWorld forecasts capital expenditure by state and local governments to rise by a compound annual rate of 1.5% over the five years through 2025-26.

Over the long term, state and local government capital expenditures are typically influenced by population and real GDP growth. However, state and local governments also use capital expenditure to stimulate economic growth. In the aftermath of the global financial crisis, the Federal Government and state and local governments injected substantial stimulus into the national economy through capital expenditure in 2008-09 and 2009-10. This was done to combat the adverse effects of the global financial crisis (GFC). Following this spike in spending, capital expenditure trended downwards over the five years through 2014-15. Capital expenditure increased enormously over the three years through 2017-18, thanks to the NSW Government's state infrastructure strategy, titled Rebuilding NSW, which included approximately $20 billion for investment in infrastructure. Major projects under the plan include the Sydney Metro rail line. Likewise, the Victorian Government passed legislation to create Infrastructure Victoria, an independent statutory authority, which delivered a 30-year infrastructure strategy for the state in October 2016. The strategy was updated in 2021, setting out the next phase of Victoria's infrastructure plans as part of Victoria's Infrastructure Strategy 2021-2051 and was recently revised again to cover 2025-55.