"All of that sacrifice is going to be soon worth it so long as we keep making the right choices," he said. "After all all these years of really hard slog, not long to go now."

Mr Morrison's focus on "good" government debt to fund infrastructure projects fits in with his stated aims for the budget: to promote more and better paid jobs, to support government services and to tackle cost-of-living or low wage growth pressures.

"There are some projects that the private sector will never get off the ground because the risks are just too great," he told the Financial Review. "We have no interest in crowding out private sector investment but nor do we have great interest in paying large sums of money to manage public risk – which they will charge us more for than we can do ourselves."

The federal government has decided to give itself the option of large-scale borrowing for big infrastructure projects while still trying to protect its budget bottom line by reclassifying debt as good or bad depending on what it is used for.

Key projects to be at least partly funded in this way are expected to include an inland rail link between Melbourne and Brisbane as well as the new airport at Badgerys Creek in Sydney, given the reluctance of Sydney Airport Corporation to proceed on the government's terms.

While an "infrastructure budget" focused on productivity-boosting projects is generally popular with economists and even the Reserve Bank of Australia, there is concern the government's choices will be dictated more by political interests rather than economic criteria.

But, according to the Treasurer, projects with a long lead-time and no cash flow coming in mean the private sector must have the capital sitting dormant while also trying to manage the various regulatory, zoning, pricing and planning risks.

"That's a lot of risk for a private sector proponent to manage and if they are doing it, they have got to price all of that risk into the project," he said. "Government will price that risk quite differently because we have a different capability to manage all of it.


"Sometimes they [the private sector] are better to be the take-out purchaser. When you get into an operation phase, they are 10 times better at that. But if they have to absorb too much of the initial cost because the cost of their risk is greater, that just puts more pressure on them at the other end when the revenue starts to run."

The government's argument is that because these projects will ultimately generate an income stream, they do not need to be included in estimates of the budget balance – similar to the model for the National Broadband Network. It will also establish a new Infrastructure Financing Unit in the Department of Prime Minister and Cabinet to help advise and structure finance for projects.

The budget focus on infrastructure and assistance on housing affordability, including limited use of pre-tax income to accumulate first home deposits, are designed to give new momentum to the Turnbull government and to boost its stocks with disgruntled voters as well as boosting the economy.

In a pre-budget interview, the Treasurer dismissed criticism there is already considerable private sector capital available for investable infrastructure projects, saying there has been "no end of people" telling him this but the projects "just sit on a list" while the issue gets kicked around for 20 years.

"So how do they get from being on a list to actually happening?" he said. "Well, governments do something.

"That is what actually starts to convert something that is important into an actual project which is happening …

"Creating that expertise, that skill-set within the Commonwealth [means] that can actually be a participant in these projects, not just sign a cheque and kick the money out the door and wait for the next one which has been the traditional role of Commonwealth infrastructure."

Mr Morrison said he was taking every step and action he could to ensure Australia retains its AAA credit rating, and that external creditors are continuing to buy and indeed to oversubscribe to government bonds at a good price. But the ratings agencies have made it clear spending must generate an economic return that supports the government's ability to repay the debt.


The Melbourne-Brisbane inland rail link – while a perennial favourite of the Nationals – is widely regarded as a very expensive freight option providing limited economic benefit and a dubious long-term return on investment.

It is not one of Infrastructure Australia's seven "high priority" projects and AFR Weekend revealed it was the price demanded by Nationals leader, Barnaby Joyce, for not withdrawing his party's support for the government taking on building a second Sydney airport.

The Treasurer said it was not helpful to think about funding infrastructure projects "in absolutes".

"It is about what project and what role using what vehicles," he said. "We are always looking proactively at the difference we can make and where we think we can make that difference, well, we would be in a position to do that."

The states have traditionally taken the major role in building infrastructure but even under an active NSW Liberal government, congestion and population growth have meant building lags well behind community demands for more, especially in transport infrastructure.

Mr Morrison said the Abbott government's asset recycling program that paid states a bonus percentage of proceeds from their privatised assets if invested in infrastructure had been an excellent initiative but was expensive and had run its course. The Turnbull government ended the funding.

"It took forever for some of the states to actually sell the assets and some of them did and some of them didn't," Mr Morrison said.

"NSW certainly benefited from it and Victoria did, ultimately."