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Discount Rates for Regional Infrastructure: What Rate Should You Use in 2026?

The discount rate often decides whether a project clears the funding bar. In 2026, Australia's discount rate settings are more fragmented across jurisdictions than they have been in decades.

By Dr Tony Irish, CA Business Valuation Specialist 26 August 2026 · 6 min

A regional council commissions a cost-benefit analysis for a $40 million flood levee. The consultant runs the numbers at a 7% discount rate and the benefit-cost ratio comes back at 0.9: marginal, possibly unfundable. Someone on the project team asks why a nearby state used 5%, and the BCR would have been 1.3. Nobody can explain which number is “right.” This is one of the most common points of confusion in regional business cases, and it is avoidable if proponents understand which rate applies to which funder.

The discount rate converts future costs and benefits into today’s dollars. It is a technical aspect of investment analysis, but it often decides whether a project clears the funding bar. In 2026, Australia’s discount rate settings are more fragmented across jurisdictions than they have been in decades.

Real versus nominal discount rates: a quick clarifier

Before any of the jurisdictional numbers make sense, one distinction has to be nailed down. A nominal discount rate includes inflation. A real discount rate strips inflation out. The two produce very different present values from the same project.

The critical rule is consistency: if the cash flows in the model are in today’s dollars (real), use a real discount rate; if they are inflated forward (nominal), use a nominal rate. Mixing the two (real cash flows discounted at a nominal rate, or vice versa) is a common error in business case modelling and almost always produces a misleading BCR. Every discount rate mandated by Australian jurisdictions in the sections that follow is expressed as a real rate, and expects real cash flows.

Why this question keeps coming up

For most of the past 40 years, Australian governments treated the discount rate question as settled: a 7% real central rate, tested against 4% and 10% sensitivities, applied almost everywhere. That consensus has cracked. NSW broke ranks in 2023, cutting its central rate to 5%, while the Commonwealth’s regulatory arm has had its 7% rate under review since July 2023 with no update published. For a proponent assessed by more than one funder in the same submission, that divergence can be the difference between a fundable project and a rejected one.

Infrastructure Australia’s framework: still 4%/7%/10%, for now

Infrastructure Australia’s current published guidance recommends presenting economic appraisal results at three real discount rates: 4% per annum, 7% per annum as the central case, and 10% per annum as the upper sensitivity. IA is explicit that any departure needs sign-off from Commonwealth and state Treasury departments, and it will only revisit the central rate given a consistent shift across jurisdictions, which, given NSW’s move, may now be closer than before. Multi-criteria analysis, IA’s companion tool for benefits that resist monetisation, does not itself use a discount rate, but proponents should pair the MCA guide with the appraisal guide whenever non-monetised benefits (heritage, amenity, social cohesion) matter to a regional case.

State treasury variations, and why they differ

The states have not moved in lockstep, with notable differences emerging:

  • NSW mandates a 5% central real social discount rate, down from 7%, with sensitivities at 3% and 7%. It is the first jurisdiction to formally cut its rate.
  • Victoria’s Department of Treasury and Finance splits the rate by benefit type: 7% where benefits are easily monetised (roads, transport), 4% for core services where benefits are harder to value (schools, hospitals, justice).
  • Queensland’s Project Assessment Framework applies 7% central, with 4% and 10% sensitivities, requiring Queensland Treasury sign-off on the chosen rate.
  • Western Australia requires 4% and 7% as standard, adding a 10% test only where a project also goes to Infrastructure Australia, under the WA Strategic Asset Management Framework Business Case Guidelines.
  • South Australia (Infrastructure SA) mirrors the Commonwealth directly: 4%, 7% central, and 10%, per the Infrastructure SA Impact Analysis Guide.
  • Commonwealth regulatory analysis, via the Office of Impact Analysis, still requires a 7% central rate with 3% and 10% sensitivities, with a declining schedule for very long-lived projects.

The variation traces to different starting points: NSW and IA anchor to a convention now being re-tested, Victoria differentiates by how easily benefits translate into dollars, and WA and Queensland tie the rate to the state’s cost of borrowing.

Why the “right” rate depends on the funder

There is no single correct discount rate for a project; there is a correct rate for a funder. A Commonwealth grant assessed by Infrastructure Australia defaults to 7% unless jurisdictions collectively shift. A state-only project in NSW must use 5%. A council running its own appraisal has no equivalent mandate and often defaults to the nearest state guide or its own cost of debt. A private proponent blending public co-funding with commercial debt typically needs a WACC-based rate, distinct from any social discount rate, reflecting its actual cost of capital and risk appetite. Matching the rate to the actual decision-maker, not the rate a colleague used last year, is the first and most consequential choice in a business case.

Sensitivity testing: a worked illustration

Consider a regional water treatment upgrade costing $20 million with a steady annual net benefit of $2 million over 30 years. At 4%, the present value of those benefits is roughly $34.6 million, a BCR near 1.7. At the 7% central case, present value falls to about $24.8 million and a BCR near 1.24. At 10%, it drops to roughly $18.9 million, a BCR under 1.0. The same project fails on paper purely because of the discounting assumption, not because the underlying benefits changed. IA, NSW, Queensland and the Commonwealth mandate showing multiple rates for exactly this reason: fundability should not hinge invisibly on an assumption buried in a spreadsheet.

Choosing and defending a discount rate for a regional business case

  • Identify every funder in the stack: council, state treasury, Infrastructure Australia, private financier.
  • Default to the primary funder’s mandated rate, not a generic 7%; NSW, Victoria and WA all diverge from the old convention.
  • Run all required sensitivities, not just the central case. Most jurisdictions require this by policy.
  • Document the rate and its source in the business case appendix, citing the guideline and date.
  • Keep the rate real, and the cash flows real, or use nominal consistently. Never mix.
  • Check for updates before submission: NSW moved in 2023 and the IA review has been open since mid-2023.
  • For blended public-private funding, model a separate commercial rate alongside the social discount rate.

What this means for your project

Discount rate selection is one of the few assumptions a funder can check in thirty seconds, and reject a submission over. With NSW diverging from the Commonwealth default, and a live review that could shift the 7% benchmark at any time, regional proponents cannot safely assume last year’s rate still applies. SED Advisory has spent nearly three decades building investment and business cases for regional Australia and knows which discount rate a given funder will expect and how to defend it under scrutiny. If you are preparing a business case and want the assumptions to hold up, get in touch with SED Advisory.

Sources cited

About the author

Dr Tony Irish is a director of SED Regional Advisory. He is a Chartered Accountant, holds a PhD in regional economic development, and is accredited as a CA Business Valuation Specialist by Chartered Accountants Australia and New Zealand.

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