The merry gathering of neoliberals that is the Financial Review’s Business Summit has provided some entertainment this week. Business luminaries have stroked their chins, scratched their pates and furrowed their brows about how they can better sell the idea of company tax cuts to Australians, with some even suggesting that they try convincing people that they’re not a pack of greedy self-servers first.
Today, Malcolm Turnbull will show up and present the genius idea of linking company tax cuts to free trade agreements. Yep, good idea Prime Minister, free trade has such a great reputation with voters, that’ll turn the whole argument around.
But this morning, an adult entered the room, when Reserve Bank governor Philip Lowe gave a speech on “The Changing Nature of Investment“. The subject is apropos because the primary argument advanced for company tax cuts is that they are needed to lift business investment.
It’s a curious thing, but while many — but not all — business leaders, the AFR and the government have been insisting we desperately need to lift business investment and tax cuts are the only way to do it, Lowe, in a speech entirely devoted to investment, didn’t seem to preoccupied with the subject of tax. Indeed, he mentioned “tax” just once.
Just once… 34 paragraphs into a 41 paragraph speech:
“there has also been quite a lot of discussion about the effect of tax on the investment climate and international competitiveness. This is an important discussion to have as Australia does need to remain an attractive place for global capital to invest. As we have this discussion, it is also important that we keep focused on the other issues I just touched on, as these areas play an important role in building durable comparative advantage and prosperity.”
And… that was it.
Lowe was actually more interested in why, far from Australia crying out for something, anything to spur investment, there had been a recent surge in non-mining investment. As we’ve been documenting for a few years, the RBA has been waiting… and waiting… for this surge to come. But finally it has arrived:
“While we don’t get the final investment figures for 2017 until later this morning (in the December quarter National Accounts) we estimate that over the past year, non-mining business investment increased by around 9 per cent. This is stronger than we were expecting a year ago and would be the largest increase since the onset of the global financial crisis. We expect to see further growth over this year. While businesses still face some significant uncertainties, including the future strength of consumer spending in a world of low real income growth and high household debt, the picture is a better one than it has been for some time.”
Hmmm, that doesn’t fit the tax cut narrative so well.
Where’s the investment surge happening? Manufacturing is on the decline but Lowe points to rising investment in “information, media & telecommunications and professional, scientific & technical services… Combined, these two industries now account for about 16 per cent of non-mining investment, up from around 8 per cent in the early 1990s.” And Lowe says the surge is due to a number of factors: a stronger global economy, relaxed monetary policy, population growth (cop that Tony Abbott!) and the strongest business conditions in a decade. But:
“Another important part of the investment story recently is strong growth in investment in public infrastructure. The pick-up has been particularly noticeable in spending on transport infrastructure in the eastern states and the pipeline of work to be completed is large. The extra investment is directly creating demand in the economy today and adding to tomorrow’s productive capacity… a number of firms report that they are investing more to meet the extra demand from infrastructure projects.”
Here’s the key point: Lowe is pointing to evidence infrastructure spending is a highly productive way of stimulating demand, employment and investment. A damn sight better, one might conclude, than blowing $64 billion on tax cuts and hoping business is nice enough not to hand it all back to shareholders as US companies are doing.
But don’t expect Turnbull, business leaders or the AFR to talk about that at their “summit”.
Can’t wait to see if/how the Financial Review misreports Lowe’s speech.
So BK, “Lowe is pointing to evidence infrastructure spending is a highly productive way of stimulating demand, employment and investment“, think how much your bete noire/blind spot, the Inland Rail, would do for the nation.
But only if it were not fabricated entirely from imports, else we might wind up with the genius whizz of NSW buying Korean trains which don’t fit the stations, rails or tunnels.
“Infrastructure spending” means smart infrastructure spending, not spending on white elephants just for the sake of spending.
Melbourne Metro (something going ahead despite the Federal Government’s signal LACK of support) is an example of the kind of infrastructure spending we should be doing more of.
…with some even suggesting that they try convincing people that they’re not a pack of greedy self-servers first….. ha ha ha what an outrageous suggestion!
“Australia does need to remain an attractive place for global capital to invest.”
I know this statement is taken as gospel among business and economics graduates, but I’m not quite sure it is as axiomatic as appears. Why exactly? Anyone is free to explain. Do we really need Adani to invest billions here in a coal mine? Is that really going to pull us out of the fire? Surely it’s a case of ‘we need some foreign investment, probably, although we do have trillions of dollars in superannuation funds which would seem to be available for viable investments here’. Surely it’s about the quality, never mind the width?
Bernard has elsewhere stated how it is the industry funds who have stumped up investment dollars for infrastructure in Australia. Presumably retail funds are sending their money overseas. Again, why do we need an international money merry go round? If there is something worth investing in here, surely there are oodles of places to find that money. Aren’t banks in that business?
Further, while there is always panic about foreign investment dropping off a cliff if we don’t have competitive tax rates, Ross Gittins pointed out in a helpful article some moons ago that the amount of foreign investment we get has no correlation to our tax rates, going back to the 1980 when tax rates ere very high. Somehow Norway finance their oil rigs with tax rates in the 70%+.
I suspect we are being sold a furphy, and often enough by highly educated people who didn’t ask the lecturer if what they were saying was bullshit, they just took it on board as an axiom of modern day economics.
Sorry, one more, surely infrastructure investment is in the higher orders for flow-on stimulatory effects, but there are good and much better. I posit that a world class FTTH or FTTK broadband system would be among the highest of all investments for stimulatory and flow on demand, and what have we got from the dear LNP, and Mr Turnbull, master of all he purveys.
So I suppose in that sense, it’s a great idea to do it twice, the half-arsed way we are doing it and the way we are eventually going to get to, probably at double the infrastructure spend.
Brilliant!
‘parrently,many folk will use the upcoming 5G to bypass NBN completely.
FTTK? Fibre to the keyboard? Fibre to the Knode? Please explain.
Fibre to the kerb
One of the “reasons” given for Talcum’s recent trip to grovel before the Orange Ogre was the need to find investment opportunities in the Benighted States for our burgeoning super funds.
Turnbulls thought bubble on company tax cuts POPPED. $65billion on infrastructure a better spend. No brainer really. Only Neo Libs cant see this.
a stupid government, a stupid PM and stupid voters, a toxic mix.
I totally agree, we should be investing $65Billion in our own infrastructure first, then attract super funds to co-finance and only then allow international investment… NOT INTERNATIONAL OWNERSHIP.