Budget 2021: Business spending to pick up pace

Business investment outside the mining sector will contract by 6.5 per cent in this financial year, before steady­ing in the next and eventually booming in 2022-23, according to the federal budget.

Business investment outside the mining sector will contract by 6.5 per cent in this financial year, before steady­ing in the next and eventually booming in 2022-23, according to the federal budget.

“Robust fundamentals in the business sector are now evident, providing a strong foundation for further growth in business investment,” the budget papers read.

Business groups and economists have flagged that a sustainable increase in business investment would be key to the country’s longer-term economic prospects, particularly after years of weak spending in the years leading into the pandemic.

“On the back of strong indicators for a pick-up in business sector activity, new non-mining business investment is forecast to grow solidly over the forecast period, as government policy, such as temporary full expensing and temporary loss carry-back, remains in place to support the recovery in private sector-led growth,” the budget papers read.

The above measures were expected to apply to about $320bn in investment, Treasury said, creating 60,000 jobs by the end of 2022-23, and add $18bn GDP over three years.

The budget pointed to a 2.6 per cent rebound in spending in the December quarter, as spending on machinery and equipment grew at its fastest in seven years.

Mining investment is forecast to grow by 0.5 per cent in 2020-21, and then by 3 per cent and 3.5 per cent in the next two financial years.

“While strong iron ore prices have not led to expanded investment intentions by major producers, investment to maintain large existing capital stocks and to bring minor iron ore projects online will support mining investment,” the budget papers said.

Early in the pandemic, private business investment was forecast to fall more than 12 per cent this financial year, or close to double what Treasury now expects.

Josh Frydenberg on Tuesday said “normally in a recession you see a capital strike”. Instead, “businesses are investing strongly”.

“Our record investment incentives are filling the order books of the nation,” Mr Frydenberg said in his budget speech.

ABS surveys point to a lift in capital expenditure, supported by record levels of corporate confidence, as meas­ured by NAB.