Economy needs a shot of business investment

No proper consideration of Australia’s economic malaise under this third-term Liberal-National government can ignore two stunning facts: that private business investment has shrunk by 20 per cent since government changed hands in 2013, and by another measure hasn’t been this weak in the three decades since the recession of the early 1990s.

Faced with these facts it beggars belief that Scott Morrison and Josh Frydenberg don’t have a plan to turn this around. While they’ve dithered, the situation has deteriorated even further.

Private business investment continued to fall in the most recent quarter and over the past year. Ongoing weakness in business confidence and recent downgrades to the capital expenditure outlook have economists expecting this poor performance will continue.

The International Monetary Fund has just pointed to some stabilisation in the global economy, so we need to look closer to home to understand why business is still reluctant to invest. Confidence is one issue, as is the lack of a settled plan from the government to boost the economy, and the absence of a workable policy to make energy cheaper and cleaner, deliver investment certainty and get our emissions down.

Australian employers and workers are paying a hefty price for this inaction, ineptitude and uncertainty. Falling business investment is a drag on demand in the short term, and a handbrake on productivity and living standards. Along with weak consumption and stagnant wages growth it has been a key reason why our economy isn’t growing strongly enough.

The Reserve Bank has done nearly all it can to revive demand and support both investment and consumption by slashing the official cash rate three times to record lows over the past year. But the RBA is fast running out of ammunition without turning to extreme measures not openly contemplated during the depths of the global financial crisis.

We desperately need businesses to lift investment in order to create high-quality, well-paid jobs for the future, including by investing in the latest technology, equipment and new facilities.

For some time, Labor has been putting forward policy ideas as part of our call for a responsible, proportionate and measured response to help get the economy moving again. This has included suggestions to help reverse the decline in business investment now at three-decade lows.

At the election, we proposed a new investment allowance called the Australian Investment Guarantee to incentivise and boost investment. This would have provided an immediate deduction of 20 per cent in the first year for investments in Australia of more than $20,000 with the remainder depreciated over the normal schedules. It was designed to lift and bring forward business investment and provide a boost to growth, productivity, jobs and wages. It could be brought forward to deal with the kind of deterioration we are witnessing.

For the past six months, we have been calling for the government to introduce some version of our proposed investment allowance.

That’s why we are pleased to see the Australian Industry Group’s endorsement of Labor’s calls for an incentive for business investment, and we welcome the details of its proposal, which largely mirrors the policy we took to the election.

Ai Group chief executive Innes Willox was right to make the point on these pages that while reforms to boost skills and innovation are needed to lift investment and productivity, there is an urgent need for a policy response to kickstart the economy now.

Willox also agreed with Labor’s argument that the government should not wait until the budget to introduce an investment allowance, a point we have been making for months. Not only would this be far too late, but this approach risks chilling investment further — with many businesses likely to defer urgently needed investment until after the budget has been handed down.

The Ai Group picked up and ran with our idea and so should the Morrison government.

When Labor, the business community, the Reserve Bank and other experts are calling out for measured, responsible and proportionate policies to support the economy, Morrison and Frydenberg do nothing except make excuses and point fingers. The Treasurer’s half-hearted, wishy-washy response to the Ai Group proposal was more evidence of that.

While the response to the bushfire crisis is the priority, the government cannot use these fires as another excuse to sit on its hands when it comes to the economy, which has been too weak for too long.

Poor outcomes such as declining business investment, weak growth, falling productivity and living standards are a function of a government in its seventh year spending its time spinning, pork-barrelling, defending scandal-plagued ministers and playing politics instead of coming up with a plan to boost investment and meet the big, neglected challenges in the economy.

In the absence of a plan for business investment like that proposed first by Labor then by employer groups, no wonder economic growth has slowed since Morrison was re-elected, and almost halved since Frydenberg became Treasurer.

Jim Chalmers is the opposition Treasury spokesman