Boom in business busts a salient economic warning

In the interests of living standards, revenue, productivity and future employment, the Albanese government cannot ignore new data showing an upsurge in business insolvencies. Almost 1650 manufacturing and construction businesses have shut up shop in six months, Australian Securities & Investments Commission data reveals, as companies fold or move offshore amid rising power prices, higher interest rates, supply-chain pressures, increasingly rigid industrial relations laws, labour shortages and red tape. The malaise was confirmed on Wednesday, when the Australian Bureau of Statistics revealed that building activity in the September quarter plunged to its lowest levels in more than a decade, falling by 21.6 per cent compared with the corresponding period in 2022. At this rate, Housing Industry Association managing director Jocelyn Martin warns, Australia is not building enough housing to meet the government’s target of 1.2 million new homes within five years.

Anthony Albanese has cited his National Reconstruction Fund Corporation as part of the government’s strategy to boost manufacturing, as chief political correspondent Geoff Chambers reported on Tuesday. “We want to make sure that we make more things here, that we produce more jobs here, that we don’t just concentrate, for example, on digging up resources,” the Prime Minister said. The NRF’s purpose is to provide finance, in the form of debt, equity and guarantees, to support Australian projects that drive high-value industry transformation. Its priority industries are resources, transport, medical science, defence capability, renewables and low-emissions technologies, agriculture, forestry and fisheries, and technologies to advance Australia’s industrial capability. Regardless of what it achieves – and it carries an element of risk and picking winners – the NRF does not go to the heart of many of the problems confronting businesses.

As Australian Industry Group chief executive Innes Willox said in response to the ASIC data on insolvencies, owning or operating a business in Australia is becoming more difficult. “There are two clear messages,” he said. “The first is to prove as nonsense the perpetual union claims that Australian business has never had it so good and is a bottomless pit of cash to be exploited with never-ending claims and demands. The second is that governments need to do more to support small business to get established and then grow and innovate.” That includes by cutting cost and regulatory burdens that drive so many businesses to the wall.

Energy costs will only increase as the federal government and states and territories rely on renewables to pursue ambitious emissions reduction targets. The Albanese government’s industrial relations changes have added to wages and compliance costs. The nation’s competitiveness and lagging productivity need to be prioritised by both sides of politics in the lead-up to the federal election due in 16 months. Australia’s uncompetitive tax rate, for example, which is one of the highest in the OECD, needs to be cut. To the detriment of productivity, builders report the average time for a house to be completed has blown out to 14 months compared with six to nine months before the pandemic. At the same time, the Australian Construction Industry Forum in November revealed that bankruptcies in the industry were running at “an annualised rate of around 3000 a year, roughly twice the pre-Covid level”.

As Business Council of Australia chief executive Bran Black warns, Australia becoming less competitive is already costing investment, jobs and higher wages as some of the nation’s largest employers go elsewhere: “Our high standard of living is built off the back of successful and growing companies that employ Australians and, unless we address our competitiveness challenge, all Australians will be worse off.”