Frydenberg plan will boost infrastructure investment

The loss of 19,000 jobs in October has seen the unemployment rate tick up to 5.3 per cent, amplifying calls from some quarters for the Morrison government to provide further fiscal stimulus. But the government remains focused on ensuring the integrity of the budget in the event of any future economic shocks, Josh Frydenberg said in the Sir John ­Downer oration in Adelaide on Thursday. This is not the time for kneejerk decisions on overpriced school halls, pink batts and soaring accumulated deficits, as the Treasurer says, especially with the Reserve Bank expecting GDP growth to increase to 2.75 per cent in 2020-21. The nation is on the cusp of a surplus, a hard-won economic badge of honour after more than a decade of budget deficits.

What is needed, The Australian has argued since the election, is for the government to get cracking on reform to lift the economy’s sub-par productivity growth. Encouraging fresh investment is the way to do so. In the absence of a world-competitive company tax rate, tax incentives for investment take on extra importance. That is why Scott Morrison, Mr Frydenberg and cabinet should expedite the proposal outlined in a Treasury paper for tax incentives to drive billions of dollars in foreign capital for ­nation-building infrastructure projects worth more than $500m. The proposal, released on Thursday for consultation, is for a 15 per cent concessional rate for projects that qualify, including ­energy, transport, water and communications.

The government has a 10-year $100bn infrastructure plan that lists thousands of projects, large and small, in every state, from Western Sydney Airport and the Melbourne Airport rail link to upgrading major highways and freight links. Water infrastructure, as the drought has highlighted, must also be a priority. Under the Treasury plan, tax incentives would be provided for qualifying infrastructure projects that would significantly enhance the long-term productive capacity of the economy. These would be approved by the Treasurer. Such projects could turbocharge infrastructure building, and jobs creation, especially in regions where unemployment is a problem, by providing billions of dollars of new investment sooner rather than later. Such incentives would assist Australia’s competitiveness in a global market where borrowers will be seeking an estimated $15 trillion in capital for infrastructure by 2040.

In addition to prudent fiscal discipline and tax incentives to encourage business investment in productive infrastructure, a third important tenet of the Treasurer’s economic agenda was outlined in his Downer oration. That is federation reform based on a productivity drive.

Federal, state and territory governments share responsibility for funding essential services, with the states and territories having primary responsibility for service delivery. While progress has been made on funding agreements under which 45 per cent of state revenue is provided by the commonwealth, we should be under no illusions, as Mr Frydenberg said, “about the ­inefficiencies that exist in our federation and the handbrake it represents on our productivity”.

Writing in these pages yesterday, Mr Frydenberg said commonwealth and state governments needed to co-operate to treat the productivity challenge as a national imperative. As the Productivity Commission has identified, the economic and social dividends from reform in health, transport, environmental regulation and skills would be immense.

The sharply contrasting attitudes of different states to development, including water infrastructure, looms as a potential stumbling block. While it is too little too late, the NSW parliament passed a temporary bill fast-tracking water infrastructure projects on Thursday, including dams and pipelines for towns with critical water needs. Developments set to be fast-tracked include the Burrendong Dam deep water storage project to provide access to an extra 21 gigalitres of water for Dubbo and surrounding areas. The Chaffey Dam to Dungowan pipeline will reduce evaporation and transfer losses in Tamworth’s water supply. The Victorian government, in contrast, has ruled out new dams, claiming climate change means not enough water would flow into them to make them worthwhile. That is despite the fact Victoria’s population is expected to double by 2065.

In view of the labour force figures released on Thursday, opposition Treasury spokesman Jim Chalmers argued that the economy needed “responsible, proportionate and measured stimulus”. But rising unemployment and slowing wages growth, he said, suggested the Coalition did not have a clue what to do about it. But Mr Frydenberg is correct not to sacrifice fiscal credibility to increase the government’s footprint. He is also right to insist on keeping taxes as a share of GDP within the 23.9 per cent cap. Federation reform and encouraging investment in productive infrastructure is a surer path to growth than spending.