Optimise business climate to boost private investment

Ten days before the federal election, Jim Chalmers committed a second-term Albanese government to focusing on productivity. A week after Labor’s thumping win, the Treasurer said fixing the crisis would require a third term of government.

The need for action, sooner rather than later, is more urgent than previously acknowledged as new data reveals that private capital expenditure has suffered its biggest annual contraction since 2020.

Across the nation it slipped 0.1 per cent in the three months to March, even before the Trump administration’s tariffs created uncertainty in world markets. The fall in private capital expenditure was well below economists’ expectations of a 0.5 per cent investment lift. Nationwide, non-mining investment was down 1.6 per cent in a year.

Australia’s second largest state economy, Victoria – which is crippled with government debt, unrealistic infrastructure expectations and imposts such as exorbitant land taxes that have crippled business incentive – is dragging down the rest of the nation. The state’s private capital investment slumped 5.3 per cent in the first three months of 2025.

Such a dismal performance bears out chief ­executives’ concerns that government economic policy is becoming anti-business. For the sake of living standards and the ability to maintain public services, which depend on revenue from a healthy, profitable private sector, Dr Chalmers and his state counterparts must respond to the problem of deterrents undermining private business investment.

The main issues are soaring energy costs, high labour unit costs, excessive regulation, and excessive taxes. Victorian firms are struggling to meet Labor’s land tax grab, which has soared by 2300 per cent for some enterprises, driving them to the wall.

On Friday, 23 peak industry bodies came together in Sydney to plan a co-ordinated response to the problem of softening private capital expenditure and growing red tape. The most immediate opportunity for reform, they agreed, was in the area of business investment and innovation, followed by a reduction in red tape and planning approval times.

The chair of the nation’s third largest company, CSL’s Brian McNamee, told The Australian this week the Albanese government’s unrealised capital gains tax was one of the “final straws” in anti-business policies. Post-election, Chris Corrigan, the former head of Patrick Stevedores who led widespread productivity improvements on the waterfront starting with the 1998 dispute, also raised the alarm.

Mr Corrigan argued that Dr Chalmers had a “complete inverse of a plan for productivity”. Its intention to widen the tax base, including unrealised gains on superannuation, transferring wealth from individuals and the productive sector to the public sector would work against growth. While government spending, especially in the “care economy”, a euphemism for big social spending, surged across the past three years, GDP languished.

Dr Chalmers was right late last year to urge business to spearhead recovery because “the best kind of growth is private sector-led growth”. But as Matthew Cranston and Jack Quail wrote on Friday, the fact private capital expenditure is now 0.5 per cent lower than a year ago sends a distress signal to Dr Chalmers from the private sector. His expectations for a business-led recovery demand major changes in policy direction.

He needs to start pulling economic levers that encourage investment, not repel it, as opposition Treasury spokesman Ted O’Brien told The Australian. Dr Chalmers needs to look closely at Australia’s uncompetitive business tax rates and calls by business groups for the extension of business allowances and tax breaks to encourage investment.

Industry groups want tax breaks to allow firms to deduct spending on machinery, plant and equipment. The government has opted to extend its existing instant asset write-off by just 12 months. But businesses want longer-term arrangements in place to plan with certainty. In a globalised economy, they have plenty of opportunities to invest elsewhere.

Workplace Relations Minister Amanda Rishworth has a vital role to play. Tuesday’s meeting of employers and union leaders should set the foundation for wages and profits growth by linking improvements in wages and conditions to productivity gains.

Business groups need to stand firm in resisting the government’s inclinations to endorse union priorities to protect penalty rates in awards and above-inflation pay rises for 2.9 million low-paid workers – unless they are tied to better productivity.

Failure to address that connection in the coming three years would put a further brake on investment, wealth generation and living standards, which OECD data shows are already on the slide compared with trends in other developed countries.