Given Australia’s rapidly growing population, the decline in the size of nation’s economy last quarter is particularly remarkable. While much has been made of the 0.5% contraction in Australia’s gross domestic product (GDP) in the September quarter, when you factor in the fact that Australia’s population grew by about 420,000 over the last year, the fact that we managed to produce less stuff than in the preceding quarter is all the more significant. And the two are issues are linked.
One of the main reasons that Australia’s GDP has been low in recent years, and is now declining, is the steady reduction in the level of government investment in infrastructure like schools, hospitals, roads and broadband networks. Given that our population has risen by 1,240,000 since the Coalition was elected in 2013, you might think that there were big plans to provide adequate infrastructure for all of our new arrivals. You might think that with rapidly changing technology, the roll out of new communications and IT infrastructure, and big investment in renewables and batteries would be contributing to a strong economy. But you’d be wrong.
The Coalition’s simple slogans about debt and deficit “disasters” have begun to harm the economy they claim to be so concerned about. Not only is the government’s determination to cut public spending, including grants to the states, harming our long-term capacity to plan for the future, but the big cuts in spending are now actively harming the level of economic activity in the short run. Put simply, the Coalition’s economic management is delivering neither jobs nor growth.
The idea that borrowing money to invest in assets that will deliver benefits for decades to come is somehow “reckless” or evidence that we are “living beyond our means” is as absurd as it is economically harmful. Borrowing money at low interest to invest in projects with strong returns is good for the economy. It is precisely how households who have ever bought a house behave. It is precisely how companies fund their growth and, until the 1980s, it was exactly how governments around the world behaved.
Despite the rapidly growing population federal, state and local government’s expenditure on capital fell by 10% this quarter. This has pushed capital expenditure back to 2008 levels. So while the economy has gotten more than 20% bigger and the population has increased by 2.7 million, current government’s capital expenditure is at the same level it was eight years ago. That is why our roads are so crowded, our school kids are being banned from running in the playground, and the hospital waiting times remain unacceptably high.
Failing to invest in the infrastructure that a rapidly growing population and a rapidly evolving global economy require can help to make the budget books look good in the short term, but in the long run it makes about as much sense as skimping on preventative maintenance or not bothering to put oil in your car.
If Australians want their hospitals, schools, train lines and roads to be as good as they were a decade ago, then our governments, state and federal, need to massively increase their investment in crowded older areas of infrastructure that has been neglected and left to crumble, as well as in newer areas that developers made a quick buck developing, but which never had adequate public services in the first place.
If Australia wants to reduce its greenhouse gas emissions and provide energy security then it needs to spend up big on assets which, once built, will provide virtually free energy for decades to come.
And if Australia wants its businesses, universities and citizens to connect quickly and efficiently with the rest of the world then we need to abandon the Coalition’s cobbled-together version of the NBN and connect as many people as possible to a fast and reliable fibre network.
It’s not hard to develop a plan for the future, and it’s not hard to create jobs and growth. But you can make it hard. The Coalition has lurched from thundering about budget emergencies to agilely investing in our cities before settling on the bizarre idea that the part of Australia with the biggest infrastructure shortages is far north Queensland, and that the kind of infrastructure it needs is a shiny new coal train line.
If the Coalition is serious about creating jobs and growth — and that’s a big “if” — it needs to dump the rhetoric about living beyond our means and dump the idea that coal exports are what will drag Australia out of its slump. Instead, it needs to take advantage of record-low interest rates to invest in the cities and the industries that are already growing rapidly.
Malcolm Turnbull took office a bit over a year ago on the basis of his superior ability to manage the economy. Both the opinion polls and the national accounts suggest he better change direction soon.
*Richard Denniss is the chief economist for The Australia Institute @RDNS_TAI