Building homes, offices, factories, wheat silos, milking sheds, shearers’ quarters, roads, railways, bridges, tunnels and airports has been central to Australia’s post-war economic growth. Until, that is, the 2013 election.
Now, builders are going broke at an alarming rate. And the nation’s net assets are rapidly diminishing. Last week’s construction data from the Australian Statistics Bureau — as well as other documents — reveal the magnitude of the sector’s current extraordinary decline.
Capitalist construction collapsing
Construction in the private sector (table 1, column G) has increased annually since the ABS series began in 1976 with few interruptions. There have only been four year-on-year declines greater than 4.0%. They were in 1982-83 during the ’80s recession, in 1990-92 during the early ’90s global downturn, in 2000-01 during the Asian meltdown, and over the last two years during the current global trade and profits boom.
The first three of these historic setbacks were followed by immediate strong resurgences. No such recovery is in sight today.
The level of private construction in the March quarter, the ABS revealed, was worth just $36.5 billion in chain volume units, seasonally adjusted. That is the lowest level since June 2011 — at the depths of the global financial crisis.
Poor public participation
Construction by the government sector has similarly declined.
When we examine the total of private and public construction (table 1, column S) we find, in the last 40 years, just three year-on-year declines worse than 4.0%: 1990-92, 2000-01 and the last two years. Intriguingly, there was no significant drop-off in construction during the GFC of 2009-2013 — due to the effective stimulus spending on infrastructure.
Total private and public construction in the March quarter was worth just $46.7 billion. Apart from the September quarter last year — which was an equally dismal $46.5 billion — that was the lowest since March 2011.
Causes of this collapse include subdued demand for housing due to real wage declines, absence of industry-development strategies, volatile business confidence, the surge in bankruptcies and the lack of public funds for infrastructure due to rampant tax avoidance.
The knock-on effects of the collapse are several. They include job stagnation, lower company revenue, subdued GDP growth and the loss of national net worth.
The contribution construction has made to GDP growth over the last two quarters — at 8.08% and 8.11% — are the lowest since 2006. That’s according to the ABS national accounts released last month.
Big corporations with diverse activities are doing better. CIMIC Group Limited reported on Tuesday an impressive lift in its half-year 2017 revenue from $4913.7 million to $6279.4 million. That’s up 27.8%. Not bad. The contribution from construction, however, was just 5.3%. Fortunately, CIMIC has other, more profitable activities.
Forlorn future forecasts
In its last three federal budgets, the Coalition has signalled its abandonment of long-term infrastructure investment. The Parliamentary Budget Office (PBO) reported in 2015 on the impact of ex-treasurer Joe Hockey’s 2015 budget. This projected infrastructure investment at a puny 1.4% of total government outlays in the year 2025-26.
The latest PBO report on Treasurer Scott Morrison’s May budget, released this month, revises this down to just 0.8% in 2027-28.
Admirable aspirations abandoned
Two groups are entitled to be dismayed at this data from the ABS, the PBO and elsewhere. First are those who accepted assurances by Tony Abbott and others in Opposition that the Coalition would excel in this sector.
“I want to see cranes in the sky and bulldozers on the ground because that means economic growth.”
“We will give our country the national infrastructure that we need, and ladies and gentlemen, I hope that in a few years’ time people will say of Tony Abbott, ‘he was an infrastructure Prime Minister’.”
The second are those who had hoped that replacing Tony Abbott and Joe Hockey with Malcolm Turnbull and Scott Morrison would lead to a turnaround.
The opposite has eventuated. The latest ABS data shows private and public construction over the last six quarters of the Abbott/Hockey period fell below that of Labor’s final six quarters by 5.1%. But it gets worse.
The decline in activity over the last six quarters under Turnbull and Morrison has been another 9.4% below that of Abbott and Hockey.
This should not surprise. Most key areas of the economy have worsened under the Coalition compared with outcomes through the Labor years. And worsened further since the 2015 change of leadership.
The only good news is corporate profits — which are booming. Except, that is, in construction.