Governor of the Reserve Bank of Australia, Philip Lowe.

The merry gathering of neoliberals that is the Financial Review’s Business Summit has provided some entertainment this week. Business luminaries have stroked their chins, scratched their pates and furrowed their brows about how they can better sell the idea of company tax cuts to Australians, with some even suggesting that they try convincing people that they’re not a pack of greedy self-servers first.

Today, Malcolm Turnbull will show up and present the genius idea of linking company tax cuts to free trade agreements. Yep, good idea Prime Minister, free trade has such a great reputation with voters, that’ll turn the whole argument around.

But this morning, an adult entered the room, when Reserve Bank governor Philip Lowe gave a speech on “The Changing Nature of Investment“. The subject is apropos because the primary argument advanced for company tax cuts is that they are needed to lift business investment.

It’s a curious thing, but while many — but not all — business leaders, the AFR and the government have been insisting we desperately need to lift business investment and tax cuts are the only way to do it, Lowe, in a speech entirely devoted to investment, didn’t seem to preoccupied with the subject of tax. Indeed, he mentioned “tax” just once. 

Just once… 34 paragraphs into a 41 paragraph speech:

“there has also been quite a lot of discussion about the effect of tax on the investment climate and international competitiveness. This is an important discussion to have as Australia does need to remain an attractive place for global capital to invest. As we have this discussion, it is also important that we keep focused on the other issues I just touched on, as these areas play an important role in building durable comparative advantage and prosperity.”

And… that was it.

Lowe was actually more interested in why, far from Australia crying out for something, anything to spur investment, there had been a recent surge in non-mining investment. As we’ve been documenting for a few years, the RBA has been waiting… and waiting… for this surge to come. But finally it has arrived:

“While we don’t get the final investment figures for 2017 until later this morning (in the December quarter National Accounts) we estimate that over the past year, non-mining business investment increased by around 9 per cent. This is stronger than we were expecting a year ago and would be the largest increase since the onset of the global financial crisis. We expect to see further growth over this year. While businesses still face some significant uncertainties, including the future strength of consumer spending in a world of low real income growth and high household debt, the picture is a better one than it has been for some time.”

Hmmm, that doesn’t fit the tax cut narrative so well. 

Where’s the investment surge happening? Manufacturing is on the decline but Lowe points to rising investment in “information, media & telecommunications and professional, scientific & technical services… Combined, these two industries now account for about 16 per cent of non-mining investment, up from around 8 per cent in the early 1990s.” And Lowe says the surge is due to a number of factors: a stronger global economy, relaxed monetary policy, population growth (cop that Tony Abbott!) and the strongest business conditions in a decade. But:

“Another important part of the investment story recently is strong growth in investment in public infrastructure. The pick-up has been particularly noticeable in spending on transport infrastructure in the eastern states and the pipeline of work to be completed is large. The extra investment is directly creating demand in the economy today and adding to tomorrow’s productive capacity… a number of firms report that they are investing more to meet the extra demand from infrastructure projects.”

Here’s the key point: Lowe is pointing to evidence infrastructure spending is a highly productive way of stimulating demand, employment and investment. A damn sight better, one might conclude, than blowing $64 billion on tax cuts and hoping business is nice enough not to hand it all back to shareholders as US companies are doing.

But don’t expect Turnbull, business leaders or the AFR to talk about that at their “summit”.

Peter Fray

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