Australia has a business investment problem.
The government’s most recent forecast — in MYEFO — has business investment falling 8.5% this financial year and rising 5% — a lower forecast than in last year’s budget — for 2021-22. The Reserve Bank, with more updated forecasts, sees investment falling only 2.5% this year and growing 6% next year.
In the first quarter of 2020-21, the Australian Bureau of Statistics says investment fell 3%; we’ll find out next Thursday what happened in the December quarter when the next capital expenditure data — for the first time including non-government sectors like health — are released.
And what is the government — made up of the notionally pro-business Liberal Party as well as bush socialists — doing to encourage more investment?
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This week Treasurer Josh Frydenberg announced the government would permanently reduce the accountability of company directors by removing obligations around continuous disclosure laws in relation to failures that don’t involve “knowledge, recklessness or negligence”.
That is, directors can fail to disclose information they should be telling investors and get away with it if they can argue they were simply incompetent or useless, rather than reckless or negligent.
Frydenberg says aims to stop “opportunistic class actions” (of which there is no evidence, the corporate regulator ASIC says) but is more likely to particularly harm small and non-institutional investors — the legendary “mum and dad investors”, those stout standard-bearers of John Howard’s vision of a shareholder democracy, these days beleaguered self-funded retirees with nowt but a thin sheet of franking credits between themselves and penury.
Still, not a reform to encourage prospective local or international investors to have full confidence in Australian business management and boards. Weak disclosure has always been a problem in Australia — both historically (HIH, Bond Corp, Bell Resources) and more recently with the big banks hiding money-laundering allegations levied by key regulators.
Nor, for that matter, are a number of other policies and signals from the government particularly encouraging.
The government’s climate denialism continues to damage confidence in renewable energy investment — already declining in 2019 from Turnbull-era highs, it fell dramatically in 2020. Its threats to build a gas-fired power station in the Hunter Valley actively deterred private energy investment.
Now it is so divided that one of its major energy reforms has had to be withdrawn from parliament because the Coalition backbench might vote it down.
How about technology investment? Well there’s the small matter of the sovereign risk posed to foreign companies like Google and Facebook at the behest of the Murdoch family in the form of the media bargaining code scam. That confirmed the “global village idiot” tag Australia strove for when we imposed laws to establish government-mandated back doors in encrypted online products. The result of that particularly asinine legislation was to ensure any tech product or service bearing the words “Made in Australia” must be assumed to have a government-controlled access point.
What about Australia’s financial system? Unquestionably strong after coming through the pandemic with flying colours amid a buoyant housing market and resilient profits — along with their strong political protection from the Liberal Party — the big banks should make for a good investment. That’s until you listen to cabinet minister David Littleproud who proposed to remove deposit guarantees from banks to punish them for not investing in coalmining.
But as a safe, developed country with the rule of law, surely Australia remains attractive for foreign investment regardless of a few dodgy decisions here and there? Well, perhaps, except that Australia, once firmly in the top tier of countries for perceptions of public sector corruption, slipped out of the top 10 in 2014 and now sits behind investment destinations like Germany, Canada and the UK.
Fortunately even if Australia struggles to attract foreign investment it has a huge national savings pool to draw on courtesy of its superannuation system. Too bad much of the Liberal Party is committed to destroying the super system by ending compulsory super altogether or pumping much of it into inflating property prices for asset owners as part of its scorched earth campaign against industry super.
The government’s current proposal to benchmark superannuation performance was criticised even by the anti-superannuation AFR for threatening to curb investment by funds in innovative assets and ventures.
Potential investors would be entitled to think they should sit this one out until a more reliable and stable government emerges in Australia that is prepared to create a pro-investment climate.