Numbers add up to refute glass-half-empty brigade

Articles and op-ed

Published in The Australian

18 August 2012

More gloomy economic news this past week, according to the glass-half-empty brigade. Parliament has been told of horrendous business cost increases associated with carbon pricing. Reportedly, global chief executives have determined Australia isn't such a good place to invest, owing to rising labour costs, a rigid industrial relations system, poor productivity growth and carbon pricing.

Yet the US government's concessionary business loan provider, Ex-Im Bank, announced this week that it was making available a record $5 billion in loans for private sector projects in Australia this year, confirming the US as by far the biggest foreign investor this country.

Business investment has increased 20 per cent during the past 12 months to reach 40-year highs. The Reserve Bank expects it to hit a half-century high this year. And we've got an investment pipeline in resources worth half a trillion dollars, with a record $260bn of this at an advanced stage.

Bank lending to business over the past six months has been its strongest for several years. This has helped the Commonwealth Bank report a profit of $7.1bn for the year, its chief executive suggesting there were early signs that demand for credit was on the rise after almost two years of subdued borrowing.

Business confidence is up, as is consumer spending, indicating that many businesses outside the mining industry fast lane are doing quite well.

Inflation is at 13-year lows, unemployment fell last month to 5.2 per cent, the Reserve Bank cash rate is almost half its level at the change of government in 2007 and the Australian economy has been growing above its long-term trend rate.

Australia will be looking for another 800,000 skilled workers over the next five years as service industry growth is expected to exceed that of mining.

And if the recent productivity growth — the highest in a decade — is a deterrent to business investment, why weren't businesses concerned when it was stagnant in the early 2000s?

Strong growth, record investment, falling unemployment, low inflation, an almost halving of the Reserve Bank interest rates and a doubling of productivity growth are hardly indicators of an economy going down the gurgler.

But nor is the government sanguine about the challenges businesses face.

The Gillard government is constantly working on policies to support productivity growth. The government is considering a report from a review of the industrial relations system and is looking at ways of reforming an electricity system which continues to produce electricity price increases much greater than any associated with carbon pricing.

After taking account of free permits, the $23-a-tonne carbon price is just $1.30 a tonne for the most emissions-intensive, trade-exposed industries.

The Gillard government is nurturing and strengthening the trade and investment relationship with regional economic powerhouses such as China, India, Indonesia and the ASEAN group as a whole. Both sides in these relationships consider our governments are getting on very well. But this hasn't stopped ex-ambassadors running around China talking down the friendship between the two nations.

During the global financial crisis, businesses were deeply concerned about news coverage and political debate spreading doom and gloom. They were rightly worried about the possibility of fearful talk becoming a self-fulfilling prophecy. In the event, Australia avoided the worst of the crisis, extending to 17 years the period of recession-free economic growth.

If we are to take full advantage of the Asian Century our businesses will need to be more competitive and that requires governments to remove unnecessary impediments to productivity growth. It also requires businesses in many cases to change their own practices. But moping around, telling everyone what poor shape the Australian economy is in and how terribly the government is getting along with its counterparts in the region can only damage the ever-mercurial business and consumer confidence.

Maybe that feels good but is it actually good for business?

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