Remove business investment roadblocks to power recovery

This opinion article by chief executive of the Business Council Jennifer Westacott was published in The Australian Financial Review on Wednesday 29 July 2020

I’m always astounded when people ask “so, why should companies invest? What difference does it make? Why should big companies invest?’’

With last week’s budget update laying bare the enormity of Australia’s economic challenge, it’s important we address the factors driving the collapse in business investment.

Business investment is the crucial cog that keeps the economy turning, allowing companies to expand, be more efficient and create employment.

If business investment stays at its current level, how can we generate the extra jobs Australia needs to drive the recovery?

Let me give you a few examples. If supermarkets and retailers were encouraged to bring forward their capital works programs, thousands of jobs would be created. 

Every time a retailer decides to expand with a new store, thousands of jobs come onstream in construction. As the store opens, thousands more jobs are created servicing customers and thousands outside in vast supply chains.

Every time a mining company starts a new mine there are thousands of jobs in construction. Once a project is completed, there are thousands more jobs created in the mining services sector with a cascading effect of new jobs in local communities.

Every time a housing project is delivered, there are thousands of new jobs. The National Housing Finance and Investment Corporation estimates that every $1 million of residential building construction in Australia supports nine jobs across the economy. For every $1 million invested, around $3 million of activity is generated across the whole economy.

And it’s not just a traditional view of investment that matters.

If companies were incentivised to upgrade their digital capabilities and training that would have an enormous effect on the technology sector. It would drive economic activity and power our ability to advance to a digital economy and leapfrog other nations in terms of our competitiveness.

We shouldn’t confine an investment just to shovel ready projects. But make no mistake, many of these projects are huge job and technology generators. As the Prime Minister pointed out last week, National Cabinet has agreed to fast track approvals for 15 major projects worth more than $72 billion in public and private investment which will support over 66,000 direct and indirect jobs.

Each time businesses and governments invest – whether they create 500, 5,000 or 10,000 jobs – what matters is the cumulative effect of that being done across the entire nation.

When it’s done at an accelerated pace, suddenly we are creating 200,000, 300,000 or 400,000 jobs and we start to bring down unemployment.

Some of the biggest risks to the nation’s recovery are that businesses slow down activity or in global companies, business investment flees to another country.

The equation a company goes through when it is making investment decisions revolves around questions about risk and return from an investment and is based on regulatory conditions, certainty, and after-tax returns.

The less competitive Australia is on any of these factors, the more roadblocks standing in the way of companies investing.

So, what’s the answer? It is multifaceted and includes reducing unnecessary regulation and improving policy certainty. But there is one issue where we could start to turn things around and firm up investment decisions.

Introducing a 20 per cent broad based investment allowance for all companies, no matter their size, and for all investments would encourage businesses to make these economy-changing decisions about building new premises, buying new plant and equipment, upgrading technology, training staff, and expanding.

The allowance wouldn’t just exist for traditional types of investment but also encourage companies to upgrade their digital capabilities. This would help fast track Australia’s transition to a digital economy and ensure we are competitive in a new technology-driven era.

Some people will argue that low interest rates are the way to encourage investment but they haven’t so far and they won’t on their own. Low interest rates will help but won’t be enough, especially in the global competition for capital.

We have to unleash the balance sheets of every single company in Australia and make ourselves more attractive to global investors.

The key is to do it across the nation, and importantly ensure we are encouraging investment in regional Australia.

It's impossible to create jobs and get the economy growing to generate the revenues that will pay down debt if we do not get businesses investing.

Giving businesses the added incentive to invest is one of the best ways to create jobs, unlock growth and pave the way for Australia to move forward.

Jennifer Westacott AO is the Chief Executive of the Business Council of Australia