Growth needs more than just shovels

Constraints

In south-eastern Australia there are capacity constraints in everything from concrete to public servants capable of directing where it is delivered. More projects will probably just crowd each other out by driving up prices or sending money overseas.

Moreover, the competition for these real resources is likely to crowd out private-sector investment — at least where it involves engineering and construction.

That can’t be a good thing given private business investment is really Australia’s only sustained source of future growth.

The consumer isn’t about to kickstart the economy, given low income growth, high debt and the house price correction.

Tax cuts and interest rate cuts will help the household sector. But they won’t lift consumption growth to the 4 per cent-plus growth rates Australia enjoyed in the decade prior to the global ­financial crisis.

The government needs to be congratulated for recovering the budget to balance. Now the hard yards are done, it is time to consider how revenue strength can underpin further growth.

The tax changes are a useful stimulatory initiative, as well as keeping the total tax take within reasonable limits.

The government should use the aptitude it has shown to get the tax cuts through parliament to bring back some of the productivity-enhancing tax changes that have been in the too hard basket.

Compensating state governments for lowering the taxes that inhibit the free movement of capital and people — like transfer duty — would be a step towards a stronger economic future.

Ripe

Commodity prices are sky high in Australian dollar terms and interest rates are at record lows. Conditions are ripe for resource companies to invest, but they are not doing so.

Real capital expenditure in mining — the biggest investor industry — has actually been falling. And, while expectations foreshadow a rise, it is only small.

Manufacturing intends to keep capital expenditure stable in 2019-20 while the construction industry forecasts a lowering, by nearly 20 per cent.

Clarity and consistency around climate and energy policies are foundational to improving these outcomes. Investment incentives that encourage - but don’t dictate - private sector capital spending are also to be encouraged.

OECD research shows that an economy can generate better economic outcomes if the positive impact of a country’s most productive firms seep through to laggard firms. How does this occur?

The OECD argues non-restrictive product market regulation, pro-competition reforms, not-too-stringent employment protection legislation and R&D collaboration are all important.

A breakdown in all protective legislation is not desirable but these suggestions should inform the path of the next three years.

The net result would be stronger productivity growth across Australia’s economy.

The government and the Reserve Bank are clearly focused on better labour market outcomes.

The World Economic Forum’s work on Global Gender Gaps shows room for improvement in Australian women’s labour force participation. Australia ranks 54th in the world on this measure and 73rd on wage equality.

Closing the pay gap between men and women, removing disincentives for women to work, helping women advance to leadership positions and hardwiring gender parity into the workforce are ­important economic growth-­enhancing initiatives.

Governments can play an important role by affecting female public servants’ wages and promotional ­opportunities and determining new mums’ childcare prices and tax rates.

Let the shovelling continue. But let business intellectual pursuits, equitable workforce opportunities, and the sharing of ideas thrive too.

Cherelle Murphy is a senior economist at ANZ