Not spending, investing

Investment is the government buzzword. Governments no longer spend money, they invest. Invest in schools education, emergency workers, nurses and doctors. Invest for a better future, invest in jobs, invest in growth.

This farrago of spin omits discussion of the most important type of investment: business investment, even though private capital is a cornerstone of our economy. We won’t have any money to pay for anything else if businesses don’t acquire new capital.

But this is what is at risk today. Business is cutting back on investment at an alarming rate. Non-mining investment is not recovering as the mining boom ends, and (unsurprisingly) mining investment is falling dramatically; so total investment is set to be at recessionary levels in a couple of years if nothing is done.

And something can be done: cut the tax on investment, through company tax, from 30% to 25%. Treasury forecasts the tax cut will result in investment increasing by 2-3%, and this is probably an underestimate, as detailed in the research report Fix it or Fail: Why we must cut company tax now, released this week.

It details how Australia’s company tax system is uncompetitive compared to other developed countries, and even more with the rest of the globe. This is potentially one reason investment is weakening quickly.

The report also explains how the tax cut is expected to provide a substantial boost to wages, national income and productivity, which are all growing at historically slow rates. And despite arguments to the contrary, the policy is easily affordable — it can easily be funded by the tax measures included in the 2016-17 budget. What is not affordable is doing nothing, which will put Australia at risk of failure.