Of all the unkillable stupid ideas in Australian economic debate, a company tax cut is the dumbest — and most immortal. You can bury it under a pile, an avalanche, a whole mountain of facts, but there’ll always be someone, a business luminary, a lobby group, an economic commentator, a politician, who will dig the fetid corpse up and parade it around as though it’s a fresh, clever idea, waving its arms in a sick parody of life.
Normally Labor MPs can smell the rotting flesh a mile away, but maybe Industry Minister Ed Husic has a blocked nose. Invited last week to reflect on whether the decline in manufacturing investment was to do with Australia’s uncompetitive company tax rate, Husic opined that “either through corporate tax reform or the way in which we provide investment allowances for the uptick in manufacturing capital, that is something long term, I think, does need to be considered”.
Like flies on shit, business spokespeople immediately seized on Husic’s remark and showered him with praise — there was even talk of a “cabinet split” on the idea. Gee, and to think there are some Labor MPs who for years have thought Husic opens his mouth a bit too much. Perish the thought!
For Ed, if for no one in business because it’s not in their interests to listen, here are the facts based on Donald Trump’s mammoth company tax cut of 2017. It didn’t increase investment. It didn’t lift wages, except for — surprise! — highly paid executives. It didn’t increase manufacturing employment, which kept growing at the same rate until it plateaued in 2019. It did, however, cost the US government $1.7 trillion up to this year (remember, Australian business always wants company tax cuts to be offset by a rise in the GST). And it did fuel a massive share buyback spree by giant corporations.
But shouldn’t Australia be doing anything it can to encourage business investment? Actually, turns out, what we’re doing already is working well.
Last week the Australian Bureau of Statistics revealed a 1% rise in investment in the March quarter, for a 5.5% increase over the year to March.
What drove the rise? Transport and logistics had the biggest rise, but there was also a 60.6% — six-oh-point-six percent — rise in investments in data centres. Data centres also feature heavily in expected investment in coming quarters, along with infrastructure and energy — i.e. renewables.
At nearly $40.5 billion a quarter, investment is now at its highest level since mid-2015, when investment was collapsing from its Labor-era high — it peaked at over $52 billion in the June 2012 quarter, back when Wayne Swan, uniquely, had to manage an economy with a dollar at or above parity with the greenback. The highest investment in nine years, however, attracted little attention from the likes of the Financial Review, because it doesn’t fit the narrative that Labor is a massive impediment to business.
But it also doesn’t fit Labor’s narrative about the need for more manufacturing investment, either. At the moment, surging demand from AI and all sorts of other data businesses for cloud computing and data centres is more than offsetting weakening investment from mining. That is, Australia’s services sector is driving investment when one of our major drivers of traditional business spending, mining, is off the boil.
Listed groups like NEXTDC are leading the data centre drive, raising hundreds of millions of dollars in new capital and planning expansion here, as well in markets like NZ, Malaysia and China. Macquarie Technology is another listed company rapidly expanding in the sector; unlisted Air Trunk, currently up for sale at $15 billion, is another driving demand for new centres and equipment. Amazon with its AWS cloud business, Microsoft Azure, and a growing list of other companies are building or organising data capacity deals, with much of the growth coming from AI and using technology from giants like Nvidia.
Data centres also need buildings to contain equipment, which is fortunate because investment in new buildings and structures fell 0.9% in the quarter due to falls in mining investment.
The AMP’s Shane Oliver pointed out that a surge in this sort of investment will boost imports, but those are good imports.
“Partly offsetting the weakness in consumer spending and construction last quarter, business investment rose 1% qoq [quarter-on-quarter] in the March quarter driven by non-mining equipment. Much of this equipment will be imported so there is an offset in terms of the support for GDP growth but the boost to non-mining investment is welcome in terms of boosting productivity growth. So far this decade, business investment is looking far stronger than was the case last decade.”
It’s almost as if there are two worlds — the real one where businesses are deciding to invest, and the fantasy one promoted by business groups, where company tax cuts are desperately needed to encourage investors — and in which we need to rebuild the industries of yesteryear based on political whims.
