The Institute of Public Affairs welcomes the opportunity to provide a submission to the Senate Inquiry into Impediments to Business Investment. This submission focusses on the role that public policy has played in causing a down-turn to business investment, and approaches that can be taken to reverse this trend.
Australia is a land of great potential and opportunity. Yet bad public policy has caused numerous self-inflicted economic wounds. This bad public policy has been a key factor contributing to the decline to new private business investment in Australia, and the associated decline in Australia’s economic competitiveness. Today, business investment is just 11.7 per cent of GDP, which is lower than the rate which prevailed during the Whitlam-era. This is also lower than the long-run average and the average over the past decade, both which are 15 per cent.
It is true that there are non-policy factors contributing to Australia’s declining business investment. For example, the decline in the mining investment boom was largely driven by softening demand for resources exports from growing economies such as China. While Australia’s economy as a whole, as with other devolved economies, is shifting to sectors which are more labour-intensive and less-capital intensive, such as health care and aged care. Nonetheless, decline is a choice. And public policy has played a key role in both causing the decline to private business investment and preventing its recovery.
There are five key policy areas that are responsible for declining business investment: high taxes, red tape and over regulation, high energy costs, high and growing public debt, and a rigid and inflexible workplace relations system.
The remainder of this paper provides an overview of business investment in Australia, and associated declines to economic competitiveness, examines the five areas of public policy failures, and provides recommendations for how public policy can begin to reverse the decline to business investment.
Summary of recommendations:
To support business investment and job creation on an economy-wide basis, the IPA recommends the following policy changes:
- Introduce a one-in-two-out approach to red tape reduction.
- Abolish the Renewable Energy Target and end all subsidies to renewable energy generation.
- Exit the Paris Climate Agreement and remove emissions reductions as a policy objective of energy policy.
- Reduce Australia’s high corporate tax to at least 25 per cent, and ideally to 10 per cent.
- Implement a series of modest changes to the Fair Work Act to encourage employment growth.
To read the full submission, click here.