The start of banks and buildings week
The big bet on housing investment by the Federal and State governments, the RBA and private banks play out. Michael Pascoe comments.PT4M46S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2wap3 620 349 October 28, 2013
Despite all the headlines, it's not the boat people we need to worry about – it's the other 2.3 million arriving tomorrow just when public investment in the nation is at an all-time low. That's the investment necessary to accommodate the increased population and maintain our quality of life. Or not.
OK, it's a slight exaggeration to say they're turning up tomorrow, but it's a bit like that from a historical perspective. And it may as well be tomorrow as far as our public preparedness goes. The nation's infrastructure, especially public transport, is groaning under its present load yet we're adding 2.3 million over the next five years, roughly 40 per cent by birth, 60 per cent by immigration. (The actual new arrivals figure is bigger than that – this is the net population growth after some of us shuffle off.)
That's far from a shocking discovery, but the reality of our population base and growth rate has crept up on us. It's just mathematics that a population of 23 million growing at our present rate of 1.8 per cent means about 10 per cent more people in five years – 2.3 million.
At our limit?: Australia's population is forecast to grow by 2.3 million over the next five years. Photo: Dallas Kilponen
Phrased like that though, it was one of the insights within a speech by the Reserve Bank deputy governor, Philip Lowe, last week. Lowe cited this population growth as one of the reasons to be optimistic about business investment picking up. The dollar is weaker, business confidence has improved, as has the outlook for our key trading partners and interest rates are low.
"These developments are creating new business opportunities," said Lowe. "So too is the steady growth in the Australian population, which remains considerably faster than in almost all other advanced countries; at the current pace of growth in five years' time, the population will be around 10 per cent higher than at present. When businesses are deciding today whether to take advantage of these opportunities, they face a low cost of borrowing and finance is available for sound projects. In time, this should underpin a rise in investment across a range of industries."
The key point of the speech is that private investment certainly needs to pick up as the resources investment boom tapers off. As the accompanying graph shows, non-mining private investment as a percentage of GDP is running at its lowest level since the early-90s recession.
Lowe observed somewhat in passing that public sector investment also is low, but that's an understatement. Subtract the private non-mining investment from the total non-mining investment in that graph and you'll see that the public investment as a percentage of the economy has never been lower. (All right, Lowe's graph only covers half a century. It's a fair bet though that the nature of our mixed economy over the previous 150 years would have meant public investment was substantially larger proportion of GDP.)
The construction phase of the resources boom meant room had to be left for all that mine and well expansion, but now we're left with both public and private non-mining investment in a hole as the resources' holes have been completed.
It's the Hockey-Cormann philosophy, as enshrined in the Business Council audit commission, that government should only do what the private sector can't or doesn't want to do. Well, it looks like there's a lot of that right now and no one is doing it in preparation for that extra 2.3 million people, never mind the costs of our ageing baby boomers and the productivity losses caused by infrastructure bottlenecks. A few billion for a major road in every other capital city isn't going to do it.
Thus there's a difficult contradiction at the heart of the new government. It aspires to small government, but it is responsible for a growth country that requires greater public investment. There is a potentially dangerous faith that everything can be left to the private sector to fix, but our duopoly and oligopoly-riddled private sector doesn't make for the purest of market mechanisms.
Michael Pascoe is a BusinessDay contributing editor.