Reserve Bank assistant governor Chris Kent missed a major opportunity this week. He delivered a speech about how the various states are travelling but totally omitted a key reason for the two out-performers doing so well.
Instead of contributing to the challenge of lifting the country's performance, Dr Kent's speech to the Australian Business Economists conference merely catalogued the latest version of our "two-speed economy" – the inverse of the previous one when the two key mining states boomed.
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The secret of NSW's success
New South Wales has plenty of it and Victoria is getting some as well. So what's the deal with non-mining business investment? Michael Pascoe comments.
Oh, it's an interesting catalogue, as Peter Martin reported, but still a mere catalogue. Left unasked and absolutely unanswered were the obvious big questions: what has spurred the non-resources investment surge in NSW and, to a lesser extent, in Victoria? And can the rest of the nation have some, please?
Non-resources business investment has been the missing ingredient for our economy to make a sustainable transition from the resources construction boom. As Kent showed, NSW now has it and Victoria is getting some too, but "for the country as a whole, non-mining business investment has been little changed since the onset of the global financial crisis".
Kent said the Australian Bureau of Statistics scored non-mining investment rising by about 10 per cent a year in NSW for the past three years.
"Victoria has also seen some growth of late," he said. "The outcomes in these states accord with information from the Bank's business liaison program; firms in these states appear willing to invest in response to stronger business conditions."
Unfortunately the closest he got to explaining the situation was this: "Investment has increased to some extent in parts of the country, aided by favourable financing conditions and in response to strengthening demand."
Not once in the speech does the word "infrastructure" occur.
NSW and Victoria are lifting their investment in infrastructure. The other states wish they could. Most obviously, NSW is using the windfall profits from the housing bubble and its privatisation program, plus any private-public partnerships on offer, to build the state.
NSW recorded government infrastructure investment of $13.4 billion in 2011-12.
More than the extra government billions, the reliable pipeline of rail, road, tram and urban renewal precincts encourages private investment to meet the increased demand and opportunity. The current SMH series on Sydney's future demonstrates the flow-on from government infrastructure to greater private sector opportunity. While Wednesday's ABS count of national construction work done showed a 10 per cent decline for the September quarter over the previous year, NSW construction work grew for the eighth consecutive quarter.
This is the reality of theory promoted by the present and past RBA governors with increasing frustration, while federal government spending on infrastructure has failed to keep pace with the economy. The Federal Infrastructure Minister's best effort of late has been
a puff piece welcoming Donald Trump's promise to increase American infrastructure spending. Great.
The RBA is cautious about quantifying the impact of infrastructure investment while the ABS figures on it remain rubbery. There are technical problems about the danger of double counting as privately built projects are transferred to the state, about when government money is actually spent. Revised ABS measures are due next month.
Hopefully they will spell out the opportunity for the nation so clearly debt-paranoid politicians will hear the knocking.
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