RBA governor Philip Lowe told the Turnbull government to get moving on infrastructure last Thursday. From Ross Gittins:
Another point worth noting is Lowe’s implication that the budget needs to achieve balance in spite of the huge cost of cutting company tax.
….Note, too, Lowe’s reference to “achieving a balance between recurrent spending and fiscal revenue” (my emphasis).
This isn’t the first time he’s quietly taken issue with Treasury’s longstanding practice of exaggerating the size of budget deficits by lumping spending on capital works in with recurrent spending – unlike the state governments.
Borrowing part of the cost of building infrastructure that will deliver economic and social benefits for 30 or 50 years is in no way “living beyond our means”.
And, indeed, one place higher on Lowe’s to-do list than achieving budget surplus in spite of company tax cuts is the task of “providing adequate high-quality infrastructure to help our citizens be as productive as they can be and enjoy a high quality of life”.
He notes we’ve got a strongly growing population which, if we fail to invest in sufficient infrastructure, including transport infrastructure, can “impair our ability to compete and be as productive as we can be”.
It’s surprising how many people are great advocates of high immigration levels, but won’t countenance the increased spending and borrowing needed to provide the additional infrastructure – roads, public transport, hospitals, schools – used by all the extra people.
Then they wonder why our productivity performance is weak.
Productivity improvements require more than just infrastructure, but it’s a start. A modern infrastructure lowers input costs and makes industry more competitive.
Other structural adjustment, in addition to infrastructure spending, is needed to make Australia competitive in global markets instead of simply digging holes in the ground. Some day the ore and coal may run out, or demand shrink, leaving a hole in exports.
Electricity costs are one of my favorite examples, where the average retail price of electricity is almost 3 times that of the US, Canada and Mexico….and more than 4 times that of India and China. Basic input costs like this help to make economies competitive. Some may argue that Japan and Germany are successful despite similar high electricity costs, but consider how much more competitive they would be if they could match their trading partners.