Westpac chief, Gail Kelly, has today delivered a ringing endorsement of the new Coalition Government, which she claims has single handedly lifted business confidence:
WESTPAC chief Gail Kelly has delivered a ringing endorsement of the Abbott government’s impact on the economy…
“I think it’s definitely that we have a strong government,” she told ABC radio.
“That’s the first thing. There’s a real drive and hunger to have a steady and stable and strong government.
“Secondly, the new government has made it really clear that they’re open for business and what they want to do is create the kind of environment and conditions that will allow business to get on and do their job, allow business to go on and create jobs, to drive productivity and drive their businesses.
“So, I think that’s very constructive”…
Given the Government is only two months old, I think it’s a little premature to declare it “steady and stable and strong”. Most readers would remember that the Rudd Government began its tenure with similar euphoria, and we all know how well that turned out.
Further, the lift in business confidence won’t mean a lot unless it is backed-up by actual investment. And on this count, the challenge is immense. Mining-related capital expenditures (capex), which is currently some 50% larger than non-mining capex, is about to begin a multi-year unwind, and unless the non-mining economy lifts investment dramatically, there will big a large hit to both employment, jobs and future productive capacity (see below charts).
And let’s not forget that the manufacturing sector is in dire straights, with both employment and capex running at all-time lows (see below charts).
While we can’t rule-out a short-term cyclical uplift – driven by record low interest rates, rising asset prices, and rising confidence – ultimately it is likely to be overwhelmed by the structural headwinds facing the economy as the once-in-a-century commodity price/mining investment booms unwind and the population ages.
In my view, whether the new Coalition Government ends up being a success rests largely on its ability to deliver a widespread program of micro-economic (structural) reforms aimed at knocking-down barriers to competition, as well as improving productivity and innovation.
Improving Australia’s competitiveness should be the Government’s primary economic focus this term and the next, and is its ultimate litmus test.
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