I am not an economist, but if I have learned one thing from being involved in the business finance world since 1978, it’s that the finance industry is a good barometer for the economy.
I think this is because we act for the totality of the business market, across all disciplines such as primary production, manufacturing, retail, services, housing, construction, health, mining and hospitality.
When businesses are growing, expanding and innovating, our phone rings nonstop. When it stops ringing, which is normally months before the Government announces that economic growth has slowed, we already know that business has stopped spending.
I have personally lived through a credit squeeze, two recessions, two major stock market crashes, a tech stock collapse, several property boom and bust cycles, and the killer of recent times – the Global Financial Crisis.
I have no doubt that the recent situation in WA, post the construction phase of the last resources boom, has seen the most severe and prolonged economic downturn of all the rest. And one thing which resonates with me very strongly is that the solution to all of the past economic crisis’ was to get business spending again.
This solution is something so basic, that I just can’t understand why the current brains trust within treasury, and within government, never seem to even consider.
And the major thing which got business spending again, in the past, was a thing called an INVESTMENT ALLOWANCE. I have seen the investment allowances of the late 1970’s and the 80’s and 90’s work perfectly, effectively and quickly and play a major role in turning past economies around.
Our current Government is trying to create the same outcome by lowering the company tax rate. that’s fine in that it provides, particularly the big end of town, with tax savings, but how does this tax saving, guarantee that any of it gets spent on new plant, innovation or expansion.
It doesn’t and as I see it, that’s the problem.
In the old days, if a business ‘spent’ the money on growth and replacing old plant and equipment, it was guaranteed a tax saving. Giving company’s a guaranteed tax saving without getting anything in return, just doesn’t add up to me – particularly in this era, when companies seem to be judged on the dividend rate they are paying their investors. It must be very tempting for Company Directors, to pay more out in dividends, rather than to invest in the future. Particularly if that assists the achievement of their own remuneration KPI’s. If this sounds cynical, its’ probably because I am – I have seen these issues at Board level.
What is obvious, is that the current Government strategy, has not yet worked and, is not yet providing economic stimulus.
What is clear is that something is missing in action in the Australian economy.
The old investment allowance incentives worked perfectly, so why are they not even a point of discussion in Canberra in 2017?
That’s my viewpoint.
Muzza from Perth