Australia’s construction continues to decline, taking net worth with it

Is Australia heading into an infrastructure crisis? Not only is private and public investment in engineering construction declining, but it’s taking Australia’s net worth with it. Alan Austin reports.

THE LATEST construction figures confirm that Australia is in a serious slump in generating infrastructure.

For the fourth time in five years, both private and public investment in engineering construction has declined over the previous year’s spend. That’s according to data [file 8755.0 Construction work done, Australia, Table 1] up to the end of September, released by the Australian Bureau of Statistics (ABS).

There has never been another five year period with four negative years of investment growth in engineering construction since this ABS series began during the Whitlam years. This measure has actually been one of Australia’s most stable indicators of progress. Until now.

The data

Over the last 25 years, there have only been eight years when total private and public investment in engineering construction declined.

The first was in 1997 which was a minor correction of negative 1.57 per cent, following a phenomenal year in 1996 of 11.43 per cent growth.

The other years were 2000 and 2001 during the early 2000s recession, and in 2010 when another small correction followed two bumper years of stimulus spending in response to the global financial crisis (GFC). So the status quo since Gough’s days has been regular annual rises.

The next four annual declines were all in the five years since the Abbott Government was elected in 2013.

Over the last 25 years, there have only been six years when the total investment in all construction – including housing as well as engineering – actually declined. Again, four were in the Coalition’s last five years.

Those were the three consecutive years to September 2014, 2015, 2016 and this year, to September 2018.

Two things make this quite extraordinary. The first is that a remarkable boom in investment, jobs, corporate profits and construction has been underway worldwide for most of the last four years following the GFC.

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Coalition commitments

The second – an abject irony – is that throughout their period in Opposition, senior Coalition figures continually spruiked their superiority over Labor in this policy area.

In his maiden speech in 2008, Scott Morrison highlighted the need for

“the realignment of our federation, particularly in priority areas such as water, taxation and infrastructure.”

In 2010, Malcolm Turnbull urged Australia to undertake

“conscious planning and adequate financing of critical infrastructure”.

In August 2013, Tony Abbott said:

“I would like to be, should I get the chance, a prime minister who revels in seeing cranes over our cities, who revels in seeing bulldozers at work … That is the kind of prime minister that I would like to be if I get the chance.”  

In his first budget speech in 2014, Joe Hockey promised that

“Our Growth Package will stimulate the construction sector and create thousands of jobs …”

Looking back, the best year on record for total engineering construction was the year to September 2013, with $141.5 billion invested. The second best year was the year before, 2012, with $137.2 billion spent.

Results since then have all been dismal. For the year to September 2016, investment was just $90.1 billion, a decline from the 2013 peak of 36.4 per cent. The latest result, to September 2018, was a spend of just $94.0 billion, a decline from 2013 of 33.6 per cent.

National net worth

This matters not just because it is another outcome diametrically opposite to promises. Nor because so many construction companies are going bankrupt. But because Australia’s national net worth is now declining disastrously.

The loss to the national estate due to the failure of the Coalition to maintain spending on infrastructure is measured by the Finance Department in its monthly reports on the state of the books [Table 1, Page 1].

Net worth is the measure of federal government assets minus liabilities. Assets include cash, investments, land, buildings, equipment, infrastructure and cultural assets. Liabilities include debts to suppliers, superannuation and other employee charges, and government borrowings.

During the two years Prime Minister Tony Abbott with Treasurer Joe Hockey tried unsuccessfully to manage the economy, Australia’s net worth plummeted by a staggering $114.6 billion down to negative $320.6 billion, the lowest level ever to that point.

It has fallen by another $109.5 billion since Malcolm Turnbull – and now Scott Morrison – have replaced them. It is now negative $430.0 billion.

This makes 28 consecutive months net worth has been deeper than negative $380 billion. The lowest this ever reached under any previous government was negative $263.8 billion. That was in September 2012 towards the end of the world’s worst recession in more than 80 years.

Global comparisons

With the current global boom in trade, investment, jobs and company profits into its fourth year, most well-managed economies are expanding their roads, bridges, ports, airports, rail networks, power generators, factories, offices and other buildings. Most but not all.

The World Bank’s DataBank shows the increase in gross fixed capital formation for all 36 members of the Organisation for Cooperation and Development (OECD), a measure which parallels national infrastructure.

Of those 36 wealthy, developed countries, 28 increased their fixed capital between 2013 and 2017. The average lift was 1.34 per cent.

Only eight countries went backwards over that period, with Australia faring second worst of all. Australia declined by 3.77 per cent, with only Estonia’s negative 4.01 per cent a poorer outcome.

Back in 2013, Australia’s ranking on fixed capital formation as a percentage of GDP was third in the OECD. By 2017 this had fallen to eighth. By the end of this year it will have tumbled further still.

Such is Australia’s doom.

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Alan Austin is a freelance journalist with interests in news media, religious affairs and economic and social issues.

You can follow Alan on Twitter @alanaustin001.

 

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