Friday, February 26, 2010

What's driving our "investment boom"?


A dramatic jump in spending by businesses on on "equipment, plant and machinery" is set to push up Australia's economic growth rate and tip the Reserve Bank into pushing up interest rates next week... but it's not all it seems.

The Bureau of Statistics reports private new capital expenditure jumped 5.5 per cent over the three months to December driven by an astonishing 12 per cent jump in spending on equipment, plant and machinery. Treasurer Wayne Swan hailed it as evidence that stimulus is promoting economic activity.

But much of it isn't what is normally thought of equipment or machinery.

The ABS figures show capital spending in the mining industry actually fell in the December quarter. All of the increase was in spending by manufacturers and by businesses in "other selected industries", among them construction, real estate, travel, and the arts.

So unusual did the Bureau find the increase... that it went back to the firms it had surveyed and looked again at what they said they spent the money on and asked asked why.

It published a special note to say the answer was highly likely be motor vehicles and the reason was likely to be a rush to take advantage of the government's end of year business investment tax break.

Industry figures show business purchases of passenger cars jumped 36 per cent between September and December. Business purchases of four wheel drives soared 43 per cent.

The 48,000 extra passenger cars and the 25,000 extra four wheel drives bought by businesses show up in the figures as new investment in equipment, plant and machinery, but are different from what is normally thought of business investment.

Underlying the unusual nature of the boom the industry-lite ACT recorded the biggest increase in "business investment", up 25 per cent followed by the Northern Territory, up 22 per cent and NSW and Victoria, up 16 and 13 per cent. Recorded investment fell in the mining powerhouses of Queensland and Western Australia.

But the future looks good. The Bureau says planned investment is up 15 per cent over the coming financial year led by mining, up 38 per cent, without an investment tax break in sight.

Photo: An actual sports car bought with the investment allowance - Thanks Geoff, happy driving

Related Posts

. "I run a business, I've got to buy a car"

. New car sales off a cliff

. Did Australia spend too much to avoid recession?


Anonymous said...

VIT: Vanity Investment Taxbreak - ‘different from what is normally thought of business investment’ - buying a new car when one does not really need one epitomises Aus consumer mentality. Let taxpayer pick up the bill, it is only debt and erosion of Treasury revenue.

Roger Wegener said...

As expected - much of the Fed's stimulus money has gone into things that add zero value to the long term capability of the nation. What does this obsession with 4WD's say about the nous of small business? They would rather invest in something that is a money pit rather than something that adds productive capability - or is innovative or creative. Actually it's no real surprise given that AU small business rely almost exclusively on government distortion of one form or another to survive.

PIGSUKUS said...

Correct RW. How good would it be if most small business did invest in something that adds productive capability to the economy, or is innovative or creative?

Had an idea. Pause or curtail (say reduce by 50%) tax breaks/deductions that politicians and business owners can claim until Australia moves from near bottom of Current Account Balance chart to top 10 position:

Being amongst the cluster of heavily indebted PIGSUKUS countries at the bottom of the chart says it all about how productivity is treated here.
It is a virtual non-event.

Anonymous said...

So the Government gets elected, and introduces a silly, knee-jerk luxury car tax. Along comes the GFC, the Government panics, and introduces investment tax breaks. And industry uses them to buy - luxury cars!

Seriously, is this the stupidest Government in living memory?

carbonsink said...

That isn't investment, its consumption!

Funny how Pete thinks "the future looks good" because planned mining investment is up 38%. What if the giant Chinese infrastructure bubble of 2009 is already winding down and we already have over-capacity in mining?

Nah, can't happen ... lets party Australia!

carbonsink said...

Aust oil production dips to 40-year low

Great time to import 25,000 4WDs! Have these people forgotten the 2008 oil spike already?

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