Abbott can end Australia's capex drought

As the mining investment boom winds down, the next government will face dwindling capital spending. A Tony Abbott victory in September would likely be the quickest antidote to this capex chill.

One of the biggest problems facing the winner of the September election is a looming dangerous gap in capital spending and tax revenue.

This is one of the key points, which emerged in this week’s fascinating KGB interview with NAB chief economist, Alan Oster and Goldman Sachs JBWere chief economist, Tim Toohey.

Right now Australia’s non-mining business community is simply not spending because of the uncertainty and low consumer demand. And its shareholders are reinforcing that view by telling them that they want dividend income.

Shareholders also say that directors make too many bad judgments. This all chills non-mining companies' demand for borrowing – we are experiencing a long capital strike.

But the overall Australian investment figures conceal this lack of non-mining capital investment because of the mining investment boom. However, by September 2013 that boom will be winding down. Tony Abbott is planning to foster a major infrastructure-spending boom fanned by ending the union/large commercial builder work place deals which boost tender prices and by mobilising superannuation capital (Abbott's controversial new foundation for Australia, January 29).

Gillard is looking in other directions. If Abbott wins (and there are no certainties in politics) there is likely to be a gap between his infrastructure spending ramp up and the end of the mining investment boom.

My view is that the combination of higher equity values and a change in government will also spark a wave of optimism, which will bring forward capital spending by business. But it takes time.

Similarly, neither side of politics has given any attention to the fact that in the term of the next parliament the enormous oil and gas discoveries in the Middle East and the US will put pressure on oil and gas prices and continue the pressure on thermal coal. This will affect tax revenues.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles