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.