The Distillery: Stimulus effect?

Jotters are divided on Tony Abbott’s ability to kick-start short-term growth, and on just how much the mining sector will benefit.

After what is now being characterised as six years of business failure by Labor, our business writers are starting to wonder just how growth-friendly the incoming Coalition government will be. One scribe has particularly high hopes for Tony Abbott's infrastructure plans, while another says it won't be nearly enough to compensate for the mining downturn.

At Fairfax, Adele Ferguson lets fly on her disappointment with Kevin Rudd's approach to nation building, and sincerely hopes Tony Abbott will be remembered as the infrastructure prime minister who raised productivity by cutting red and green tape and eliminating pork-barrelling.

"Morgan Stanley's Chris Nicol sums it up well in his post-election report: 'A more open and stable relationship between government and the corporate sector will enhance Australia's reputation as a stable jurisdiction to invest and operate in.' Indeed."

Ferguson's papermate, Michael Pascoe, also thinks Abbott has taken control at an opportune time, considering yesterday's strong housing finance figures and recent upbeat data out of China.

"Barring a further external shock, the economic outlook is one of improving growth. Business confidence has received the political shot it was looking for. Next it will seek increased consumer demand to justify investment. On cue, improving house and share prices have a capacity to create a self-reinforcing cycle of investor and consumer confidence – we begin to feel richer. With the Coalition adopting Labor's fiscal big picture – promising to shave the federal budget by an average of just 0.375 per cent over the next four years – it looks like Tony Abbott has been fortunate in the timing of his election, at least for the first couple of years before some of the larger fiscal challenges have to be faced."

But he concludes by quoting Euripides, one of the great Greek tragedians: "The lucky person passes for genius."

Still at Fairfax, Elizabeth Knight is unconvinced.

"The fact remains that business investment in the non-resources economy is nowhere near the level that will compensate for the downturn in mining investment. And the Coalition plans to spend on infrastructure don't come close to offsetting the private industry hole.… Certainty is a key element for business, as is the Coalition's promise to cut layers of unnecessary regulation, but is it enough to kick investment into hyper-drive? If there is to be a positive consumer response it will probably not filter through until next year. There will be no immediate impact on the family budget. But the macro settings in the short term remain largely unchanged."

The Australian's Adam Creighton, on the other hand, thinks Abbott's cost cutting drive will be a major driver of growth. He savages Rudd's scare campaign against the Coalition's "Tory-style" cuts, when in fact the British economy is growing despite a sharp pullback in government spending.

"Despite relentless criticism from big spenders including the British Labour Party, the IMF and former Nobel Prize winner Joseph Stiglitz, the British government deserves some credit for sticking to a program of fiscal consolidation that was heavily skewed towards spending cuts rather than tax increases, in contrast to European nations that have preferred to lift taxes."

He concludes: "Serious studies show that, whatever the politics, spending cuts are a better way to revive economic activity and fix budget crises than tax hikes."

Matthew Stevens, resources campaigner at the Australian Financial Review, says it’s tempting to think of the Coalition's win as an absolute victory for miners – what with a more business-friendly industrial relations regime, new exploration tax credits and the axing of the carbon and mining taxes. 

"The only problem is that the starting point for this assessment is wrong and will be wrong until three state governments agree to surrender a fairer share of the resources boom than they extracted under the MRRT’s confusing cloak.… by my reckoning, the big mining states will collectively raise an extra $1.3 billion in annual royalties following the promise that those payments will be deductible against future MRRT impost. This equation was explicit in Queensland’s decision to increase its coal royalties from October 2012. Our advice is that the increases are expected to raise an extra $1.6 billion over four years. Hikes to the NSW royalty regime were similarly justified and they are expected to raise an additional $1 billion over four years."

Another business hurdle, according to newspaper's Chanticleer columnist Michael Smith, is the emergence of a relatively unknown collection of independents in the new Senate. He says Coles and Woolworths should be particularly worried if the group backs efforts by Bob Katter to go after the supermarkets.

On the same subject, Jennifer Hewett slams the act of so-called preference harvesting for delivering a "liquorice allsorts" combination of Senators that received less than 1 per cent of the vote in their respective states.

"The fiasco means Labor and the Coalition may at least agree to combine on one legislative reform – the Senate voting system," the Australian Financial Review scribe writes. "But it can’t take effect until next election."