Western Australia continues to lead the nation in its economic recovery, according to the latest quarterly national accounts data from the ABS.
Western Australia continues to lead the nation in its economic recovery, according to the latest quarterly national accounts data from the Australian Bureau of Statistics.
State Final Demand (SFD) increased by 3 per cent over the March quarter, which represents a stronger economic return than any other state in the country. And this is despite the five-day lockdown at the start of February.
These figures are eagerly anticipated by government, businesses and commentators, as an indication of the current health and future direction of the domestic economy.
Perhaps the most interesting thing about these latest figures is what sits behind the headline numbers.
Until now, the state’s improved economic fortunes have come in the form of a strong recovery in household consumption over the second half of 2020.
The JobKeeper wage subsidy and stimulus measures to incentivise new housing purchases have certainly played their part in the recovery, as have business tax offsets, electricity credits and grants to small businesses.
However, the main contributor to WA’s economic growth during the past quarter has been a stellar 10.8 per cent increase in private capital investment by the state’s businesses.
These are excellent signs for WA and come after long periods of sluggish investment growth following the end of the mining boom.
Growth in business investment accounted for more than four fifths of the state’s domestic economic growth over the first quarter.
New investment in machinery and equipment has risen by an extraordinary 21.5 per cent in WA during the past quarter in the form of vehicles, heavy machinery, farm equipment, and new capital to support engineering construction in the mining sector.
So, what could be driving such a remarkable turnaround? Federal incentives to encourage capital investment appear to be working.
The instant asset write-off scheme was extended by a year in the federal budget.
The temporary ‘full expensing’ scheme now allows businesses to claim tax deductions immediately for assets acquired before the end of the 2022-23 financial year, rather than through depreciation.
The growth in capital investment suggests favourable tax incentives are bolstering confidence among businesses that are keen to invest to capitalise on high commodity prices, low interest rates, and growing consumer and export demand.
However, the claim by Treasurer Josh Frydenberg that the instant asset write-off and loss carry-back schemes will create 60,000 new jobs over the next two years is lacking in evidence and seems pretty heroic at first pass.
Public fixed capital formation grew by 4.5 per cent in WA in the March quarter, up from 1.2 per cent in December 2020.
But this won’t be enough for the WA government to hit its budget target of 18 per cent growth in public investment over the 2020-21 financial year; not unless we see double-digit growth over the next quarter, which is unlikely.
It may be that the government doesn’t expect public investment to grow at the rate envisaged at the time of the last budget, given the strength of WA’s economic recovery.
However, while the WA economy continues to benefit from the strength of the resources sector, the state remains vulnerable to fluctuations in the price of iron ore and trade relations with China.
Shelving plans for public investment to support the state’s continued economic growth could stall momentum of recovery.
• Alan Duncan is director, Bankwest Curtin Economics Centre
