• Media Release

Capital investment is fundamental to productivity

Greater business investment in new technology and projects is essential to ensure Australia’s skilled workforce can drive higher wages and a stronger economy, according to the MCA’s Economic Series report released today.

The last decade has seen Australia going from one of the best performing OECD countries for private sector capital investment to one of the poorest performing and labour productivity growth falling 2.5 percentage points.

Since the end of the last mining investment boom, growth in the economy’s real net capital stock substantially slowed and it is now growing at its lowest rate in 60 years.

Unless this is turned around, Australia is at risk of experiencing continued weakness in business investment, which in turn will further weaken the contribution from our stock of capital to productivity growth.

Over the long term, increases in the amount and efficiency of capital per worker has been an important component of productivity growth and, therefore, economic growth, which highlights why Australia must remain internationally competitive at attracting investment.

Since the 1960s, achieving strong growth in business investment has been a challenge for Australia despite the significant contribution from the mining industry over the last two decades.

Improving Australia’s productivity performance by attracting capital investment will require comprehensive economic reforms aimed at reducing policy distortions and disincentives that are limiting the economy’s competitiveness and the ability of business to drive economic and productivity growth.

To attract capital investment, the report highlights the need for economic reforms that deliver internationally competitive tax settings; expanded trade and investment opportunities; efficient and effective regulatory settings; practical and beneficial workplace relations rules; an efficient transformation to net zero emissions; and, industry-focused skills and training programs.

The minerals industry has demonstrated its ability to be a major contributor to Australia’s private sector capital investment and productivity growth owing to the expansion of mining that began in the 2000s.

The industry can again make a substantial contribution to lifting productivity if policy settings make Australia a competitive destination for large-scale investment in mining and minerals processing projects.

A one per cent lift in productivity by 2030 would deliver a $200 billion boost to the Australian economy, 9.4 per cent increase in real wages and Australian families $11,700 better.

Policies that improve productivity and competitiveness and attract investment, are integral to Australia maintaining its comparative advantage in mining and minerals exports, and expanding minerals processing and mining-related manufacturing, which will ultimately benefit all businesses, households and workers.

Productivity-based reforms will also help mining continue to underpin the federal government’s revenue as it is doing today with the industry paying a new record high of $26.5 billion in 2020-21. ATO data released in December 2021 (ATO Corporate Tax Transparency Report) showed that the minerals industry contributed more than 40 per cent of all the company tax reported by the 2370 large entities.