At large: Ross Greenwood

Dysfunctional politics are hurting business investment and the economy

Do politics affect investment markets? The answer, if you look at America, is quite clearly yes. Expectations of Donald Trump, as CEO-in-chief, delivering significant pro-business policies has seen markets climb rapidly to all-time highs.

And much of that is about tax policy. The promise of significant cuts – for business and individuals – has underpinned the US stockmarket rise. Policies that seem more protectionist have also provided a buffer for local manufacturers and service providers that have previously felt the pinch of foreign competition.

But there’s something peculiar. In places like Australia, where politics have become dysfunctional because of indecisive parliaments, business does its best to go around the political system, rather than through it.

There are good examples here. One is industrial relations, where most new jobs formed in the past 12 months have been part-time or casual. There are good reasons for this. One is that casual or contract workers may cost more per hour but they are easier to move on when the work has been completed. Another reason is that businesses, uncertain about the future and their cash flows, are not prepared to commit to permanent staff.

This is about confidence, not only in the economy or in consumer behaviour but also in the political system. Companies, large and small, need confidence to invest. But if confidence is down, long-term thinking tends to go out the window. And this reflects directly on politicians: their mixed messages and their inability to make ground-breaking changes that would, in the long term, create better opportunities.

It’s already hurting Australia. Given record low interest rates and a dollar that broadly favours exporters, manufacturers and service companies, our stockmarket – technically – should have done better.

Here’s a simple example: why would you invest potentially hundreds of millions of dollars in a piece of infrastructure, requiring long-term returns to recoup your money, if a new government and a change in parliament renders it a loss maker in a matter of months. Simple answer: as a board, a CEO or a shareholder … you won’t do it.

Go to the complex area of climate change – but it could be health, education, defence or something as simple as alcohol. There’s a view inside politics that if we wait three years the government will change and we can reverse a whole lot of policy. But that does nothing – not only for those trying to plan projects that will span decades but also businesses trying to work out a strategy for the next five years.

So as companies think shorter term, worried by the prospect of more policy changes, the opportunity for strategic investment and greater employment from the private sector also dissipates.

There is also a view inside government that it should play a role in deciding which industries succeed or fail regardless of the market forces at play. So-called social taxes are one example. Already there are hefty taxes on cigarettes and tobacco. There is excise on alcohol (though not to curb consumption – yet, you suspect). There is a serious conversation about sugar taxes (to emulate a move by the British government) and so-called fat taxes to encourage those who are overweight to unburden themselves and, hopefully, the health system.

But governments know these taxes also raised vast amounts of revenue from those who are less capable of avoiding them.

One of the best examples of the way politics directs investment is the lack of electricity generation created in the past 10 years that has now created – in the prime minister’s words – a crisis. And this is the classic example of why companies – unsure of the policy direction of the two major political parties – have walked away from the area altogether. AGL, which once explored for and produced gas for Australia, now chooses to re-sell energy and to generate renewable energy sources.

Australia is in the process of closing vast amounts of electricity generation along the eastern seaboard, with too little replacement for a growing economy and population. Again, if you are in business you will think twice about investing in Australia without a government undertaking about energy, tax and infrastructure spending.

In the past month, during the interim reporting season, I asked six senior CEOs with multinational businesses based in Australia about their investment plans – what they thought about energy and tax policies. Almost to a person they said that while Australia has no decisive policies they will consider other places to be more desirable for future investment.

So if you wonder why the Australian stockmarket is lagging or why nothing seems to be being built here, ask your local politician what they are doing to create stability in the Australian economy.

Ross Greenwood is Channel 9’s finance editor and Radio 2GB’s Money News host.