Australian economy: Jim Chalmers hopes to catch wave from surging business investment

Treasurer Jim Chalmers is banking on a business investment boom to aid Australia’s shift away from government spending as the dominant driver of economic activity.

The Federal Government’s mid-year budget update, due next week, will forecast a 3 per cent lift in business investment this financial year, double the pre-election projection.

There were already encouraging signs in recent Australian Bureau of Statistics figures that revealed a big uptick thanks partly to a wave of cash for data centre projects.

ABS numbers showed private capital spending lifted 6.4 per cent in the September quarter.

Private investment was also a major contributor to overall economic growth for the period, and will lift the country’s productive capacity and help ease inflation.

It follows government spending recently hitting multi-decade highs as a share of the economy — sparking greater competition for workers and equipment for companies, and adding to price pressure.

Dr Chalmers said business investment was “burgeoning” and will pick up further thanks to spending on new technology and renewable energy.

“(The budget update) will show that the private sector recovery that we’ve been planning for and preparing for is really taking shape,” he said.

“Whether it’s reducing red tape where we responsibly can, our efforts to attract and deploy more capital, or by making the most of artificial intelligence and the energy transformation, boosting business investment is a deliberate feature of our economic strategy.”

Non-mining investment was particularly strong. The budget update will revise its growth upwards by a factor of four, from 1 per cent to 4 per cent.

Among the reasons identified by the Treasury for the improvement were lower financing costs after interest rates dropped, rising private demand and higher capacity utilisation.

All would “create a more favourable investment environment”, the budget update will say.

Reserve Bank boss Michele Bullock also highlighted the impact of higher capital spending by firms when speaking after her board held interest rates steady on Tuesday

“Growth in private demand was a bit stronger than expected, largely driven by business investment,” she said.