Data centre boom a ray of light amid budget gloom
Australia’s nascent data center boom gave Finance Minister Jim Chalmers something to brag about in his mid-year budget update, but economists warn major reforms are needed to solve the country’s fiscal challenges.
In next week’s Mid-Year Economic and Fiscal Outlook, Dr. Chalmers will announce that expected growth in business investment this financial year has doubled since pre-election budget forecasts were published in April, from 1.5 per cent to three per cent.
A summary of the budget update published on Thursday said business investment increased in the September quarter, reflecting structural changes in the Australian economy.
The Undersecretariat of Treasury said, “The latest data showed that investments in energy conversion, data centers and computer software have increased.”
“Low financing costs, increasing private demand and high capacity utilization are working to create a more favorable investment environment.”
New private capital expenditure rose 6.4 per cent in the three months to September, according to the Australian Bureau of Statistics.
IT firms’ investment in equipment and machinery, including servers and network infrastructure hosted in data centers, has nearly doubled to $2.8 billion.
Investment in computer software has increased steadily over the past 10 years and has more than tripled since 2015 as businesses seek to improve accounting, finance and security systems, according to the budget update.
Dr Chalmers said the improved forecast showed business investment had increased under Labour.
“The mid-year update forecasts business investment will rise further following large increases in private sector spending on new technology and renewable energy,” he said in a statement.
“This will show that the private sector recovery we have planned and prepared for is truly taking shape.”
Reviving stagnant business investments, Dr. A key plank of Chalmers’ second-term agenda was to lift productivity growth from 60-year lows.
National accounts figures announced last week revealed positive developments regarding the increase in labor productivity, which is the main determinant of the rise in living standards in the long term.
It accelerated from an annual increase of 0.2 percent in June to 0.8 percent in September.
Business investment helps increase productivity by increasing the amount of tools and equipment available to each employee.
But the question of whether more data centers will lead to increased productivity is an interesting one, Federal Reserve governor Michele Bullock said Tuesday.
“Potentially, there could be improvements in productivity, just as people think AI could have impacts across the board,” he said.
“And if data centers help encourage that in Australia, then that (productivity increase) could be there.”
Getting productivity growth back on track will help the RBA keep inflation under control, help the economy grow faster and ultimately improve government profitability.
But more than a modest increase in business investment is needed to get the budget back into the black.
Stephen Smith and Doug Ross of Deloitte Access Economics predict that the federal budget deficit will rise to $44.6 billion by 2028/29.
The Treasury’s latest forecasts do not see the budget returning to balance until 2035/36.
“Increasing spending pressures and an outdated tax system are expected to mean budget deficits as far as the eye can see,” Mr Smith and Mr Ross said.
The government needed disciplined, long-term thinking, including imposing tighter spending controls to rein in growing deficits and sweeping tax reforms to encourage investment and reduce intergenerational inequality.
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