Cost of doing business in Australia soars to 40% higher than the US and threatens growth

High costs and low productivity in Australia are putting at risk $921 billion in the pipeline of investment in resources, energy and economic infrastructure, according to research by the Business Council of Australia.

The BCA study, Pipeline or Pipe Dream? Securing Australia’s Investment Future, found that Australia was much more expensive to do business in than the United States and this expense was putting an investment boom in Australia at risk.

The study found resources projects are 40% more expensive to deliver than in the US Gulf Coast, and Australian labour is typically 35% less productive for resources projects near cities and 60% less productive for projects in remote locations

Infrastructure is estimated to cost much more to deliver in Australia than the US, with airports 90% more expensive, hospitals 62%, shopping centres 43% and schools 26% more expensive.

The report found that major productivity problems, labour shortages and planning approvals and conditions are all contributing to delays and project costs.

The BCA warns that the impact of Australia’s massive pipeline of investment is not just limited to the resources sector.

BCA president Tony Shepherd says capital project investments were “the main show in town” for Australia’s economy and would be for some time to come.

“The story of our massive investment pipeline is really about an economy-wide investment boom, not just a mining boom, but what is clear is this investment is far from assured,” says Shepherd.

“We are becoming a high-cost and thus high-risk place to invest, and low labour productivity compared to other nations has reduced the competitiveness of our project delivery.

“This is not only placing future projects at risk but is also undermining the efficiency of existing projects, which could mean less money for subsequent investment and lower tax revenue impacting the whole community.”

The BCA has called on government to ensure a more concerted effort to undertake regional economic development in those communities impacted by growth of major projects.

It also wants to expand Australia’s capacity to deliver multiple capital projects by growing and developing the workforce and through open and competitive markets for labour, materials and equipment.

Shepherd says half of the $921 billion pipeline is not yet locked in, and how much of it gets delivered will depend on taking the steps required to make Australia’s economy more competitive.

“What is at stake if we don’t deliver on the pipeline is the opportunity to transform our cities, regions and communities through economic and social infrastructure, job creation, skills development, and growing government revenues to provide quality services to our ageing population.

“In simple terms, if we cannot deliver the pipeline more efficiently our standard of living will be reduced.”

Gavan Ord, business policy adviser at CPA Australia, told SmartCompany small business was also feeling the pinch from increased costs.

“The feedback from small business is that the cost of doing business is going up and that is across the board. From a business point of view, the smartest small businesses are saying that is a fact of life and trying to train their business to respond.”

Ord says key areas of increase for small business are wages, energy cost and the compliance boom.