All posts by JohnHHill

AUSTRALIAN BUDGET 2018-19 May 2018

THE AUSTRALIAN BUDGET  2018-19

A  DAMOCLEAN BUDGET
FOR
EDUCATION-SCIENCE-INNOVATION-INFRASTRUCTURE

 

Tax Cuts
TAX CUTS OR EDUCATION, R&D, & INNOVATION (news.8btc.com)

Sword of Damocles
Any situation threatening imminent harm or disaster.
Caption – Tax Cuts or Education, R&D & Innovation

 

BUYING VOTES AND DEMEANING DEMOCRACY

Election Budget
TREASURER DELIVERING THE ELECTION BUDGET  (indaily.com.au)

These comments are not a critique of the budget, the intention is to highlight aspects of the budget as it relates to secondary education, tertiary education, R&D, innovation and infrastructure – matters that are important for increasing Australia’s export income.

The centrepiece of the budget appears to be tax concessions to ‘hard working ‘ Australians. Tax inducements was one among several reasons that cost Najib Razak his position as Prime Minister of Malaysia. Rumblings of disapproval have been heard in Australia on this ‘tax reduction’ budget that does not bode well for Mr Turnbull. The Conversation (8 May) has commented ‘this is not a big budget for school funding and that the freeze on university funding continues into this year’s budget’.

In the WE Australian (12-13 May), Alan Kohler noted ‘the Federal Budget is a political event, a statement on election strategy not a report on financial administration’. The term ‘jobs and growth’ will continue to be an oxymoron until export income replaces low, paid jobs churning cash around a fragile internal economy. Well proven round the world and now corroborated in Australia, the trickle down effect from a natural resource rich export economy is a myth.

In delivering the Budget the Government emphasised  its good economic management, proof being the creation of a million jobs and a lower deficit. What the Treasurer did not mention was a surprising increase in export income from coal, iron ore and gas and also a boost to the ATO due to company tax losses from the GFC being fully absorbed. These windfalls were due to good luck not fiscal rectitude. The statement on employment glossed over under-employment and continuing low wages which cannot substantially improve until export income increases. Also last year’s youth jobless rate was 13% with under employment hovering round 18%. ( The Guardian  March 2017)


IMPEDIMENTS TO RISING EXPORT INCOME.

Secondary Education.  Education in Australia is in a deepening turmoil, and yet it is the very foundation for innovation and export income. There are several reasons for this critical situation:

  • Back in 1901, at Federation, the nation inherited the colonial structure that morphed into six states and two territories. Today the nation is burdened with separate education systems managed with variable rigour by several Departments of Education.
    ‘Turf’ protection will ensure there can be no unified national curriculum.
  • Australia has a growing inequality problem. According to the IMF Fiscal Monitor, Australia has the fastest rising inequality rate in the OECD over the past thirty years,  As a consequence, an increasing number of children are growing up in impoverished poorly educated households. The failure of the ‘trickle down’ effect will be a contributory factor to this situation.
  • The OECD League Tables on education standards (March 2015) show Australia at 14th behind Poland and Vietnam. Further more the PISA assessments show Australia consistently slipping between 2000 and 2012. Ranking declines are: Maths 6 down to  8, Science 8 to 16, and Reading down 4 to 13.
  • NAPLAN – Despite its short history there is pressure to abandon the tests, reasons given are that the tests are too stressful for students and there are odious comparisons between schools..
  • Federal and State governments are floundering seeking a solution to the entire education model. The Finnish education model is an outstanding success utilising well-trained highly-paid teachers who operate under a uniform national system. (Simola, H, 2007, The Finnish Miracle of PISA). Australia’s six state education system is an impediment to a national uniform education syllabus.
EDUCATION IN CRISIS – A SUMMATION OF BAD POLICIES (telegraph.co.uk)

Vocational Education & Training (VET). This education division is the big loser. A year ago the Federal Government promised $1.5 billion to the Skilling Australia Fund. No state has signed up to participate although Victoria has donated $200 million to the project. The Government has offered $50 million inducement to any state that signs up by early June. At Budget Night there were no takers.  Vocational Education and Training is in crisis; Australia cannot function without a trained artisan workforce. This situation will lead to an influx of skilled foreign tradesmen  under the Temporary Skill Shortage (TSS) program meaning lost jobs for Australians.

Tertiary Education. The Federal Government has extended last year’s funding freeze to universities in the 2018-19 budget. Funding, however, is available to regional, rural and remote students for Bachelor degrees at rural hubs, student access to youth allowance, Commonwealth supported places and education, training and employment assistance. The government has funded 4000 extra places costing $124 million for diplomas, associate degrees and postgraduate course work. A further 700 new student places costing $96 million ($120,000/student) will be made available for young people from regional, rural and remote areas.

Another twist of the knife into university funding is that from 2020 funding for new students will be based on the 2017 enrolment numbers, adjusted for population growth but tied to attrition, completion and employment numbers. This is grossly unfair since Federal/State education systems are turning out ill-prepared and poorly-educated students struggling to meet required STEM and PISA proficiency. There will be no Government subsidy for additional students and no funding for indexed inflation but the universities will receive indexed student contributions. So the bottom line is funding for students but no funding to improve university infrastructure. It is an election budget designed to foster student supporters.

University
LECTURES UNDER ADVERSITY – A FUNDING  FREEZE. (telegraph.co.uk)

Science, R&D and Innovation.  Australia rates poorly in research and innovation on automation and artificial intelligence. The OECD Innovation Index shows Australia’s place slipping during the past three years – records show 2015-17, 2016-19 and 2017-23 (UN World Intellectual Property Organisation). Further, these conclusions are reinforced by the World Economic Forum: Davos in 2017, was critical of Australia’s performance where a seminar concluded Australia trailed in skills uptake and risks becoming uncompetitive due to poor grasp of STEM. This information is reinforced by Professor Greg Austin, Centre for Cyber Research, ADF, who commented that ‘over the past twenty years the Government has been fostering a culture of incompetence in training in computing skills and cyber security’.

Has the Government been stung into a major initiative by its position on the Innovation Index – 23rd? A National Research Infrastructure Plan will fund projects of the National Collaborative Research Infrastructure Fund to the tune of $4.1 billion .
Objectives are:

  • Develop research institutions.
  • Develop data linkage systems.
  • Leverage of knowledge and learning  to drive innovation.
  • Develop alliances and models of collaboration.
  • Achieve interoperable bioscience.

It is very likely all this work and more could be carried out in existing universities, why the requirement to set up new organisations?

Grants for important scientific research will be maintained at existing funding levels. This is important for continuity. It is also important because R&D in the corporate sector is decreasing.

The proposed corporate tax cut from 30% to 25% will cost the Government net $5 billion a year. Before implementation there are issues which should be considered:

  • The effective tax rate after deductions is already about 17%.
  • Presidents Regan and Bush reduced corporate tax rates to stimulate the American economy, the result was disaster. Companies bought back shares, went looking for new investments, but did not employ more staff. President Clinton raised corporate taxes, created jobs and reduced the deficit.
  • The Turnbull Government appears oblivious of this case study.

Research & Development. The Government has placed the Sword of Damocles over Research & Development, Innovation and also, on the mantra of ‘Jobs and Growth’ in Australia. Professor Roy Green, Innovation Advisor, University of Technology, Sydney, considers the budget is not good for Australia’s Research and Development industry. (Science Show 19 May) Professor Green considers that, at a time when Australia is struggling to innovate away from a resource driven economy to a high tech export economy, the budget is a disappointment, the more so when the corporate sector will receive $5 billion a year income tax saving  while this sector expenditure on R&D is declining.

The Government has cut $2.4 billion from the R&D tax incentive so that now revenue measures have been bought forward and spending measures pushed back. The proposed commitment of $1.9 billion over 12 years ($158 million a year) is almost meaningless beyond the four year forward estimates. During the Abbott and Turnbull Governments the science and R&D budgets have been cut by around $2.0 billion. In terms of comparison, the proposed tax concession to the corporate sector is effectively a handout by the Government of $5 billion a year and this at a time when corporate R&D is declining.

Funding for R&D has also taken a hit. The tax relief threshold for R&D funding has been raised and funding has been reduced. Holland along with Australia are the only members of the OECD that rely on tax incentives  to fund R&D. Professor Green considers the future is bleak for science, R & D and innovation. The Academy of Science concurs with this assessment. Regressive elements of the budget are:

  • The R&D tax offset will now have the cash refund capped at $4 million per year with additional expense carried forward.
  • Companies with less than $20 million turnover were eligible for a 43% refund of a refundable tax offset, this is now lowered to 41%.
  • The threshold that can be claimed at the allotted R&D tax offset rate is being raised from $100 to $150 million for the financial year. (Research and Development Services, 9 May 2018)
Innovation
INNOVATION (goldennews.com.au)

 Infrastructure. King &Wood Mallesons (8 May) have provided an analysis of infrastructure forecasts that could be construed as an election budget. Major projects in the budget provide for $75 billion expenditure over a ten year period. Beyond the four year estimate the funding cannot be guaranteed. Some $12 billion is to be spent during forward estimates period in six states on road, rail and bridge upgrades. Additionally, $44 million is earmarked for innovation studies for Roads of Strategic Importance and Infrastructure and Regional Cities portfolio.

Three new funds have been created:

  • $250 million for a MajorProject Business Case Fund to assist with the development of business cases for future critical land transport in infrastructure projects. This appears to be placing the cart before the horse – mining, agricultural projects and industrial ventures all depend on resources and capriciously, where one finds them.
  • $1 billion to establish an Urban Congestion Fund to support projects to alleviate congestion, improve traffic safety and commuter/freight movement. London is the obvious starting point but the whole process will be bedevilled by politics, not science and logic.
  • $536 million will be spent over five years to regenerate the reef. This is probably a political decision where ‘something must be seen to be done’ before the election. Scientific study will  identify problems from rising sea surface temperatures and chemical run off from inland agriculture. Professor Grabic, Environmental School, Griffith University, states ‘the 2018 budget may not go far enough to save the Reef. The problem is not only declining water quality but expanding coastal development, bleaching, acidification, extreme weather events, marine heat waves and cyclones. Risks cannot really be addressed, they are inevitable as the climate changes. Progress on water quality is slow and targets may not be met’.

A Voice of Reason. Andrew Mackenzie, CEO, BHP, was critical of the size of the infrastructure budget. He suggested this is the responsibility of private enterprise not government. (FR 11 May) The commitment of $24 billion in projects with a ten year program exceeding $75 billion is not wise. Pledges for funding have been made through equity investments thus big ticket difficult items like the National Broadband Network can be kept off the balance sheet. The real problem is the Government strategy could result in financial loss if projects do not achieve commercial return. The firm message is government should use money for education and health, not funding infrastructure.

Australia should create incentives to use corporate balance sheets to invest in infrastructure; corporate knowhow and ability is normally better than governments. The interests  of the nation would be better served by investing in education, research and health. These sentiments are endorsed by Dr Bowditch, Executive Director, Better Infrastructure Institute, Sydney. He commented  that too many projects are orchestrated and funded by government which sits oddly with Super Funds which have the capacity to invest in infrastructure. This whole situation needs redress.

Private enterprise should be given the chance rather than relying on taxes taken from ‘hard working Australians’. Using private funds will free up government funds for budget repair and targeting community and social infrastructure – direct commercial returns will be low but the quality of life will improve.

Comments by Andrew Mackenzie raise fundamental issues  on government policy which cannot be addressed here. Commentators have noted that the 2018-19 budget is an election budget so the question must be asked:  is all infrastructure work in the six states absolutely essential or is this expenditure designed to curry votes?

Final Word. With respect to budget policy on education, science , infrastructure and innovation, the consensus is that the budget will do little to promote high-tech export-income Science and innovation; the main drivers to generate export markets are not well funded.

Secondary education is in disarray, university funding has been cut  by at least $2 billion, there appears to be no strong impetus to improve on  the IMF Innovation Index and R&D funding has been made more expensive. Finally, according to the BHP CEO, private enterprise should do more heavy lifting for infrastructure and the Government should concentrate on raising the nation’s living standards. There is much room for improvement.

By the end of the financial year the Sword of Damocles will still be hanging by a thread.

end of year
THE END OF THE FINANCIAL YEAR (gdpr2-1 jpg)

 

JOHN HUGH HILL
Current Affairs Flash Points – towardsthefinalhour.com
lurgashall@westnet.com.au

 

 

AUSTRALIA’s ENERGY CRISIS April 2018

AUSTRALIA’s ENERGY CRISIS April 2018

THE PROBLEM

COAL
COAL FIRED POWER STATIONS – USE BY DATES          (AEC– PWC)

The image is a snapshot of the use-by-date of Australia’s Power Stations – in other words, the fiftieth year and the final period of their economic life.  For example, Lidell NSW, will reach this critical situation in 2021-2022. The Power Station has been in the news as  the Government has requested that this ageing behemoth continue electricity generation to slow down Australia’s looming power crisis. The image clearly illustrates Australia’s declining dispatchable power in the coming decades. The need for dispatchable energy needs to be augmented by new hydro, coal or gas power stations.

From the early 1990s, a succession of Liberal and Labor governments have failed the Australian people by ignoring this unfolding energy crisis.  Within our political elite there is a culture of evading responsibility, best illustrated with politicians consistently blaming the other Party for the current situation. The Three Year cycle impedes forward thinking.

THE NATIONAL ENERGY GUARANTEE
To solve the urgent problem of the declining power supply in south-eastern Australia, (NT and WA excluded), the government has proposed a National Energy Guarantee that has yet to be unconditionally approved by the States and the Labor Party.  A sticking point is that the States are running their own emission reduction programs and have raised the concept of ‘additionality’ whereby they be credited with lowering emissions within the 26% envelope set by the Federal Government; this the Government refuses to do. Tasmania has opted out as the State Government wants no part of mainland high energy prices. Any Parliamentary legislation must be supported by both political Parties otherwise Australia’s long term energy policy remains in chaos.

In October 2017, the Government announced a new National Energy Policy. The Government has scrapped the Clean Energy Target proposed by the Chief Scientist, Dr Finkel, and has replaced it by the National Energy Guarantee for ideological reasons. The Clean Energy Target provided an incentive for new low emission forms of energy generation to enter the market. The National Energy Guarantee, unfortunately, entrenches the power of the big three retailers, AGL, Origin Energy and Energy Australia.

So, summarising the National Energy Guarantee:

  • The Government will scrap the Clean Energy Target based on science and will not extend the Renewable Energy Target beyond 2020. The Renewable Energy Target was intended to encourage electricity generation from renewable resources to meet a 20% share in the national power supply by 2020.
  • The Government will attempt to legislate a National Energy Guarantee which requires retailers to meet two targets:
  1.  The Reliability Guarantee.  This requires retailers to supply electricity from dispatchable sources which including batteries, hydro, gas and coal.
  2.  The Emissions Guarantee.  Retailers will be given targets to drive down the power sector’s green house gas emissions by 26% of 2005 levels by 2030. This is consistent with commitments made at the 2015 Paris Climate Treaty.

By 2030, the Government forecasts {hopes) that 28%–36%  of electricity generation will be from renewables of which 24% will be from wind/solar and by inference 8% from dispatchable pumped hydro, which explains why Snowy 2 has recently splashed onto media pages. Again, by inference, 68% of energy must still come  from coal/gas-fired power stations, hence the Government’s attempt to seduce AGL over Lidell. In a bizarre twist, a Hong Kong company, Chow Toi Fook Enterprises, has expressed an interest in Lidell, not for energy production but for its ‘poles and wires’, worth billions.

AND YET MORE PROBLEMS
Regarding solar power development, Australia lags well behind European nations who have a fraction of sunlight hours that Australia wastes. Why?

Solar Power
LOSING THE SOLAR RACE (REN 21))

The Snowy 2 pumped hydro scheme has become a common phrase in recent months; the Government is actively considering a major new power generator in the Snowy Mountains. It is hoped this facility will assist in providing the 8% of dispatchable power for the National Energy Guarantee plan within a decade. The objective is to supply power to 50,000 homes. A $29 million feasibility study has been completed which indicates a construction cost round $4 billion and transmission costs to New South Wales and Victoria of $2 billion. Engineering studies suggest that, as configured, it will increase electricity demand, increase carbon dioxide emissions and in fact, may require coal to generate the water supply. The project could not operate in a normal commercial market as it may not produce an acceptable rate of return and would require government subsidy. (Cost Blow out. New Economy, 21 Dec, 2017: The Guardian, 20 Dec 2017 )

The National Energy Guarantee will only apply to members of the National Energy Market. This excludes WA and NT since there are no transmission lines to the Eastern States. Also, Tasmania  has withdrawn as there is no wish to be lumbered with mainland high power prices. Thus, from 2020, these markets might not be subject to a Federal emissions reduction policy.

The Government has further indicated that when (if) COAG approves the National Energy Guarantee, (meeting on  20 April 2018) the average Australian household will save between $110-$115 per year between 2020 and 2030 – equivalent to   thirty three coffees or four smashed avocado breakfasts. (The Conversation, October 2017)
Post Script: the States will continue towards an Agreement.

Adding to this largess, the Shadow Minister for Energy, Mark Butler, at a media address on 8 February, 2018 stated the National Energy Market will increase electricity prices by $430 in NSW and $250 in  Victoria from 2019 due to Government inability to address the gas supply crisis. Large reserves are locked up in both States for political reasons.  The question may now be ventured – are the  States, ossified in1901, now approaching their use by date?

Gas
COAL SEAM GAS CRISIS IN NSW (Australian Mining – Economic Scenario

THE RELIABILITY GUARANTEE
The Australian Energy Market Operator (AEMO) has stated “Australia’s energy resources have reduced to the extent that there is heightened risk of significant unserviced energy requirement  over the next ten years compared with recent levels. The age of the coal-generation fleet is expected to result in the closure of plant over the next decade”. In plebeian speak, that is ‘Houston we have a real problem” which will lead to a surge in the birthrate. In plain English, in the next ten years there will be an electricity shortage and the lights will go out.

Despite the three-year advice required before closure recommended by the Chief Scientist, feasibility, planning approvals and construction will take a decade but large-scale renewable resources will take less time to bring on stream. The problem now for investors is that technology is improving and costs are reducing so rapidly that investors will be reluctant to make long-term strategic decisions on power generation. Under the Reliability Guarantee, generators/retailers may try to drive their equipment past use-by-date to meet near-term obligations rather than embarking on new generator capacity – this will favour existing generator-mix without improving it.

Also, overly risk-averse reliability guarantees may lead to excessive obligations placed on retailers and thus drive up costs for consumers. Similarly, uncertainty in demand caused by unforeseen events, (for example – a smelter closure), will encourage retailers to write  short-term contracts.

On an optimistic note, the imposition of a Reliability Guarantee may have the potential to open new markets powered by renewables that can dispatch on demand.

THE EMISSIONS GUARANTEE
Under the 2015 Paris Climate Agreement, Australia committed to reduce carbon dioxide emissions by 26% below 2005 levels by 2030. The scientifically generated Finkel Climate Report recommended a 42%  reduction. The Government has opted for an ideological target which is politically acceptable but not in the national interest.

Emission data for Australia, after Origin Energy are:

  • 2005 emission level – 610 Mt carbon-dioxide equivalent
  • 2017 emission level – 550 Mt
  • 26% of 2005 level of 610Mt –159 Mt
  • Australia’s reduction of 2017 level – 610-159 = 451Mt
  • Australia must reduce 2017 level by 550-451 = 99 Mt
  • 2017 level must therefore be reduced to 451 Mt by 2030
  • Australia must therefore reduce emissions by 99 Mt by 2030

The Emissions Guarantee generates two questions;

  1.  What is the percentage of the portfolio that must come from renewable resources?
  2.  Should the portfolio as a whole have a carbon intensity below an agreed threshold assigned to an energy production company?

Either way, the Emissions Guarantee must encourage investment in renewables. The Emissions Guarantee will be assisted by:

  • Reducing fossil fuel generation; however, existing generators will soon be closing down anyway, around the time of their 50 year use-by-date.
  • Increasing output from lower emission renewable resources and reducing emissions from fossil fuel generators – but, the double whammy is that renewables must replace ailing generators while, at the same time, providing additional sustainable energy above the existing fossil fuel generators.The magnitude of the current energy replacement problem in Australia is reflected in the energy production from various sources:
  1.  86%    fossil fuels –  coal and gas
  2.   7%      renewables –  wind and solar
  3.   7%       hydro

The irony of this situation is that renewable projects, either existing, under construction or planned, are expected to meet the Renewable Energy Target of 20% of the National Energy output by 2020, and contribute about 23% of generated output to the National Energy Market. This therefore requires 77% from the fossil fuel generators.
From the data above this will not happen.
(National Energy Guarantee, PriceWaterhouseCoopers, Oct,2017)

NOT THE LAST WORD
PriceWaterhouseCoopers have concluded the rationale for the National Energy Guarantee is sound. However, the guarantee thresholds need to be defined so that investors can assess commercial impacts of the legislation. With the  imposition of more regulations the main energy retailers can act as a barrier to new entrants into the market.

In a radio interview on 12 April 2018, the Shadow Minister for Energy indicated that there are design flaws in the proposed National Energy Guarantee which the Australian Competition and Consumer Commission wish to see amended. Currently, the three big retailers, AGL, Energy Australia and Origin Energy, will obtain too much power causing power prices to rise. The big three will effectively act as ‘gate keepers’ that will keep new investors out. This will disrupt contract markets which tend to stabilise power prices. There are also competition and transparency issues which will harm the economy if not fixed.

The position with Labor, should it win office, is that the reduction target for emissions will rise from 26% to 42% by 2030 in line with the Finkel Climate Review. This will, hopefully,  ensure global warming does not rise above 2ºC.

FINALE
On the national energy front, Australia is facing three power supply problems that have combined to produce a ‘perfect storm’.

  1.  As early as 2000, Australian politicians should have considered the use-by-dates of the nation’s coal-fired power stations and now it is too late. Australia’s dispatchable energy within a decade now runs the risk of decreasing by one third unless the power stations are flogged to death. Sustainable energy, on current progress,  is presently 7- 8% and the industry will be hard pressed to make up the short fall.
  2.  The domestic gas industry is in crisis. Victoria and New South Wales have abundant gas reserves but State Governments have refused to grant extraction permits. The Northern Territory has just lifted its embargo. The Australian Government has effectively excluded citizens from using Australian gas before export to east Asia.
NO GAS FOR THE BARBIE – ONLY FOR EXPORT (theaustralian.com)

3. The 2015 Paris Climate Conference has forced Australia into a commitment to reduce emissions to 26% below its 2005 levels. This is a problem due to Government inertia and little positive encouragement to industry.

AUSTRALIA”S FUTURE PROBLEMS

POWER – JOBS – HOUSING – EDUCATION

Power
“LET THERE BE LIGHT” (WTF+WIDE+2)   POWER  +  JOBS  + HOUSING  +  EDUCATION 

Voices within Government once proclaimed  ”COAL IS KING”.

HABEAS CORPUS
(A writ requiring a person under arrest to be brought
before a judge).


JOHN H HILL
   lurgashall@westnet.com.au
Current Affairs Flash Points   towardsthefinalhour.com.au

References                                                                                                                    Clean Energy Regulator, Australian Government                                Origin Energy, 22June 2015, Energy Distribution                              National Energy Guarantee, Oct. 2017, PriceWaterhouseCoopers      National Energy Guarantee, 17Oct, 2017, TheConversation Australian Energy, 20 Dec 2017, The Guardian                                    Snowy 2 Cost Blowout, 21 Dec, 2017, New Economy                Australian Energy, 21 Dec 2017, Aust. Renewable Energy Agency National Energy Markets, 5 Feb 2018, Shadow Energy Minister National Energy Guarantee, 12 April 2018, Shadow Energy Minister

 

 

AUSTRALIA & ASEAN March 2018

 

AUSTRALIA & ASEAN      March 2018

ASEAN
SYDNEY WEEKEND
(www.rfa & Philippines DFA)

BACKGROUND BRIEFING
Australia pulled off a diplomatic coup by hosting an ASEAN Special Summit in Sydney in mid-March, the more so since Australia only had ‘Dialogue’ status upgraded to ‘Strategic Partner’ in 2014. As background information,  the constraints and obligations of treaties and agreements swirling round individual ASEAN members  add to political complexities for an aspiring  cohesive southeast Asian community.

Precursor to the ASEAN agreement was the 1967 Treaty of Amnity and Cooperation initiated in Bali by Indonesia, Philippines, Singapore and Thailand. The objective was to promote perpetual and everlasting amnity among their peoples, an anti-colonial consensus facilitated a common bonding.

The ASEAN Agreement was signed in Bandung in 1987 by the founding fathers, Indonesia, Philippines, Singapore, Thailand and Malaysia and other regional nations, Vietnam, Myanmar, Cambodia, Loas and Brunei joined soon after. The objective was to promote Pan Asianism, intergovernmental cooperation, and to facilitate economic, military, educational and socio-cultural integration. Obviously Australia is anxious to forge closer ties with ASEAN for economic and strategic reasons, but there are fundamental reasons why a closer association might be difficult. ASEAN, like the EU, was conceived as a mechanism to maintain harmony and border security between fractious southeast Asian nations. A basic tenet was there was to be no interference in the internal affairs of any member nation.

In 1989, Prime Minister Hawke promoted the establishment of the Asia Pacific Economic Forum  (APEC). Later the same year national representatives met in Canberra to formalise the Association, they were Malayasia, Brunei, Japan, Korea, Canada, New Zealand and the United States, Ultimately, the group was joined by China, Vietnam, Russia, Chile, Mexico, Hong Kong and Peru. The objectives were to promote  trade and peaceful cooperation across the Pacific. It is significant that APEC brought to the table nations that ASEAN regarded as enemies or who sought economic domination.

APEC was an international  grouping where industrialised  (First World) nations would seek markets into less developed nations struggling to free themselves from agrarian constraints. The former raising taxes on commercial production, the latter raising rent seeking income.

In 2005, Australia reluctantly signed the Treaty of Amnity and Cooperation  (TAC) to ensure Prime Minister Howard  received an invitation to the year end East Asian Summit which was to be attended by eighteen regional nations. Australian attendance was critical since the southeast Asian region receives 60% of Australia’s exports. (AM RN 10 December 2005) Australia’s concern on signing the TAC was this action should not impact on the ANZUS Agreement or be binding on the Bandung Principle of Non- Alignment.

In 2006, the P4 Trade Agreement signed between Brunei, Singapore (two wealthiet ASEAN economies), New Zealand and Chile formalised a desire to promote trade.

Another layer of complexity impacting on ASEAN is the Trans Pacific Partnership ratified in March 2018 to promote trade and closer economic ties. Signatories are Brunei, Malaysia, Singapore, Vietnam, Canada, Australia, New Zealand, Chile, Mexico, Peru and Japan.

 

CORE ISSUES
The ASEAN community is in a state of developmental flux, from modern industrial  to relatively undeveloped agrarian economies. There is a desire to raise living standards under controlled democratic principles. The difference between most ASEAN members and Australia is stark. The data in Table1, illustrating GDP/pperson (not wages) and hourly labour rates, illustrates the disparity in living standards. The data on Brunei, Singapore and Australia clearly indicates problems of economies reliant on natural resources: Brunei is blessed with abundant energy resources; Singapore has built up a strong economy on trade, services and high tech exports; Australia’s economy still overly relies on natural resource exports which must be partly replaced by manufactured exports to maintain the very high living standards.

Table 1   Australia and Asean – Comparative Data   $US   IMF   2018

Data sets out population, national GDP, GDP/person (not wages) and minimum hourly wage, a measure of economic development.

COUNTRYPOPULATION MGDP BGDP/personHourly Rate
Indonesia26110924,1840.46
Philippines1033573,4661.12
Vietnam932352,5260.73
Thailand694676,7681.06
Myanmar53741,3450.39
Malaysia3134111,0000.93
Australia24120450,16613.59
Cambodia16241,500na
Loas7192,7140.83
Singapore631652,366na
Brunei0.41230,000na

 

The table below illustrates Australian Export and Import data with the global trading blocs. It should be noted the ASEAN bloc is relatively minor in value with Australia showing a negative Terms of Trade for 2016.

 Table 2   Australia and its Trading Blocs.

 

TRADING BLOCEXPORT $A BEXPORT %!MPORT $A BIMPORT %T of T
APEC2517623766+24
ASEAN38115516-5
EU3096720-37
G202347123368+1
OECD1303917150-37

(Composition of Trade, Australia. DFAT Table 9)

Unsurprisingly, Australia has an overall trading deficit which, of course, shows up in the national accounts. Australia’s long term objective is to assist in raising education and living  standards which will be reflected in higher labour rates. Australian exports must concentrate on education, services and development products.

Now to the smaller picture where the devil is in the detail. The table below provides export-import data on Australia’s top fifteen trading partners. These figures are surprising in that they indicate the southeast Asian nations have a trading surplus with Australia for 2016. This is a problem that should interest DFAT and AusTrade.

Table 3  Australia’s Trade with ASEAN,  among top 15 Partners

CountryExportExportImportImportT o T
Rank$A BRank$A B$A B
Hong Kong8
12.5---
Singapore910.3712.3-2.3
Indonesia117.4117.9-0.5
Malaysia127.41010.2-2.8
Vietnam135.1155.4-0.3
Thailand144.6416.5-11.9
4746

DEBRIEF
The Sydney Declaration following the Summit formalises the Leaders’ consensus way forward. There will be a joint effort to shape and secure a prosperous regional future through a range of measures. and there is to be significant collaboration in strenthening regional security. The public manifestation  of the Summit has been one of necessary protocol, smiles, pressing flesh, compliments and canapés. What should happen when leaders return to their respective fiefs, but probably will not, is firm instruction to a myriad bureaucrats, industry executives, technologists and academics to ‘make it happen’.

Australian politicians will have to look beyond the next three-year cycle to the IMF projections when, by 2030, ASEAN is slated to increase from the seventh to the fourth largest export market.

At the Summit, an ASEAN minister made a very polite but adamant statement that “Australia will never become a member of ASEAN. Australia is an extremely good friend of ASEAN nations and Australia is welcome as a dialogue partner”. (SMH, 24 March 2018) The principle problem is that Western European Caucasian-rooted culture is totally different to the southeast Asian Indo-Aryan and Dravidian-rooted culture. There is virtually no common ground except a desire for prosperity and security. There is no desire to see a powerful economic neighbour overwhelm the system and there is certainly no appetite to have Australia impose Western style democracy, rule of law or Christian inspired human rights legislation.

The last word comes from the Lowy Institute. (27 Marct, 2018) Former Prime Minister Keating addressed Australia’s Southeast Asian dilemma by stating “Australia needs to seek security in Asia, not from Asia”. Since Australia cannot integrate until its demographic substantially changes, the best policy is for Australia to remain a Dialogue and Strategic Partner and position itself to become a tower of technical assistance and an unbiased trading partner.

ASEAN
SULTAN OF BRUNEI DEPARTS
(Grahame Hutchinson, 16Right.com)