This autobiography chronicles history, painful politics and social issues in the aftermath of imploding Empires and the rise of Failing States, it is about the life of a mining geologist living and working in far away places as events swirled around him through the 20th century and into the 21st century. In non-retirement the author ran a cattle property in the Upper Hunter, New South Wales. He now lives on the coast north of Sydney.
Cattle dogs are an essential requirement for the cattle industry. Most cattle are amenable to mustering but frequently some animals require more robust treatment to drive them into a fresh paddock or the mustering yards. Despite their size steers can move with great speed and ferocity.
This was no ritual fighting, it would continue for a long time, the biting and kicking with clawed feet created bleeding injuries. At intervals the kangaroos would turn back to back to lick wounds then in a trice it would be on again. Ultimately one , bleeding and limping, would hop away while the victor would sidle up to a quietly eating doe nearby.
TIMELINES & FAULTLINES is available from Amazon and UK book shops. It is available as a Kindle. TIMELINES & FAULTLINES is published by Austin Macauley, London..
John Hill Current Affairs Flash Points towardsthefinalhour.com email@example.com
Preamble “Exports and Education” should be the Australian Government’s budget mantra, not “Jobs and Growth” or “Fairness, Opportunity and Security”. Neither defines the Australian problem as does “Education and Exports”.
Export income is the key to Australia’s future prosperity and the control of its annual deficit. The problem is Australia does not produce enough income to meet its expenses. Australia’s national debt as at April 2017 now stands at $552 billion (RBA) and the Reserve Bank of Australia must keep interest rates down in order to minimise interest repayments and to promote economic activity. It is not enough to promote jobs without putting the emphasis on export income which will create a strong balance of trade to reduce the monthly trading deficit. Unless this happens, there will be a slow devaluation of the currency which will only assist the export industry if it does not rely on overseas inputs. Strong exports are the key to Australia’s future.
Australia’s problem is well illustrated in the population density map of this island continent. The virtually unpopulated inland produced 60% in 2014 of Australia’s export income derived from natural resources and farm produce (beef and wheat). Another 9% was derived from education and tourism. The remaining 31% came from financial services, agriculture, chemicals, pharmaceuticals and specialised engineering products.
Australian Exports Australia’s top goods and services exports (DFAT 2014) are set out below:
AUSTRALIA”S TOP GOODS AND SERVICES EXPORTS (DFAT 2014) TABLE !
Percent of Value
Minerals, Oil, Gas
Natural resources are still the economic pillar but will have to be replaced if Australia is not to become a Chinese quarry to be mothballed at will. Agricultural products will become more important but will be unable to fill the void should natural resource exports decline. Unfortunately educational exports may be held back due to budget restraints placed on universities, the unfavourable Davos report and the declining OECD education ratings. (See May Blog – Education)
Currently, significant export growth can only come from non-labour intensive industries such as specialised engineering, medical advances, pharmaceuticals, chemicals, food products and legal services. The financial services sector will face increasing competition from Singapore and Hong Kong.
The ABS 2016-17 Budget Figures for Australia define a problem: within the expenses are costs for health – $71 billion, social security – $158 billion, that is $229 billion which is 55% of Government revenue. In the long term this is unsustainable, clearly export income is a priority. The Gratten Institute (CEO, John Daley, April 2013) has concluded that Australia will face a decade of budget deficits, adding to this problem the proposed corporate tax cuts could exacerbate this problem if the American experience is considered – see below.
TABLE 2 THE ABS 2016 – 17 BUDGET SUMMARY
In assessing Australia’s long term export potential, two factors will ensure interest rates will remain low due to a continuing sluggish economy and the continuing annual deficits which will put Australia’s credit rating at risk. These factors are the explosion in public and private debt and the Government debt to GDP ratio and its relevance to Standard and Poor’s ratings – see below.
National Financial Problem Australia’s looming problem is the inexorable rise of the Public (Government) and Private. debt, as far back as 2007 the RBA warned of this dangerous situation when debt was only $58 billion. As of April 2017 this figure has risen to $552 billion while Private debt stands at $2.7 trillion and both rising, (RBA and Debt Clock).
Interest payments on Government debt will rise from $17.6 billion in 2016-17 to over $20 billion on a projected debt of $659 billion by 2020 (The Australian, MYEFO 20 December 2016). The continuing low interest rate (1.5%) and the sluggish economy are not conducive to generating a strong export-led economy. The opinion emanating from Union Bank of Switzerland is that increasing debt and continuing budget deficits might place further pressure on Australia’s AAA credit rating. Should there be a downgrade there would be a serious rise in annual interest payments. The figure below illustrates Australia’s vulnerability to a credit rating adjustment leading up to 2020.
Should Australia Really be a AAA Credit? ( AFR 12 May, 2016) S & P AA AAA AAA ???
A Snapshot of Exports Past Data on Australia’s top ten trading is revealing – there is imbalance and emerging concerns.
TABLE 3 AUSTRALIA’S TOP TEN TRADING PARTNERS (DFAT-Business Insider, 8 August 2014)
Iron Ore, Coal, Gold
Iron Ore, Coal, Beef
Beef, Aircraft/Space Parts, Alcohol
Iron Ore, Coal, Petroleum
Computer Parts, Vehicles, Pharmaceuticals
Coal, Gold, Lead
Gold, Petroleum, Aluminium
Petroleum, Copper, Nickel
Gold, Oil Seed, Fruit
There are two concerns. Firstly, there is obviously a disproportionate reliance on coal and iron ore for export income. There will be a slow global decline in coal usage as alternative energy sources come on stream. With iron ore there are vast new iron ore deposits being opened up in Africa and South America. Regarding iron ore deposits in Brazil, it is concerning that the Chinese government has indicated it is increasing production from this source in order to reduce Australia’s near monopoly on iron ore supply. Secondly, the Australian services sector representing 49% of export income, employs 80% of the work force. By implication, natural resources and agriculture which produce 51% of export income employs only 20% of the work force. (See Table below). If Australia is to prosper these statistics must change. It is well documented that the “trickle down” effect does not apply to nations blessed but ultimately cursed with natural resources.
Australia’s reliance on natural resource and farm product (DFAT, 2014) is illustrated below:
Future Exports The next decade is slated to be one of immense growth opportunities for Australian export industries which are food manufacture, oil and gas extraction, education, tourism and legal services promoting south-east Asian industrialisation. With a growing Asian middle class around 750 million, annual growth rate of these industries will be baby foods – 2.9%, dairy/processed foods – 2.1%, education – 3.1%. (NAB-IBIS World 13 November 2013)
The above projected growth rates are significant taken in conjunction with the extent of Chinese investment and obviously ongoing acquisitions of Australian assets. Examples are – the dairy, wine, beef and power industries. (See Chinese Foreign Investment, May Blog, 2016) It should now be clearer why Darwin port is currently controlled by Chinese interests. Darwin will become an important periphoral to the Chinese One Belt One Road expansion policy.
If Australia is to increase export income and provide secure power for its export industries, it will have to take a more hard-nosed approach towards the oil, coal and gas potential of this continent. One of Australia’s problems is the rising under-employment and slowly falling standards of living among the citizens, not the political elite. Queensland is desperate for coal development and jobs in the Galilee Basin; South Australia would benefit from oil exploration in the Bight (abcnews.com 16 November 2016); New South Wales, Victoria and Western Australia would no longer be facing a power crisis if shale gas production was encouraged. When only a few hundred jobs may be created in any part of the country becomes newsworthy, one wonders how thousands of jobs and billions in export income can be foregone by lack of firm Government policy. The Government is desperate to encourage “Jobs and Growth” and yet projects are stalled or delayed despite stringent safeguards.
Postamble Australia has been blessed with the curse of natural resources. The past is now stalling our future. Global studies have proved that economies with abundant natural resources tend to industrialise less rapidly than natural resource-scarce economies (NBER Working Paper 5398, 1995). For Australia to materially generate nation wide export growth, OECD education ratings must be significantly improved, the Davos findings on STEM expertise must be addressed and university funding must be increased to permit export directed research.
While the 2016-17 Budget does promote export growth, there appears little specific short term incentive that encourages exports. Long term corporate tax reduction, existing trade deals and promotion assistance are peripherals to the core problem of education improvement, university funding and innovation. Concerning corporate tax reduction, both President Regan and Bush reduced corporate tax rate to stimulate the American economy, the result was devastating budget deficits. President Clinton raised taxes, created jobs and reduced the deficit. Has the Government considered this vignette? (The Conversation, 13 May 2017)
Postscript This month much has been made of Australia’s recession-free growth during the past two decades by the Treasurer. Looking behind this soothing statement there should be concern not euphoria. The construction industry did indeed inflate the GDP, however, it did not contribute to export income unless there was massive foreign investment. The image below illustrates Australia’s dangerous reliance on mineral exports over the past twelve years. Currently the value of mineral exports is decreasing as China’s demand weakens and this will reinforce the inexorable slow decline in Australian living standards, this will continue unless alternative exports can be generated. The Treasurer’s statement obscures this real unpalatable truth but is in keeping with my September 2016 article ‘The Australian Economy – Stupid’.
AUSTRALIA’S MAJOR EXPORTS 1997 -2009
Key: Mineral Resources, Rural, Manufacturing
“The latest resource boom which commenced in 2003 has already doubled Australia’s terms of trade and is slated to go higher due to oil and gas exports. The growth in mineral commodity exports since 2003 has been phenomenal. Iron ore increased from $5.3 billion to $34 billion (2009) while coal (steaming and metallurgical) increased from $10.9 billion to $34.7 billion (2009). This cannot continue.
On the future of coal – “Some 41% (2009) of global electricity is generated using coal and this proportion is continuing to increase. The trend is towards an increasing use of coal, despite climate change concerns, and the transition away from coal may take decades.”(M Roarty, Resources sector and its contribution to the nation. Parliament of Australia, 23 September, 2010)
Australia has to throw off the curse of relying on natural resources and encourage specialised manufacturing, rural production, university research and education export income otherwise Australia’s standard of living will continue to decline. With inflation at 1.5%, wage growth at 1.9% and a sluggish economy at 2.4 % growth, the May budget may do little to lift Australia out of Government’s current fiscal morass.
Last Word Professor Greg Austin, Centre for Cyber Research, Australian Defence Academy in a radio interview commented that over the past twenty years the Government has been “fostering a culture of incompetence” in relation to training in computing skills and cyber security. The current budget arrangement to implement restrictive policies on the 457 Skilled Visa program will add to the dearth of Australian STEM expertise. This policy does reinforce the Davos findings on Australia’s ability to benefit from automation and artificial intelligence developments. All this does lead back to a budget that does not adequately address poor OECD education ratings and a continued reliance on natural resource exports. (Background Briefing, ABC RN, 11June 2017)
John Hill Current Affairs Flash Points towardsthefinalhour.com firstname.lastname@example.org
Two pillars fundamental to Australia’s survival are education and export income; the May budget apparently does not recognise this fact. Today, comment will be confined to the education budget while the June contribution will examine the budget implications for Australia’s export income.
Before discussing budget issues it is useful to recognise where Australia is situated vis-a-vis global education standards and our national degree of preparation to embrace the current reality of automation and artificial intelligence. On education standards the OECD (March 2015) league tables indicate Australia ranks 14th behind Poland, Vietnam and Germany. Australia ranks 19th behind the United States and United Kingdom in secondary school enrolment rates. The Program for International Students Assessment (PISA) shows a striking decline for Australia between years 2000 and 2012 – for Maths down from 6th to 19th, Science from 8th to 16th and Reading down from 4th to 13th. The results speak for themselves. However, the burning question is – are competitor countries improving or is Australia just getting worse?
At the Davos Economic Forum in January, the Committee on Artificial Intelligence noted Australian business is not ready to embrace the concept or the mathematics of artificial intelligence. The rate of Australian skills uptake and its poor grasp of STEM subjects increases the risk of its industry becoming uncompetitive. In recent years Professor Chubb, former Chief Scientist, frequently mentioned Australia’s serious STEM deficit.
There are five problems Australia must solve if it is to improve OECD rankings:
Teachers must obtain a Masters degree or higher.
Teaching must be raised to the status of the medical and legal professions.
The fractious State Education Departments must be replaced by a unified Federal system.
Australian parents must exert greater discipline on home studies.
Universities must be recognised as integral to Australia’s future and funded to recognise their export reality and innovation potential.
In assessing the OECD rankings of other countries, it is relevant to know which operate under a unified education system. Endeavouring to read between the lines of the Budget discussions, the Budget does not appear to be addressing Australia’s fundamental education problems.
A weakness of the budget forecast is it extends beyond the forward estimates period and is thus vulnerable to regime change. Below is an attempt to distill the core of the budget:
There will be an attempt to halt declining academic standards. This policy will be funded by an $81.1 billion expenditure over four years boosted by $18.6 billion over ten years.
Professor Gonski has been reappointed to decide on expenditure priorities and to direct the program. From this, it implies the Government is unsure of its own priorities.
The School Reserve Standard (SRS) grants seek to ensure all schools provide education on a level playing field, an important issue but on its own will have little effect on overall ranking.
Prior to the budget, The Australian (9 November ’16) under the banner ‘How to improve teacher performance’ provided a glimpse into State education plans –all disparate:
NSW – is attempting teacher improvement through a ‘Great Teaching Inspired Learning’ initiative.
Qld – is targeting teacher quality to attract the best and is introducing teacher training modules.
SA – is offering 200 scholarships of $20,000 each towards Masters degrees. This appears to be attacking the root of the problem.
WA – is providing more teacher training internships.
Vic – is working on a policy to enhance teacher quality to improve student outcomes.
Dr G Craven, President of the Catholic University and Chairman of the Federal Government Teacher Education Advisory Board, has provided an insight into the problem bedevilling the system. There is an obsession with new teachers which is that young motivated teachers are showing under-performing teachers in a bad light. This obsession is part of an ‘industrial surrender’ by the State Education Ministers, all preoccupied with the blame game instead of investing in education. There are education unions who do not wish to see innovation or improvement rolled out through the entire teacher population.
The Federal Minister for Education, the Hon S Birmingham, supports Dr Craven’s comments under the mantra ‘Quality Schools – Quality Outcomes’. This would hopefully produce effective policy and changes to the industrial relations agreements which will link pay progression to nationally agreed professional standards.
The initiatives of the State Education Departments will not solve the problem of Australia’s declining OECD rankings or STEM deficiency rankings. This problem will only be solved by raising the status and standards of teachers, amalgamating State education departments under a unified system, and learning from those countries that are more highly ranked. This problem cannot be solved during the life of a single parliament.
The University of New South Wales Chancellor, Dr Ian Jacobs, (UNSW News Room, 9 May 2017) has commented that current Government policy on universities is not in Australia’s long term interest. The policy implies universities are an expenditure problem not a long term investment. A recent OECD global study indicated that six Australian universities were in the top one hundred in the world. A Deloitte study recently concluded university research accounts for 10% of Australian GDP, that is $160 billion per year.
The remarks by Dr Jacobs are in response to the 2017 Budget which has cut funding to Universities by $384 million over two years. The mechanism for this reduction is an ‘efficiency dividend’ of 2.5% and a reduction in student contributions of 1.8%. (The Conversation, 9 May 2017)
It is unsurprising Australia is in free fall on the OECD league tables. The funding history and current policy illustrate why. In 1974, the Commonwealth provided 90% of university income. By 2010 this had reduced to 42% and by 2014 it was 20% for the major research universities. This hollowing out of a principal driver to the Australian economy has been supported by both Labor and Liberal to the present day. In 2016 the Government proposed a 20% funding cut in science, engineering, social science and arts education – this during a STEM controversy.
Parliament of Australia Budget Office
Projection of Nominal Government Higher Education Expenditure to 2025 ($billion nominal terms)
The big picture is that Australian spending on higher education has remained static at 1.6% of GDP for some years while the figures for Canada and the United States is around 2.6 to 2.8% of GDP. Australian student fees are now the highest in the OECD – and that does not include the 2017 budget increase.
This ‘penny pinching’ must be viewed against the value of export income derived from the value of international student education. This constitutes Australia’s highest value services export and third most valuable export after coal and iron ore. Data published by the AFR (3 Feb. 2016) indicate Australia hosts 555,000 foreign students in a population of 1.3 million students, i.e. 46% worth, an amount of $19 billion which is ahead of tourism at $16 billion.
Export income from students is increasing.
Dr Jacobs further indicated that Australia’s high academic ranking and proven track record proves there is enormous potential for economic diversification and growth. This is being destroyed by short sighted budget cuts and proposed visa restrictions on well educated foreigners. It is a sad commentary when the Federal Government is in sync with One Nation on its policy to the entry of foreigners to Australia.
Australia’s mantra should be “education, innovation, exports”,
NOT “jobs and growth” or “fairness, opportunity, security”.
John Hill Current Affairs Flash Points towardsthefinalhour.com email@example.com
TIMELINES & FAULTLINES chronicles the saga of a mining geologist, John Hugh Hill. His life has spanned the turbulent 20th Century and into the fraught decades of the 21st Century, from the rise of militant Nazi fascism, the implosion of the Soviet Union and to the rise of militant Islam. He lives in non-retirement in New South Wales, Australia.
This fascinating book is published by Austen Macauley, London and is available from Amazon and major bookshops.
British Solomon Islands Protectorate, Western Pacific, 1957-1959.
In the mid-1950s Japanese war wrecks littered the coast of Guadalcanal. Americans bombed the retreating Japanese troops, rather than sinking at sea vessels were beached to avoid death in shark infested water.
Interior of Guadalcanal. Women returning from jungle gardens. In early missionary years Melanesians were encouraged to resettle along malaria infested coastlines, endemic malaria and malnutrition was a continuing problem.
CYCLONE DEBBIE – AN EXERCISE IN TREND ANALYSIS Trend Analysis is a technique used to estimate and predict future climate.
CYCLONE DEBBIE – THEOI METEORO
The return of the Greek Gods of Sky and Weather, Theoi Meteoroi, have spawned Cyclone Debbie, a category 5 storm which crossed the Queensland coast in March 2017. Considered in isolation, this was no more than an aberrant destructive event, however, considered as an emerging sequence of devastating cyclones, it raises serious implications for stable long term economic development. A review of significant cyclones in north-east Queensland is instructive. Over the past thirty four years two patterns of damaging cyclones are discernible. The Table summarises destructive cyclones since 1986, that is, seventeen years either side of 2000 AD.
TABLE – Destructive Cyclones
1983 - 2000
2000 - 2017
NAME - CATEGORY
NAME - CATEGORY
JUSTIN - C2
DEBBIE - C5
BOBBY - C4
MARIA - C5
ORSEN - C5
ITA - C4
WINIFRED - C3
YASI - C4
Summarising, in the seventeen years prior to 2000 there were four significant cyclones; in the following seventeen years to 2017 there were five devastating cyclones. In the past four years Queensland has been lashed by three cyclones. Estimated damage costs to the public and private sector over this period exceeds $5 billion. The cost to the national economy will have an adverse ripple effect although the reconstruction of thousands of buildings and infrastructure will produce a spike in the local economy. This is unfortunately ‘dead’ money that cannot be used to produce export oriented income. Agriculture and tourism projects will be destroyed, some permanently.
TRENDS IN OCEAN TEMPERATURES
The National Oceanic and Atmospheric Administration (NOAA) has published data showing global sea surface temperature increase from the 1880s base line is 0.6°C and is trending higher. There is a disturbing corroboration of ‘amazing records’ from the Coral Sea lapping the Queensland coast. Temperatures of 0.7°C ( in places as high as 2°C) above the average temperature of 29.16°C have been obtained. (SMH, April 2015)Global Sea Surface temperature trend – 1880-2015 (NOAA)
Recent data from the Coral Sea lapping north Queensland have recorded sea surface temperatures of 0.73°C above recent average temperatures. (The Conversation, April 2016) The historical and inexorable rise in sea surface temperatures compiled by the BOM was recently published by The Conversation. (April 2016)
TRENDS IN GREEN HOUSE GAS CONCENTRATIONS
Green house gas concentrations, carbon dioxide and methane in the atmosphere, prevent global heat loss, hence global warming. For the past 800,000 years atmospheric carbon dioxide levels have not exceeded 300 ppm. Due to the expansion of the Industrial Revolution, the 1950s, carbon dioxide levels now exceed 400 ppm and are trending higher. (United States Environmental Protection Agency)
The trend in global temperature increase entered a critical phase in 1990. Between 1990 and 2013, NOAA established that the ‘radiative force’ (which is the warming effect caused by green house gases) has risen by 34% on the previous measured period. (The Guardian, September 2014)
CLIMACTIC FUTURE Homo sapiens has created its own unique, but probably damned, geological era – the Anthropecene. The International Panel on Climate Change (IPCC) has warned that, if this species does not drastically reduce greenhouse gas emissions from fossil fuels, it will take around fifty years to stabilise the emerging climate. Irrespective, global temperatures will still rise by an estimated 0.6°C thus aggregating to about a 1.3°C increase. This is approaching the catastrophic 2°C level.
Current carbon dioxide concentrations will remain in the atmosphere for thousands of years and, after millennia, the gas would be laid down as carbonate rocks on the sea floor of Mother Earth. (The Conversation, IPCC, December 2014)
The bottom line emanating from Cyclone Debbie is that, if fossil fuels continue to be utilised at the current rate, global warming will rise closer towards 2°C by the mid-2030s, thus crossing the threshold that will harm human civilisation. ( R E Mann, Scientific American, April 2014)
0 DEUS, NOS NISI, NOSTRAE TIBI PECCAVIMUS Oh God, save us, for we have sinned.
TIMELINES & FAULTLINES chronicles the saga of a mining geologist, John Hill. His life has spanned the turbulent 20th Century and into the early fraught decades of the 21st Century; from the rise and fall of militant Nazi fascism to the rise of militant Islam. He lives in non-retirement in New South Wales.
BOOK COVER – TIMELINES & FAULTLINES
RUSSIAN FEDERATION – PHOENIX RISING
During the 1990s, John Hill experienced the implosion of a decayed Soviet Union and the rise of cowboy capitalism in a flawed Russian Federation riven by obscene wealth and death in winter snowdrifts.
The Moscow State University dominates the Moscow skyline. It was built by German prisoners of war under the whiphand of Joseph Stalin (Iosif Vissarionovich Dzhugashvili). It was here, while lecturing in mining economics, that I joined in vodka and black caviar sessions and virulent political discussions.
THE MASK OF SORROW – Gulag Memorial, Magadan
The ‘Mask of Sorrow’ overlooks the port of Magadan on the Sea of Okhotsk. Through this port passed thousands of political prisoners on their way to terrible deaths on the Kolyma goldfields. Hundreds of kilometres north of Magadan I worked in freezing conditions and experienced the Russian banya (Turkish baths), flagellation with branches, vodka toasts and more violent political discussion.
This fascinating book is published by Austin Macauley, London, and is available now from Amazon and major book shops.
Sunset, Tanami Desert, Central Australia, 1988
TIMELINES & FAULTLINES chronicles the saga of mining geologist, John Hugh Hill, which includes: Antarctic whaling; the Witwatersrand Gold Mines; Solomon Islands’ jungle; the ethnic cauldron of Malaya; the flesh spots of South East Asia; the deserts of Australia; Siberian gulag country and Brazilian garimpeiros.
Ulu Terengganu, Malaya, 1963
Life in the Malayan jungle comprised a mélange of leeches, tigers, elephants, scorpions, snakes, the remnants of the Chinese guerilla insurgency, everlasting damp and rain. Jungle travel was by
panga-cleared tracks or by bamboo rafts.
Terenggan River transport: Bamboo Rafts 1963
Published by Austin Macauley, London. Available from Amazon, Kindle and major bookshops.
JOHN HILL, AUTHOR
SYDNEY COVE DURING A POLAR VORTEX, 2016.
TIME LINES & FAULT LINES chronicles the life of mining geologist, John Hugh Hill, from the days of sail to Antarctic whaling, the gold mines of the Witwatersrand, the jungles of the Solomon Islands, the ethnic cauldron of Malaya, the flesh spots of South-East Asia, the deserts of Australia, the gulags of Eastern Siberia and the garimpeiros of Brazil.
He now resides in Pearl Beach, NSW, Australia, planning further literary works.
mv CAMBORNE, THREE-MASTED TOPSAIL SCHOONER.
Early years as a deckhand.
This is a saga of social disruption before WW1: a small boy’s experience of WW2, the decline of a Western Empire, painful politics and current social disruption. The Appendix, “Mankind in Affray”, is a thought provoking finale.
This book is published by Austin Macauley, London, and is now available at book stores and on line.
THE WORLD ECONOMIC FORUM, DAVOS & THE A50 ECONOMIC FORUM, SYDNEY
Preamble Two recent events, vital to Australia’s hazy future, have run their course for another year: the first in January, the World Economic Forum, Davos, Switzerland and the second in February, the A50 Economic Forum (dubbed the mini-Davos) at the Sydney Opera House.
Davos was an international collective of powerful global CEOs and major political decision makers. Their final communiqué was one of dire warning. The A50 meeting in Sydney was a Federal Government initiative to invite fifty potential foreign investors overseeing $17 billion of investment funds, part of which might find their way to Australia. There are economic headwinds and navigational hazards to be negotiated before investors can reach a decision. (AFR Weekend, 8 Feb. 2017)
The World Economic Forum, Davos To return to Davos – the final communique warned that, as technological, demographic and climate pressures intensify, there is a danger of systems failure (SA energy crisis and NSW partial power crisis). Competition between world powers and fragmentation of security efforts will put collective prosperity and survival at risk. There are three specific concerns, none of which are of an economic issue (Future Finance, 15 Jan. 2017):
proliferation and use of weapons of mass destruction,
rise of nationalism and declining cooperation between world powers,
climate change leading to crisis and disaster.
The Forum did emphasise the moral and ethical dilemmas of the Fourth Industrial Revolution. To date the Homosapiens Revolutions through the Anthropocene have been:
First – from agrarian to coal/steam power,
Second – urbanisation, electricity and mass production,
Third – digital and mass travel,
Fourth – internet, robotics and artificial intelligence.
An urgent problem of the current Revolution is the need to invest in young people and the increasing risk of rising inequality between the techno-super rich and the rising underclass. Concerning the construction and application or artificial intelligence (robots), it was recorded that Australian business is not ready to embrace Artificial Intelligence. Participants in a seminar involving USA, UK, Canada, Australia, China, France, India and Germany concluded Australia was trailing in skills uptake and risks becoming uncompetitive due to a poor grasp of STEM subjects. (The Guardian, 25 Jan, 2017)
The take-home message from the World Economic Forum for Australia is:
Australia is lagging in its preparation for Artificial Intelligence due to inadequate STEM skills,
The seeds of social instability are starting to germinate due to loss of industry to Asia, unaffordable housing and under employment,
Australia’s relative decline in GDP (corroborated by CSIRO electricity consumption forecasts) is partly due to small population. Unlike Canada, Australia does not have the United States as an adjacent trading partner.
The A50 Economic Forum, Sydney In early February, hard on the heels of the debilitating Davos findings, Australia hosted an investment seminar for fifty principals responsible for $17 trillion of investment funds. The purpose was to assess Australia’s economy (infrastructure and property markets) for investment opportunities and to determine the probability of economic survival following the resources slow-down and the fragmentation of the global trading patterns. These giants of the financial world will arrive at their own conclusions aware Australia is facing economic uncertainty due to several factors:
Credit Ratings The credit rating agencies, Standard & Poor’s, Fitch, Moody’s, have warned Australia that its AAA credit rating might be down graded if the budget situation does not improve.
Corporate Tax Rate The Government’s intention to reduce industry tax rate from 30% to 25% over four years may be too little too late and may not impress investors. The tax rates of Australia’s competitors are comparable to that of the Australian proposal e.g. Korea 24%, Malaysia 25%, Thailand 20%, Canada 15-25%, India 30% and Japan 32% . A potential bomb shell is that if the USA reduces the tax rate to 15% and boosts infrastructure spending, there will be a flight of capital to the USA from Australia. This would be a bad outcome for Australia.
Imputation and GST Although some nations have a higher tax rate than Australia, its Achilles Heel is the dividend imputation and the 10% GST. Since Australia does not tax dividends the Government will suffer a huge revenue loss when combined with the reduced income when the lower corporate tax kicks in. Industrialised countries normally do not provide this tax free wind fall to shareholders. Without the burden of imputation corporate tax rate would fall to 19%. The rational policy would be to remove imputation – politically this is not possible. With GST the sensible option would be to increase this to 15% to provide the Government with extra income – politically this does not appear possible either. GST for other industrialised nations are Germany 19%, New Zealand 15%, United Kingdom 20%, Japan 8%. (Weekend Australian, 25 Feb. 2017)
Sovereign Risk A50 investors may seek explanation of why the Australian Government rejected a bid for NSW Ausgrid by CK Infrastructure Holdings, Hong Kong, in 2016. Among discussion points it is possible that the expanding role of Chinese investment in the Australian energy industry will become a topic for conversation. An approximation of Chinese investment in this industry is:
– NSW Energy Australia is partly owned by Chinese Light and Power,
– ACT 50% of power distribution is owned by Singapore Power International,
– VIC CK Infrastructure, Hong Kong, owns 51% of Citi Power. CK Infrastructure has also bid $7.6 billion for Duet Energy
which controls gas pipelines in Victoria and Western Australia,
– SA CK Infrastructure owns 51% of SA Power Networks.
Extreme Events Confidence in the Australian power industry may have suffered by recent power failures in South Australia and New South Wales. In both cases, there were extensive power failures and heavy industry was required to cut power consumption, or lost power to major industrial complexes, namely – the BHP Cu-U Olympic Dam project, the Arrium steel mill, Whyalla, and the AGL Tomago aluminium smelter, Newcastle. If the violent winds and high temperatures have already caused these problems so early in the Anthropocene then far worse extreme weather may be expected in the period 2020 to 2030.
Australia’s Growth Projections The Australian Electricity Market Report to 2020 and 2030 provides an estimate of future power consumption. Two growth scenarios are suggested. The first estimate suggests an annual growth rate between zero and 2.5% with a declining rate over time reflecting slow population growth. Uncertainties for this prognosis are exchange rates and manufacturing competitiveness, household energy use and the relative balance of centralised, on-site and off-site electricity generation. The second estimate considers consumption growth will be below 2% a year which is below the projected national economy growth rate. (CSIRO, EP141067,2014)
The messages for Australia from Davos and Sydney are:
A Davos panel considers Australian business is less prepared for the Fourth Revolution than other industrialised nations.
The threat of a downgrade to Australia’s AAA credit rating exists.
The Government is facing a significant revenue loss from the combined effects of a lower tax rate, dividend imputation and a low GST.
Australia is regarded as a stable investment platform but investors may require an explanation on the nature of Chinese investment and control in the National energy industry.
The effect of recent extreme weather events on Australian power security will be scrutinised.
Investors require stable growing markets – the growth projections for population and energy consumption will be closely scrutinised.
On Australia Day morning I manned the barricades to keep vehicles out and merrymakers safe while participating in the Pearl Beach patriotic festivities. Celebrating what? The character of our celebrations are far removed from those of other ex-colonial nations, Canada, United States, Brazil, Argentina and New Zealand, (Australia Day Prequel).
Returning to the barricades, there was a stark difference in celebratory effusion between people who passed across my checkpoint. Almost without exception, New Australians of Arabic, African and southern European extraction waved flags and enthusiastically greeted me with “Happy Australia Day”. No doubt those from war torn, corrupt regimes would have much to celebrate. Conversely, almost without exception, long-domiciled Australians were less enthusiastic and a trifle reticent in their greeting. Perhaps a ‘life not meant to be easy’ is giving a lie to ‘Our Golden Soil and Wealth for Toil’ for too many of us. Question Time antics in the House does not inspire public confidence that Government policy will solve today’s problems.
PAYMENT OF RESPECT TO ALL AUSTRALIANS
It is right that at diverse meetings across this Land, Australians should pay respects to the First People to colonise Australia Felix, for example, the Gadigal people of the Sydney region and the Ngunnawal people around Canberra. Missing from these respects is a recognition that, wherever we are gathered, the Australian nation owes its prosperity, safety, freedom and culture to European settlers and pioneers who created the foundation for the Australia of today.
It is concerning that too many younger Australians, in their comfortable surrounds, are unaware of the debt they owe their forebears and other early settlers. Payment of respects to all Australian Pioneers might provide an ethos for Australia and provide the Nation with a focus for our National Day.
Australia is a nation of immigrants (convicts, settlers. Chinese miners, Ten Pound Poms, boat people). A pillar for social cohesion amongst the Australian nation can only be ‘One Law of the Land’, inviolate, absolute. Australia Day, at whatever future date, must celebrate the achievements of Australia as an Immigrant Nation. This omission could be considered as evidence of a Cultural Cringe since we do not honour the toil, hardship and achievement of the people who made Australia before the Second World War. Let us remember them on Australia Day and pay our respects to them more often than we do. Without the energy of new immigrants Australia, as a Middle Power, will inevitably wilt and decline.
OVER TO THE POLITICIANS!
In an ideal world the Federal Parliament would grasp the initiative to ensure Opening Ceremonies would continue to pay respects to Traditional Owners and Pioneer Immigrants who collectively laid the foundation for the Australia of today. This policy would provide a focus for Australia Day rather than the vacuous “Enjoy Australia Day any way you like”.