DARWIN – A CHINESE PORT China has expressed concern over the Strait of Malacca as a vunerable choke point for its energy supplies from the Middle East oilfields. In the near future two strategic straits may enter maritime discussions, the Torres Strait and the Bering Strait. The 99 year lease of Darwin port to Landbridge, a Chinese company, by the Northern Territory government has now acquired an added significance. Darwin is well placed for Chinese authorities to monitor and provide services to commercial and other shipping using the choke points of the Lombok and Torres Straits and the developing oil fields in the Timor Sea. Both these straits are used by the West Australian iron ore trade to China and the by vessels bound for east Asian ports and North America. Darwin could well become a valuable strategic pendant hanging of the ‘string of pearls’ within the One Belt One Road Chinese expansion policy
CHOKE POINTS & MARITIME TRADE Choke points are critical to the protection of maritime trade routes. With China expressing concern on Indian navy surveillance of its military vessels in the Malacca Strait the increasing importance of the Lombok and Torres Straits are becoming apparent. The Torres Strait is the only direct route between the Indian and Pacific Oceans and is nominally under the control of the United Nations Law of the Sea (UNCLOS), the navigable channel for commercial shipping is 800m wide and 13m deep. This constitutes a navigational and stategic choke point. Control of choke points in times of international tension or hostilities is vital for the preservation of national interests. Examples of srategic choke points are: the Danish Strait into the Baltic Sea, the Straits of Dover into the North Sea, the Strait of Gibralter into the Mediterranean , the Gulf of Hormuz into the Persian Gulf, the Malacca Strait into the South China Sea. The Lombok and Torres Straits are now becoming increasingly important as safe maritime passages, as a consequence military build up will follow. Those with vested interests are Australia, Indonesia and China.
As an extension to this scenario the Bering Strait between the United States and Russia is looming as a choke point with China very much ‘The Third Man’. Commercial shipping has doubled over the past five years and will steadily increase as the Arctic ice cap melts to create wider, safer seaways. China is developing trade routes west to Europe and east to Canada and the United States. Unfortunately Australia is situated far to the east distant from the trading hubs, but could become a way point for oil imports to China from the Persian Gulf.
John Hill, email@example.com Current Affairs Flash Points, towardsthefinalhour.com
AUSTRALIA’S UNSUSTAINABLE HEALTH AND SOCIAL SECURITY SYSTEM.
PREAMBLE The catalyst for this offering is a statement by John Roskam, Institute of Public Affairs, to the effect that after twenty years of economic growth, the Australian welfare state is becoming unsustainable particularly since 51% of the work force is not paying tax. (Between the Lines, ABC RN, 9 July, 2017) This is a significant statement when taken in conjunction with other economic and social factors bedevilling the Australian nation. The inescapable fact is currently that Australian living standards are drifting lower, under employment is drifting higher and the natural resources ‘boom’ has peaked. Social security and health expenses have risen strongly over the past decade and are becoming unsustainable. No political Party has admitted to this over arching consolidating situation.
In the foreseeable future Australians will face the choice of whether to massively increase export income, tighten the collective belt or borrow money from overseas to maintain an unsustainable life style. The following comments are an attempt to define issues that singley are manageable but collectively will make it difficult to “put another prawn on the barbie”, unless solved.
THE LUCKY COUNTRY Re-enter Donald Horne, author of The Lucky Country. In 1964, Horne warned Australians were not appreciating that their apparent good luck was built on ephemera that could not last. First gold, then the sheep’s back, then followed the curse of natural resource endowment and finally a growing dependency on the welfare state. Horne wrote “Throughout the world the basis of material prosperity is likely, for the first time in history, to be with clever educated people. The need to build cleverness is considered to be unAustralian.” In 2017, this sentiment has been repeated – see Education in the next section. Historically, politicians and the media have deliberately misconstrued the title, resulting in Australians being lulled into a false sense of security. For a quarter of a century Australians have basked in steady, stable growth (GFC excepted) due to a demand for minerals from global growth not from their own intellectual effort.
Materialising from subliminal shadows are recurring budget deficits to $30 billion a year, rising national debt of $474 billion and increasing (Jan. 2017) and serious personal debt of 123% of GDP, third highest in the world. (macroeconomics.com, Feb. 2017) In a buoyant manufacturing export oriented economy, the above data would not be of critical concern but in an economy stressed by the curse of natural resource endowment, this is a serious situation. Somehow, somewhere Government expenditure must be reined in, taxation increased or export income generated.
EDUCATION AND COMPETITIVENESS “Lets start at the very beginning” so trills “The Sound Of Music” and so it should be, but an OECD report places Australia 27th out of 35 advanced countries in terms of expenditure on early childhood education. (Education at a Glance, 2014) The above situation is reflected in the OECD PISA for surveys between 2000 and 2012 which confirmed Australian declining education ratings namely, Maths – 6 to 19, Science – 8 to 16 and Reading – 4 to 13. (OECD Australian PISA Rankings) The falling standards reinforce comments by the former Chief Scientist, Professor Chubb, who warned about Australia’s declining STEM ability. Among the findings of the Davos Economic Forum (January 2017) was the conclusion that Australia’s ability to benefit from automation and artificial intelligence developments would be hampered by lack of preparation and a deficiency in STEM ability. A contributing nail to this educational coffin is the current Government budget that is reducing university income and restricting 457 visas to academic staff – another impediment to creating innovative exports.
A final word on education by Professor Greg Austin, Centre for Cyber Research, Australian Defence Force Academy, is instructive – “Over the past twenty years Government has been fostering a culture of incompetence in training and computing skills in cyber security” – which brings Australia back to the full meaning of The Lucky Country!
TAXATION AND EMPLOYMENT The recent ‘Between the Lines’ program indicated 51% of the work force is not paying tax. Digging deeper it is recorded that 48% of Australians, 12.2 million ‘income units’, pay no tax. Further, the top 10% of income earners contribute 47% of national income tax. After welfare payments the average Australian only pays $3,424 in tax after deducting welfare benefits. (National Centre for Social Economic Modelling, The Conversation, July 2015) In a population of around 24 million, the low ‘income units’ become understandable when it is revealed that there are 1.1 million registered under-employed while the unemployment rate has risen from 5.7 to 5.9%. (SMH, March 2017) In the youth sector, the jobless rate at 13.5% is at the highest level in forty years while under-employment hovers round 18%. (The Guardian, 27 March 2017) The continuing rising under-employment trend will continue to reduce ‘income units’ and increase demand on the social security and health budgets. To compound this problem of rising under-employment and social security costs the BIS Oxford Group have forecast a serious slump in building activity within the next two years. This will reduce Australia’s declining ‘income units’ and impose a downward pressure on GDP.
Australia, blessed with the curse of natural resources, despite excellent research institutions, has languished in developing industries driven by technological advancement capable of replacing export income from natural resources. As the Davos Forum concluded, Australia’s collective skills are not yet in place. While a high value export industry can absorb above-average wage rates, it is concerning that Australian rates, within a relatively unskilled work force, is significantly higher than rates in competitor manufacturing countries. (Table 1)
$A per hour
$A per hour
SOCIAL SERVICE AND HEALTH COSTS The preceeding information provides a backdrop to forecast unsustainable social security and health costs. The Australian Institute for Health (2014) reported health costs have increased from $4,600 per person per year (2002) to $6,400 per person per year (2012), that is from 8.6 to 9.7% of GDP and costs are still increasing by around 4% year on year. The projection of Government spending by portfolio (Table 2), provides a funding challenge for those born today who will be forty-something in 2060 – the ‘sins of their fathers ‘ will indeed weigh upon them. In confirmation, the Institute of Actuaries determined Health Cover costs will rise from 6.5% to 10.8% of GDP over the next 50 years.
T2 Projection of Government spending (% GDP) Productivity Commission
2011 - 12
2059 - 60
NATIONAL BUDGET 2017–18 The summary below illustrates the impact of Social Security and Health on the National budget.
NATIONAL BUDGET 2017- 18
Fringe B Tax
Company & RR Tax
Non Tax Items
Deficit is 445 minus 464 = ($19) billion. The combined Social Security and Health budget totals $329 billion, which is equivalent to 51% of expenses or 54% of revenue. With a population of 24 million, this equates to a cost per person per year of $9,900, say $10,000. Budget deficit projections in billions for years 2018-19 ($16), 2019-20 ($3), and 1920-21 ($11). The Grattan Institute forecasts that deficits will continue until at least 2025. (Australia Exports and Budget, June 2017). The deficit will be under additional pressure due to declining corporate tax rates from 30% to 25% over the next few years.
AUSTRALIAN TRADE BALANCE For the year 2016-17, the Australian terms of trade were in the red. (DFAT) Total exports were $259 billion and total imports were $267 billion, therefore a trade deficit of $8 billion. For three years from 2013, Australia’s terms of trade were negative to the tune of billions of dollars. Since late 2016, terms of trade have dramatically improved but this may not be all good news. The trade surplus is, in part, due to a decline in imports which reflect a softening in domestic demand due to weak wages growth and increasing under-employment. A dangerous sign – Australians were using savings for the Christmas splurge. Based on this information, Christmas 2018 might be a commercial disaster. There has also been a small rise in commodity prices – the economy again saved by the curse of natural resources endowment. (CNBC-Economy, April 2017)
The Australian economy requires a strong positive terms of trade to offset budget deficits – major contributors being social security and health, and to assist in the annual interest payments of $16 billion (and rising) on the $474 billion (and rising) of national debt. (DFAT: The Treasurer, smh, 29 January 2017)
Australia’s salvation must primarily rest with a strong terms of trade generated by STEM, artificial intelligence and automation. And so again to “The Sound of Music”, “Lets start at the very beginning.”!!
POSTAMBLE The purpose of this article is to present a snapshot or illustrate a trend that will create a problem funding increasing Social Security and Health portfolios. This situation has already been described as unsustainable. For an economy able to fund its own operating expenses, excluding infrastructure improvements, revenue from terms of trade, tax and other sources should cover other outgoings. We have heard the Government bleat “we must live within our means”. It is not doing this.
Australia is in an invidious position for several cogent reasons:
under employment is increasing,
‘tax units’ are decreasing,
export income is still reliant on natural resources,
export income to replace natural resources is not being generated fast enough,
the education system is not adequately preparing the young Australian workforce skills in STEM, artificial intelligence and automation.
The rising trend in social security and health costs, if continued, will be a contributing factor to jeopardising Australia’s AAA credit rating. If savings cannot be made to the budget or income boosted by exports then Australia’s living standards will decline further, then interest rates on the national debt will rise.
The 2017 budget levy on banks to raise $6 billion over four years does nothing to offset the $239 billion (and increasing) social security and health budget.
John Hill Current Affairs Flash Points towardsthefinalhour.com firstname.lastname@example.org
This autobiography records issues prior to the ‘low dishonest decade” of the 1930s, through World War 2, the loss of Empire, the rise of failing states, the halcyon decades of post war global growth, the convulsive 1990s decade commencing with the implosion of the Soviet Union. Finally to a state of non-retirement during which the curse of natural resources endowment has become obvious for Australia. This autobiography is published by Austin Macauley, London and is available in book shops and on line.
As a member of the Timor Bush Fire Brigade I was involved in a massive bush fire that destroyed an extensive area of eucalypt forest and pasture. The roar of the flames and the choking smoke were a fitting backdrop for stands of burning Xanthorroea which resembled martyrs at the stake in the reign of Queen Mary in 1555.
Rain fell to finally quench the fires. The sunset, due to the smoke haze, was among the most speseacular ever seen in the Timor locality.