Category Archives: Economics

ECONOMIC MISREPRESENTATION Australia. Sept. 2018

THE AUSTRALIAN ECONOMY – “NO WORRIES!!”

 CAPTION.  Good governance can lessen the burden. Fiscal Deficit. Trade Deficit, Debt.   

Impediments
IIMPEDiMENTS TO THE ECONOMY. (sundaytimes.uk)

Obscuring the Truth.

Australian Treasurers appear to have developed the charade of constantly obscuring  the economic problems from the nation. A recent statement by Treasurer Frydenberg reinforces this reporting situation. Evidence for this style of reporting on the national economy is illustrated by the following quotes:

  • A pleasing set of numbers. Hockey, September, 2014.
  • A terrific set of numbers. Hockey, June, 2015.
  • The best growth rates since 2012. Morrison, September, 2016.
  • Deficit reduction due to good economic management. Morrison, January, 2018.
  • Excellent GDP rate of 3.4%. Frydenberg, September, 2018.

The Devil in the Detail.

Each of these statements have glossed over a serious weakness in the economy or have omitted to include important facts which have a bearing on the numbers. The Devil lurks behind the rosy announcements:

  • In September 2014, Treasurer Hockey announced the National Accounts to be a ”pleasing set of numbers”.  At the same time, the Reserve Bank warned of a dangerous housing bubble. Mr Hockey enthused that the GDP had risen to 0.5% for the June quarter but omitted  to mention real GDP had fallen to 0.3% due to unfavourable Terms of Trade.
  • In June 2015, the annual growth rate had risen to 2.3%. Treasurer Hockey enthused   “this was a terrific set of numbers” and further stated the Australian economy was among the fastest growing in the world. The Treasurer omitted to mention that this period had seen the fifth quarterly drop in the Terms of Trade and that disposable income was now less than that after the GFC in 2008. Australian living standards were falling and national productivity had declined as growth was driven from low labour mining to intensive labour in tourism and hospitality.
  • In September 2016, Treasurer Morrison enthused over the National Accounts informing Australians there was no sign of a downturn in the economy. The Treasurer noted that exports had increased slightly and imports had decreased. However, the Treasurer omitted to mention that Australians now had less disposable income so, ipso facto, lower imports were to be expected.
  • In January 2018, Treasurer Morrison enthused over the success of Government economic policy in reducing the deficit. However, the Treasurer omitted to mention that there had been a spike in export commodity prices and that ATO income had increased due to the fact that company tax losses had now been fully absorbed following the GFC. The reduced deficit was due to good luck not good management.
  • In August 2018, Treasurer Frydenberg enthused on the annual growth rate of 3.4% for the six months ending June 2018 and that  this is on a par or better than Australia’s trading partners. Much more muted was a warning from the Reserve Bank that this  result is partly driven by shoppers drawing down on their savings. This profligacy cannot continue.

A Plea for Informative Economic Reporting.

Treasurer Frydenberg  generated enthusiastic reporting of GDP with accompanying  economic sweeteners. This  is useless information on which to judge the health of an economy. GDP can be generated in several ways:

  1. By immigration and small business development – unfortunately the money supply will churn, quantitative easing will be necessary and the currency will slowly devalue.
  2. By encouraging a domestic building boom –  imports will increase putting pressure on the deficit (Terms  of Trade), money supply will churn unless there is strong offshore buying.
  3. By irresponsibly permitting a savings funded retail spending spree. This is economic madness – the retail sector will benefit but the deficit will increase due to the import of foreign goods. Savings are finite!
  4. By generating infrastructure projects –  overseas funding will be required which will increase the National Debt  but, unless this infrastructure produces export income. the resultant economic activity will produce less useful domestic GDP.
  5. By encouraging strong export income. This is the Holy Grail. Unless the Government can encourage an increasing export, income wages will continue to flatline and increasing pressure will be placed on living standards.

Improving the Treasurer’s Statement.

The Government trumpets its record on job creation We know wages are depressed and under-employment is increasing, but what we do not know is the breakdown of employment into jobs in the domestic economy and jobs in the export industries. With this information, there will be a better informed sense as to how the economy is travelling. The term Jobs and Growth is oxymoronic- the mantra must become “Jobs and Exports”.

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

 

 

 

THE DRAGON and the KANGAROO June2018

THE  DRAGON  AND  THE  KANGAROO
OR
WILL  LESSONS  EVER  BE  LEARNT?

Caption – Australia’s Bête Noire. Fishing in contested waters.

Problem
AUSTRALIA”S BÊTE NOIRE. FISHING IN CONTESTED WATERS>
(economist.com)

CURRENT  AFFAIRS FLASH POINTS
The average Australian citizen might see a common denominator to the list below sooner than some decision makers in Canberra. The list unrolled is:

  • The eruption of Mt Pinatubo, Philippines, in June 1991 leading to the departure of American forces from Subic Bay naval base and Clarke airforce base resulting in a military power vacuum.
  • A few months later the Chinese Government reinvigorated the Nine Dash Line in the South China Sea thus increasing its influence over east Asian nations.
  • Darwin port and the 99 year lease granted to the Chinese-controlled Landbridge Group for a paltry $650 million odd.
  • Whispered plans for a Chinese military base on Vanuatu.
  • Huawei Technologies Co Ltd and Australia’s politicians visits to China.
  •  The publication of Silent Invasion by Dr Clive Hamilton.
  • Australia’s recent arm wrestle with Huawei to construct a $200 million undersea communication cable to Papua New Guinea.
  • An announced Australian Government program  to install undersea cables to the Solomon Islands and Vanuatu
  • Foreign Interference legislation passed to protect National Security.
  • Chinese acquired shortwave radio access to Pacific island nations because Australia terminated its well-established shortwave service for a paltry annual net saving of $2.8 million. China, naturally, filled this broadcast power vacuum. (ABC News, 22 June 2018)

Comment will be restricted to the termination of Australia’s shortwave radio services to Pacific island nations and the predictable rise of Chinese influence by snapping up Australian shortwave radio frequencies. Larger issues flow from this.

This decision  will be shown to be a major diplomatic blunder by DFAT and the ABC. It reflects poorly on lessons to be learnt from history on the nature of ‘vacuums’ in geopolitics.

EXIT THE KANGAROO
In January 2017, the ABC formalised a decision to terminate shortwave radio services to the Northern Territory and Pacific nations to save an annual current cost of some $1.9 million. (aph.gov.au, Restoring Short Wave Radio) This decision was made before updated FM services were in place. The reason being the technology was old (but very effective) and would be updated  by FM and digital at a future date. So, immediately, Papua New Guinea’s population of eight million (less 10% with internet access) and several million in other Pacific nations, were in radio silence – not a good way to win friends and influence people.

In June 2017 after the termination, DFAT indicated Pacific nations clearly required this vital service, but the cost would (only) double to $4 million a year. However, net increase would only be $2.8 million a year. (The Strategist, 19 June 2018)
In a thinly-veiled attack, the Lowy Institute’s Melanesian Program Advisor indicated that $2.8 million was no more than a rounding error within the DFAT budget of $1.1 billion in 2016-17 for the Pacific nations. (SBS News, 22 December,2016)

In Pacific nations away from principal population centres, Australia’s shortwave radio service was the only contact with island capitals and the outside world. This service was essential in times of disaster, political instability and security. For eighty years, since the 1930s, Australia has been providing this service to millions of people. The service has won friends, stabilised hearts and minds, promoted trade and national interest. Now we pack up our swags, leave a radio black hole behind us and provide the perfect environment where Chinese influence can flourish.

At a Senate Estimate Hearing in March 2017, the ABC CEO intoned ” I am confident we have met our Charter obligations across all services we needed to provide”. This mean-spirited myopic comment beggars belief. There is a lack of understanding of Australia’s role in the Pacific region involving international relations, security and national interest. The fact that the CEO, Ms Michelle Guthrie, has no experience in journalism or public broadcasting could explain the lack of vision and foresight for the ABC in the Pacific. (theaustralian.com/abc/guthrie)

DFAT appears to have been barely involved and was apparently unconcerned over security, geopolitical issues or trade. In an interview with the Foreign Minister, the Vanuatu Trade Commissioner said it would be a disaster if the shortwave radio service was terminated. Ms Julie Bishop agreed to pass on this concern to the ABC – a totally inept response. History does not record any result. (SBS, 31 January 2017)

While tedious, it is instructive to appreciate the extent of this radio black-out by Australia. Nations affected are Papua New Guinea, Solomon Islands, Vanuatu, New Caledonia, Fiji, Tonga, Samoa, Nauru, Kiribati, Micronesia, Polynesia, Marshall Islands and Cook Islands.

Under questioning, the ABC stated “while there are no firm figures on audience numbers in those regions they are understood to be low”.  In fact, the number exceeds ten million. The view of the Australian Strategic Policy Institute is “this is a dumb decision and another bout of OZ amnesia. (SBS, 22 December, 2016)

Concluding this section, both ABC and DFAT have terminated a vital shortwave radio service apparently oblivious to social, trade and national security implications for a net annual saving of $2.8 million dollars. A vacuum has been created – drum roll for the Dragon.

ENTER THE DRAGON
With Australia’s unwise relinquishment of shortwave radio, frequencies for the Pacific region Radio China International acquired these assets and is now broadcasting to Pacific nations on Australia’s maritime ‘turf’. This was to be expected as illustrated by the Mt Pinatubo eruption and the fallout from the military vacuum.

The irony is that China has acquired valuable radio frequencies for minimal cost, complete with a tied established audience with radios already tuned to Australia’s discarded frequencies. The Voice of Radio China is now heard without adjusting the settings. It is not too late for Australia to re-enter this arena but it will be with a diminished voice. Meanwhile, New Zealand maintains its short wave influence in the region. (RNZ, 22 & 25 June 2018)

The implication of this Australian faux pas is serious and must be considered in parallel with other tensions across Australia’s Pacific ‘turf’. These are:

  • China is seeking to become the the controlling power in Australasia; it has large resources at its disposal.
  • Canberra is seeking to negotiate a security treaty with Vanuatu to address economic aid, maritime surveillance and defence cooperation. It is not impossible to consider Vanuatu could be used by a hostile power to threaten Australia.
  • It has been reported by Australian military sources that China and Vanuatu are discussing a military base on this island nation – so far denied.
  • Unrelated to the above! – China has financed a new cargo wharf on Esprito Santo and completed an upgrade to the international airport. China now owns more than half of Vanuatu’s $440 million foreign debt while, since 2007, trade between the two countries have increased six fold.
  • China is in talks with the Solomon Islands Government to construct an airport and aircraft maintenance facilities on Guadalcanal. (The Times, 1 May 2018)
  • To forestall Chinese intentions, Australia has committed to construct a 4,000 km submarine internet cable from the Solomon Islands to Australia.
  • The Prime Minister of Papua New Guinea  has just completed a visit to China where he has committed the country to the One Belt One Road policy. This is significant as it now places this Chinese trading structure within a canoe ride of the Chinese controlled port of Darwin. (Geopolitical Futures, 25 June 2018)
  • An extraordinary ‘big picture’ is emerging of Chinese influence, military aspirations and trading links involving Papua New Guinea, Solomon Islands and Vanuatu. These island chains control the north-eastern maritime approaches to Australia.

The concept of land or sea barriers between warring states is older than the Roman Empire but still relevant today. Russia’s influence over the Intermaruim plus Ukraine has been a central tenet of Russia as a buffer against Europe. China has sought some security behind its Nine Dash Line. Australia had its opportunity to develop a buffer along the island chains of the Western Pacific but China appears to now be turning this situation on its head to become a security issue for Australia. There is now a discernible trend in Chinese policy – if it is not halted it will continue.

Caption.  Fair Go! Not another problem!
Fishing in contested waters.

Fair Go
FAIR GO – NOT ANOTHER PROBLEM!!  FISHING IN CONTESTED WATERS.  (sbs.com.au)

CLOSE
History is important – two comments:

  • The Nine Dash Line was reinvigorated into the vacuum created by America. The termination of ABC shortwave radio into the Western Pacific, created a vacuum now filled by  Radio China International.
  • The port of Darwin was acquired by a Chinese company without visionary regard to long term trade, security and geopolitical implications by the Australian Government. This unwise arrangement resulted in a mystified  phone call —- Obama  to Turnbull  “What the devil is going on down there?” China now controls many of Australia’s former shortwave radio frequencies. The same question from America is again warranted.

Finally, the burning question is “Just how much America thinks China’s expansion into the South China Sea matters to its interests and how far America is willing to go to protect those interests”. (Geopolitical Futures, 28 June 2018)

The corollary that follows is: how far will America go to protect Australia’s interests in the Western Pacific?

POSTSCRIPT                                                                                                               Since June the Australian Government has reawakened to its obligations in the South-West Pacific by:

  • spearheading a security network to bolster the Pacific Island Forum.
  • providing 21 Guardian class vessels to twelve Pacific nations including East Timor.
  • the recognition of Malaysia, Indonesia and Philippines as buffer states to the Dragon.
  • upgrading the Lombrun Naval Base, Manus Island, PNG.
  • by blocking (postponing) the construction of a Chinese military base on Fiji.
  • by sighing a bilateral security treaty with Vanuatu. (GPF, Oct. ’18)

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

 

 

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)

 

 

 

 

 

 

 

 

 

‘JOBS & GROWTH’ – AN OXYMORON February 2018

‘JOBS & GROWTH’ – AN OXYMORON
February 2018

J & G
‘JOBS & GROWTH’  (Matt Peyton/Invision for Hasboro/AP Images)

 Preface
Government Ministers trumpet the phrase ‘Jobs and Growth’ but the Fates, Clothe, Lechesis and Atropos have decreed for Germany, the United States and Australia it is either Jobs or Growth, not both,  in the current global economic situation. In this strange economic cycle of low inflation, low interest rates, low wages and low unemployment, the term ‘Jobs and Growth’ is oxymoronic.

The mantra ‘Jobs and Growth’ implies increasing employment will be accompanied by rising wages – this is not happening for three (among several) reasons: there is toxic under employment in industrial economies; automation is increasing; there is business migration to low cost countries.

Data emanating from Germany and the United States, both strong export oriented industrial economies, provides a bleak picture. For Australia the implication of this data is sobering.  Australia still relies on natural resource exports with little added value/fabrication component and has been losing industrial capacity for some time. Without strong manufactured exports, wages growth becomes more difficult to accomplish than for industrialised economies.

The German Predicament
Since the GFC, employment in Germany has been slowly rising with unemployment around 4%, but this has not translated into increased wages or wealth creation for the Lower and Middle classes. Germany, among other OECD industrialised countries, is experiencing a widening wealth gap. In Germany, the bottom 60% of the population own 6.5% of the wealth while the top 10% own 60% – this gap is increasing. With wages declining in relative terms and with consumer prices rising by 24% in recent years, citizens are sliding into poverty. This rising inequality commenced with the unification of Germany.

The United States Predicament
Wealth inequality has been increasing since the 1970s.  As with Germany, rising employment has not translated into higher wages for the Working and Middle classes. Wealth disparity is becoming worse – currently the bottom 60% of the population own 2.6% of the wealth while the top 10% own 80%. Like Germany, unemployment rates are low, round 4% (2017), but wages have remained static. Since the GFC, unemployment has decreased leading to a tighter labour market, but this has not put pressure on wages although, with the threat of higher interest rates, there might be an improvement. In the years before the Trump election, the income share for the top 10% of earners was about 49% leaving 90% of workers with 51% of income – this disparity is worse than before the 1930s Great Depression. Households are doing worse today than in 2007. Upper incomes have recouped losses but Middle and Lower incomes have not. Trump trumpeted a better America for the Working Class, of course he won. (Germany and the United States – Springing into Inaction. Geopolitical Futures, January 2018)

The Australian Predicament
Commencing with the really bad news first, the IMF has reported Australia has the fastest rising inequality rates in the OECD over the past thirty years. (Fiscal Monitor, IMF). The latest OECD data illustrates an  income inequality ranking  of 22 out of 35 countries surveyed. Figures from an Oxfam report and the IMF indicate the top 1% of Australians (240,000) own more than the bottom 70% of the citizens, that is 16.8 million. The disparity gets even worse, in 2008 there were14 billionaires, however,  in 2017 there were 33 billionaires. Oxfam has described the overall situation as a broken system where people struggle to get by. (G Hutchens, The Guardian, 22 January 2018) This dire situation is not unexpected where an economy (Australia) relies on natural resource exports.  Much has been written on the fictitious trickle down effect in resource oriented economies– the  Australian situation proves the trickle down effect has been minimal. . The Treasurer has recently cited the creation of 400,000 jobs as evidence of successful Government policy (with flat lining wages} but this is merely a reflection of trends in Germany and America. All are caught up in this weird economic cycle, exacerbated by the under employment in the respective economies. (The Guardian, 12 October 2017) The Treasurer also endeavours to portray Australia as a country where inequality is not worsening, This is plainly not true and currently the inequality gap is widening. (Oxfam)

The poverty trap is catching more Australian citizens. With wages growth around 1.2% and inflation at 2.0%, living standards are declining. This situation is depressing the economy due to declining taxable income and consumer spending which accounts for 50% of the economy. (Trading Economics)

Both Germany and the United States have a strong industrial manufacturing base supported by innovative research facilities. In the UN Innovation Index  Australia rates poorly. Rankings are: United States – 4, Germany – 9,  Australia – 23 (slipping from 19). (World Intellectual Property Organisation, UN, June 2017)

If Australia is to slow down the rising wealth inequality, it must  encourage innovation and entrepreneurial activity, and increase research funding.

Research and Innovation
Australia trails other OECD competitors in innovation and industry research expenditure. Rankings in the Innovation Index have been slipping for the past three years : 2015 – 17, 2016 – 19 and 2017 –23. (UN World Intellectual property Organisation.) There has been a marginal improvement from 22 – 21 in the UN Global Competitiveness Index.  (Economic Forum, Davos, 2018)
These rankings place Australia at a competitive disadvantage with other exporting nations.

Factors working against Australia are:

  • the legacy of disparate regulations resulting from the transition from Colonies to Commonwealth,
  • the three year political cycle,
  • inadequate and capricious funding – current Australian funding is about 2.2% of GDP while competitors are round 3.0%,
  • success rates for Government research grants are round 20%,
  • research funding requires a minimum ten year certainty – the three year electoral cycles prevent this.
    (Dr  Leigh Dayton, Research and Innovation in Australia,
    ABC Science Show, 18 February 2018)

The above problems are reflected in the number of patent applications from Australia for the billions of dollars of R & D spending and also the number of start-ups created per billions of dollars of research spending – both are below the OECD average.

The conclusion is that Australian culture must change to:

  • the encouragement of entrepreneurs,
  • a tax system that encourages risk taking,
  • the removal of rent seeking – a characteristic of a  nation’s reliance on natural resource income,
  • a mindset that does not fear failure. (The Guardian 22 June 2018)

So, a crucial factor in this discussion to ‘Advance Australia Fair’, is the role of universities and research institutions and their support by Government. Australians need look no further than the straightened circumstances of the nation’s science and research industry caused by a shortage of resources. Parliamentary Library documents show for 2014-15, that Government funding was 0.56%  of GDP, the lowest rate since 1978-79. Further, OECD stastistics on Government R & D expenditure, place Australia 16th of 18 – spending only 0.4% of GDP. With contributions from the States and private enterprise, however, the ranking improves to 9th with 2.1% of GDP compared to industrial leaders in the 3 – 4% range of spenditure.  Australia’s future can no longer rely on ‘the sheep’s back’, ‘the Mile that Midas touched’ or ‘Crocodile Dundee” – it has to come from science, technology, invention, innovation and funding.
(The Conversation, Infographic – Science and Research,
22 June 2016)

More problems for Higher Education were highlighted  by Universities Australia Chairman, Professor Gardner, who indicated Government funding cuts of $2.2 billion following the recent MYEFO update, will leave universities ‘frozen in time’. (Weekend Australian 13/14 January 2018). The prequel to this situation  was the statement by Dr Ian Jacobs, Chancellor UNSW, to the effect that current Government policy is not in Australia’s long term interest since it implies universities are an expenditure problem not a long term investment. The remarks by Dr Jacobs were driven home by the 2017-18 Budget which cut $384 million of funding over two years.
(The Conversation & UNSW News Room, 9 May 2017)

It is unsurprising that Australia shows a decline  in OECD ratings due to Government funding history and current policy. In 1974, the Government provided 90% of university income; by 2010 this had reduced to 42% and by 2014 it was 20% for the major research universities. The hollowing out of this pillar of the Australian economy has been supported by Labor and Liberal Governments to the present day.

Last Word
The Australian economy will partially reflect trends of other industrialised export-oriented economies, however, Australia is in a fundamentally weaker situation due to reliance on natural resource exports.

Employment opportunities could improve but wages growth will be suppressed for global reasons beyond Australia’s control and the wealth gap will continue to widen.

The road to Australia’s salvation lies with science, technology, invention, innovation and funding. Until hightech-manufactured exports constitute a significant part of the Australian economy, pressure will remain on wages growth.

The mantra should be ‘Jobs and Exports’.

 

 

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

 

 

 

 

THE ROHINGYA – IMPEDIMENT TO DEVELOPMENT November 2017

DOWNSIDE OF FOREIGN INVESTMENT

Gas & Oil
FIG. 1   GAS & OIL PIPELINES FROM RAKHINE TO SW CHINA                               (Shwe Gas. The Conversation)

Much has been written on crimes against the Rohingya people in Rakhine state, Myanmar, but muted are the issues swirling round the genocidal activity of the Myanmar military.                                        Much has been written on the Rohingya refugee camps around Cox’s Bazaar, Bangladesh, but there has barely been mention of refugee concentration camps ringing the oil and gas installations owned by the China National Petroleum Company some 250 km to the south.

The international community has been well informed by vested interests, that military action in northern Rakhine state was due to the attacks on police posts last year by the Arakan Rohingya Salvation Army who were  fighting to improve the condition of the Rohingya people.  The bottom line of this discussion (mentioned in advance) is that the Rakhine-Yunnan oil & gas pipe lines are indispensable to the Chinese economy. The oil pipe line transfers oil from the Middle East to the east coast industrial regions of China. (The Truth Seeker, UK)

Pipelines
FIG. 2   OIL & GAS PIPELINES FROM RAKHINE TO YUNNAN, CHINA (thetruthseeker.co.uk)

Vindication for this infrastructure is China’s concern for the security of oil supplies from the Middle East through the Malacca Strait choke point. Also, there was concern over the long haul through the Indonesian archipelago and the South China Sea. Recently, Indian submarine activity has been detected in the Malacca Strait approaches. Considering the fraught situation between India and China in the Himalayas, China’s program seems justified.

Placing the violence in Rakhine state into context, it must be recognised that there are vested powerful economic interests involved.  Land-grabbing in Rakhine and globally is endemic when major infrastructure projects are planned. In 2011, Myanmar enacted political and economic reforms to encourage foreign investment in the country. Shortly afterwards, in 2012, violent attacks against the Rohingya commenced concurrent with Chinese and Korean interests acquiring timber, mineral and agricultural assets in the region.

The recently commissioned oil & gas pipe lines by CNPC will benefit Myanmar through transit fees, energy revenues and  satellite industries springing up around this energy hub, serviced by a deep water port and eventually, a rail link into China. There will be little benefit for locals. The construction and commissioning has involved forced land acquisition, unsatisfactory compensation, environmental degradation and an influx of foreign workers. The importance and vulnerability of the project is illustrated by the concentration of military depots deployed along the pipelines. (Figure 1)  The concentration of refugee camps, distant from the violence in the north, around the oil and gas coastal infrastructure    is indicative of corralling and a subsequent relocation program. (Figure 3)

Refugee Camps
FIG. 3   RAKHINE REFUGEE CAMPS.   KYANKPYU (KYAUKPYU) CLOSE TO OIL/GAS TERMINAL  (Rohingya-American Society)

 

In 2015, the Myanmar government revoked the citizenship of many Rohingya ensuring forced removal could be facilitated.
(The Conversation, September 2017)

Such has been domestic outrage at the exploitation of Burmese resources and increasing Chinese influence during and following the completion of the energy installations, that a long-planned $20 billion Chinese rail link between Kunmin and the port of Kyankpyu (Kyaukpyu ) has been delayed. In this regard, the Chinese ambassador recently made two interesting announcements: “unrest in Rakhine is an internal affair and the work of the security forces is justified” and “the Myanmar government assistance to the displaced people is welcome and China will donate $147 million toward this work”. (Reuters & Hindustan Times 17 September) This donation could well be an encouragement to the Myanmar government to expedite approval for the rail link. Compounding the violence against the Rohingya, the coastal region of Rakhine is increasing in strategic and commercial importance with both India and China seeking to exploit the economic potential of the region. To this end the Myanmar government has a vested interest in clearing the land (depopulation plus scorched earth) in order to encourage foreign investment. (The Conversation, 12 September 2017)


SILENCE IS GOLDEN
Myanmar.
The silence of Aung San Suu Kyi is understandable. The current violence in Rakhine is not simply due to ethnic or religious animosity. This ethnic cleansing is generated by a desire for economic and industrial development. In previous decades all industrialised countries have forcibly ‘relocated’ or killed indigenous people to further their own economic or strategic imperatives. Unfortunately Myanmar is in the 21st century’s spotlight. Developing nations in the 19th and 20th centuries, however, have been able to develop their economies prior to the instant news cycle.  This problem cannot be solved by Aung San Suu Kyi or General Min Aung Haiang, Chief of Armed Forces. There are about 1.1 million Rohingya – nearly half must be in Bangladesh or Myanmar refugee concentration camps. If the International Community will not provide relocation then the situation might subside into silent exhausted hatred, with the rump of the Rohingya moved away from valuable coastal areas.

Australia.
At a ‘working’ lunch in New York on the 18th September 2017, the Australian Foreign Minister spoke on the violence in Rakhine. (Parliament of Australia Briefs)  Condemned in equal amounts were the ARSA attacks on police posts and the military for their attacks on the Rohingya. The Minister noted “something was wrong and called for a cessation of hostilities”. (Naive in the extreme!!!).
The Minister further noted that Australia had donated $65 million to alleviate suffering. (Little is solved by only throwing money at a problem!!!) All good motherhood stuff, but it was a speech of no moment. There was no mention of unrest due to foreign investment, dispossession or environmental damage. There was no suggested solution; a capitulation to an inevitable.  Unfortunately our ‘national’ hands are tied. Australia can say nothing to jeopadise our coal, iron ore and tourism exports but Australia must, perforce, inevitably permit a perceptible colonisation of Australia’s higher education instituions.

As Napoleon Bonaparte famously noted: “China is a sleeping giant. Let her sleep, for when she awakes she will move the world”.

Current Affairs Flash Points   towardsthefinalhour.com                          John Hill      Email: lurgashall@westnet.com.au

 

AUSTRALIA – Unsustainable Social Security. July 2017

 

AUSTRALIA’S  UNSUSTAINABLE HEALTH AND SOCIAL SECURITY SYSTEM.

 Living and housing
FALLING LIVING STANDARDS & UNAFORDABLE HOUSING (44092248)

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.

Trickle down

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.

Schools
ILL PREPARED PRODUCTS  (heraldsun.com.au)

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.

income units
DECLINING “INCOME UNITS’ (34490643)

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)

COUNTRY$A per hourCOUNTRY$A per hour
Australia17.70United Kingdom14.66
New Zealand14.22France14.18
China1.68Germany13.17
United States10.08

 

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.

Health
REDUCING THE HEALTH BUDGET (forn 2209)

T2  Projection of Government spending (% GDP)                               Productivity Commission

CATAGORY2011 - 122059 - 60
Health Care6.511.0
Age Pension3.03.8
Age Care0.82.5
Health Education5.55.0
Disability11.510.5
TOTAL27.332.8

 

NATIONAL BUDGET 2017–18
The summary below illustrates the impact of Social Security and Health on the National budget.

NATIONAL BUDGET 2017- 18

EXPENSE$A billionREVENUE$A billion
Social Security164Private Tax210
Health75Fringe B Tax4
Education33Superannuation Tax9
Defence30Company & RR Tax80
Public Services 21OtherTax8
Other Functions48Excise4
Other Purposes93Sales Tax67
Fuel Excise19
Non Tax Items29
Customs15
TOTAL464TOTAL445

 

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)

Terms of Trade
TERMS OF TRADE 2013 to 2017 (DFAT)   Quarterly & Trend                                         Is the declining trend real or just an inflexion on an upward trend?

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.

Do something
‘SOMEBODY SHOULD DO SOMETHING   (forn265)

John Hill                                                                                                                                     Current Affairs Flash Points                                                                                                           towardsthefinalhour.com                                                                                                         lurgashall@westnet.com.au

 

 

 

 

 

 

AUSTRALIAN EXPORTS & 2017 BUDGET June 2017 Pt 1

 

Mercury
Mercury – God of Commerce and Financial Gain (Walkers 541482)


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 Population
Australian Population Distribution (ABS) 1Dot = 1000 People.

 

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 !

EXPORTS$A billionPercent of Value
Minerals, Oil, Gas15246
Beef, Wheat145
Education, Tourism319
19760
TOTAL EXPORTS326100
OTHER EXPORTS12940

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

Budget Item$ billion
Revenue416
Expenses450
Deficit(34)
Capital Investment3
Final Deficit(37)

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).

Australian Debt
The Rise of National and Private Debt as a Percent of GDP (AFR 12 May 2015) Red – National Debt         Black – Private Debt    ( AFR, 12 May 2015)

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.

AAAShould 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)

COUNTRYEXPORTSEXPORT VALUEIMPORT VALUETRADING BALANCE
ChinaIron Ore, Coal, Gold1024953
JapanIron Ore, Coal, Beef502129
United StatesBeef, Aircraft/Space Parts, Alcohol1539(24)
South KoreaIron Ore, Coal, Petroleum251015
SingaporePetroleum, Gold917(8)
New ZealandComputer Parts, Vehicles, Pharmaceuticals1111_
BritainCoal, Gold, Lead812(4)
ThailandGold, Petroleum, Aluminium814(6)
MalaysiaPetroleum, Copper, Nickel710(3)
GermanyGold, Oil Seed, Fruit711(4)
TOTALS24219848

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:

TABLE 4  AUSTRALIA”S NATURAL RESOURCES EXPORT IMBALANCE (DFAT 2014) (Repeat of Table 1)

EXPORT CATEGORY $ BillionEXPORTS PERCENT
Minerals, Oil, Gas15246
Beef, Wheat145
Education, Services319
TOTAL19760
TOTAL EXPORTS326
OTHER EXPORTS12940

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.

Exports
Australian Exports, the National Objective (Exports-shipping-trade.jpg)

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

Commodity Exports
Australia’s major commodity export earnings 1997 – 2009 (abate.gov.au)

“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                                                                                        lurgashall@westnet.com.au

 

 

 

 

 

 

 

 

 

 

 

 

AUSTRALIAN EDUCATION BUDGET May 2017

 

 

Minerva
MINERVA MEDICA, ROMAN GODDESS OF WISDOM, SCIENCE, COMMERCE, MEDICINE AND ULTIMATELY WAR.(crystallinks.com)

Preamble

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?

PISA
Australia. Decline in OECD-PISA Ranking in Reading, Maths ,Science (OECD)

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.

STEM
SCIENCE, TECHNOLOGY ,ENGINEERING, MATHS – THE HOLY GRAIL FOR AUSTRALIA (Shutterstock)

Secondary Education.

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 cunning Plan
BUDGET 2017. A CUNNING PLAN TO STEM THE SLIDE (abc.net.au)

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.

Tertiary Education

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)

University Funding
PROJECTION OF NOMINAL UNIVERSITY FUNDING (ABS)

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.

Foreign Students

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                                                                                                         lurgashall@westnet.com.au