It's time to get real
Australia is currently living in some form of fantasia, a Wizard of Oz like existence where everybody wears their Green glasses but lately the startling realisation of the truth has brought a clearer view of our present reality.
Almost 60 years ago to the day, an independent Member of Parliament rose to deliver a second reading speech on the first budget of Arthur Fadden's minority government. It did not take long for Arthur Coles to make an impact when he said:
I have decided to vote against the Government on the amendment moved by the Leader of the Opposition. This country must have stability of government.
Coles explained the reasons for his momentous decision:
The reason for that lack of confidence is, that this Government has proved that it has not the numbers necessary to enable it to exercise that strength of control ...And he went on to say that:
The electors of my division will deal with me as they think fit. I take that risk, as will many other honourable members, should there be an election. ... It might not be a bad idea to go to the country and allow the people of Australia to give expression to their opinion by returning a government which would be workable. That would be far better than that we should continue as we are at present, with a Gilbertian assembly which might not be workable if we were to run into a period of serious national emergency.While there was a war in Europe, the bombing of Pearl Harbour was still two months away when Arthur Coles said this.
Australia does not face World War II at the moment but the sentiments expressed by Arthur Coles during Australia's last experience with minority government would be instantly recognisable to many Australians today.
Once again we have a government that lacks confidence, that is unworkable and fails to command a majority on the floor of the House of Representatives. As I said the other day, this is not a government; it is a perverse form of Romper Room.
This government lacks authority because it has trashed the principle of respecting the 13 million votes in the electorate to chase six disparate votes in the Parliament.
The Gillard government's principle policy initiatives, the carbon tax, the Malaysian solution and the live cattle solution, are not ones that it took to the last election but ones that have been forced on it due to the pressure of minority government. The authority of the majority determined by the minority leads to the complete and utter confusion we see on our television every night.
To say the world economy remains fragile is an understatement. Germany is checking if its constitution allows it to bail out others this week, Greece and Italy are racing to be the first domino to fall, jobs data in the US is at a standstill and our market as we speak is absorbing that news.
After being elected to the Senate as an accountant, I was continually harassed by my colleagues around me in Question Time for advice on where to invest money. In 2007, whilst on a holiday in Noosa, I went to a bookshop and bought three copies of The Keynes Mutiny and I handed them to my friends and told them to be very careful with their investment strategies because the world was becoming overleveraged.
This was a view also being discussed by Eric Janstz in The Next Bubble, Paul Woolley in a paper on ‘Financial Market Disfunctionality’ and Dr William White from the Bank of International Settlements.
So I would love to say that I was some kind of financial Cassandra but I was simply an observer of those with more financial acumen than myself, and with more financial acumen than some others domestically.
The Keynes Mutiny described how Keynes made millions on commodity and equity trading until the 'mob' turned against him and in the words of the author "American prosperity proved to be top-heavy and teetering, perched precariously on the sandy foundations of instalment credit and margin loans."
Nothing much has changed in our world today. Private debt has become public debt and our government remains oblivious to the global challenges. Labor has become so focused on “catastrophic climate change”, that they cannot manage, but has barely discovered the much more real and present prospect of “catastrophic global economic upheaval”, which they could prepare for.
We need a government that has authority to make the tough decisions to protect Australia from these challenges.
The two independents, Oakeshott and Windsor, I believe have shown a lack of judgment thus far by reason of where they have placed the nation. The rather sordid statements of Mr Windsor of late, in commenting on private discussions, also bring into question his character. I do not know what was said, but what I do know is that it was said in private.
I believe Oakeshott and Windsor are doing the last dance before the curtains.
Now back to Arthur Coles. The two independents in 1941 who voted against a government that wasn't working went on to retain their seats.
Tonight I would like to talk to you about three things, debt, how to make money and the National party's vision for Australia.
Most of you have probably heard me say why the current debt is a bad thing for Australia. I will play devil’s advocate with my own arguments though. The question always is the source and application of funds.
When Joh Bjelke-Petersen became Premier of Queensland in 1968 he did borrow money and he did accrue debt. But this money was invested in dams to promote agricultural wealth and, industrial and residential development.
He built and electrified railway lines to new coalfields in central Queensland. He built new airports at Cairns, Townsville and the Gold Coast to open these centres up for tourism.
He established James Cook University and Griffith University to decentralise and expand tertiary education. And he expanded and upgraded the beef development roads to develop the vast grazing lands of central Queensland.
These investments were worthwhile things. They, along with the other decisions of the Joh Government, such as the removal of probate, helped propel Queensland from a backwater to a powerhouse.
Joh may have used debt to begin with but by the time he left office the Treasury was overflowing with funds. The application of funds was proved prudent.
We have another Queensland government now, a government that has also taken on debt. It is heading towards $85 billion in debt and has managed to lose Queensland's AAA credit rating during a time in which the state is receiving record prices for its major export, coal. This Queensland government has fundamentally failed to invest in the sort of infrastructure which generates wealth.
Ships at Queensland's ports have gone from waiting 14 days to 28 days. Trucks instead of rolling stock transport coal, destroying the fragile roads that are hard enough to maintain on the shifting black soils of the Darling Downs. Tourism venues are being shut down or falling into disrepair and becoming outdated. A classic example is the fading Japanese translations at Queensland airports. I am always surprised when I get off at Brisbane airport that there has not been more attention paid to the Middle Kingdom in the last 20 years of signage.
The sort of things that Joh would have fixed in 48 hours this government does not even consider.
Once the economic powerhouse of the nation, Queensland now has the highest unemployment rate in the country.
But this the same state, with the same resources, only with better prices and the same people that Joh had. It is the management that is the crucially flawed issue and this is the management that is not only managing the State of Queensland but now the nation.
Just the other week, our Federal Government's gross debt passed $200 billion. Labor has borrowed in excess of $140 billion over the 1,381 days they have been in office. In other words, on average, this Government has borrowed over $100 million a day. In the last three weeks we have extended the debt by $2.5 billion, $3.2 billion and another $3.2 billion.
The legal luminaries, who told us that the Malaysian solution would work, are in the room next to the economic luminaries who tell us that the debt is not a problem.
However, according to Dr Ken Rogoff, Professor of Economics at Harvard University, only Iceland and Ireland have increased debt at a faster rate than Australia since 2007.
Surely we must have been investing in some nation-building infrastructure to justify the trajectory of our debt. But I cannot think of one major infrastructure program that comes close to explaining this government's record on debt. There is no new Snowy Mountains scheme, there is no new Indian-Pacific railway, there is no inland rail, there are no new Northern dams, there is no major public infrastructure in the Kimberley and there are no new trans-Dividing Range motorways. Whatever you think of the NBN, it only explains a small fraction of the government's borrowing to date.
There is a golden rule that my family has and that most accountants have. Those who invest in productive capital make money and those who invest in chattels don’t.
A flat screen TV is not a better investment than BHP shares and an HSV Clubsport is not as good an investment as a pen of pregnancy-tested, in-calf Santa Gertrudis cows.
$900 cheques to buy flatscreen TVs did not reboot the Australian economy. A ceiling insulation program, which eventually set fire to 194 homes with four fatalities, did not improve the Australian economy and $16.2 billion on school halls has not assisted one iota the general academic extension of the student body.
The fact is that if we were going to spend money then surely we should have spent it on real, productive capital. But we didn’t. If you say you couldn’t get the money out quick enough then may I remind you that we are still building the school halls.
The debate on Keynesian stimulus in other countries is basically settled. The debate here seems to be occurring on a different planet.
Commentators in Australia see a strong economy associated with large government spending and conclude one caused the other. So why didn't it work in other countries?
The United States put together a stimulus package of 2 per cent of GDP and it failed. Unemployment was 7.2 per cent before the stimulus package and is 9.1 per cent today. Maybe like Australia they found that it is not much use if you don’t produce what people want to buy with your stimulus. Maybe that is why they are taking approach 2, that is devalue the dollar, so that in the future they do produce it.
At the time, Germany was criticised by other European and American countries for not embarking on a large enough stimulus package. Yet its economy grew faster than Australia in 2010. Indeed, the strength of the German economy is about the only thing that is protecting Europe from wider economic calamity.
If Keynesian economics had to pass the rigours of a randomised drug trial then the debate would be over. Keynesian stimulus in this instance was no more effective than a placebo.
Australian economist Tony Makin has shown convincingly that Australia was saved by a boost in its net exports not domestic or public investment. As Tony Makin concluded about the critical March 2009 quarter:
… the net contributions of private and public consumption totalling 0.4 per cent was insufficient to offset the negative contributions from private and public investment and was minor in relation to the contribution from net exports of 2.1 per cent.By definition an increase in our exports or reduction in our imports cannot be due to the spending of the Australian government.
Australia avoided recession because of the export of red rocks (called iron ore) and black rocks (called coal) in record volumes at record prices, record shipments of wheat, a 425 basis point drop in interest rates and a comparatively low dollar.
Unless Mr Swan can explain how a $900 cheque shipped one tonne of iron ore or planted an acre of wheat his argument does not stand that he had much to do with South East Asia not going into recession.
A Treasury paper last week concluded that the increase in household savings has helped to reduce interest rates and lower exchange rates from what they otherwise would be. If lower private consumption can reduce interest rates and the exchange rate then lower public consumption would surely do the same. If Labor had kept government's share of GDP at the level it was when it came to office, then we would have spent $126 billion less over the last four years, equivalent to over 8 per cent of GDP.
Wayne Swan likes to regularly point to Australia's $400 billion investment pipeline but he doesn’t control that. That is a promise of someone else’s benevolence. What he does control is the public sector debt and it is going through the roof.
If investment in mining is one of the reasons that interest rates and the exchange rate are increasing, then the government's borrowing must have the same affect.
As the shopper said to Julia Gillard, "people are not stupid". In Labor’s four budgets government spending has equalled $1.36 trillion. Compare that to the $988 billion spent in the last four budgets during the supposedly profligate period of the last government. This money has to be repaid and you are going to repay it.
The Australian people as a group are better at managing the affairs of the nation than our Treasurer is. They are increasing their savings. They are doing what the government should be doing, the Australian people are de-leveraging.
The Australian Government is increasing debt when debt is precisely the core problem.
The Global Financial Crisis has largely been the story of too many individuals, banks and governments taking on too much debt. There is nothing unique about this phenomenon. It has been repeated with Dutch tulips, railroad stocks, Florida real estate, dot-com stocks and now collateralised debt obligations.
Governments go to great lengths to hide their true positions, such as Greece recently. Our own government is not immune from such criticism. You always hear our government talk about net debt but they never explain how they get from gross to net. In doing so they net off around $70 billion of the non-equity investments of the Future Fund, even though these are set aside to pay the superannuation of public servants, over $130 billion of liabilities that are not included in the government's debt figures.
Our government publishes graphs of our net debt compared to other countries even though the Australian data does not include the debt of state governments, when the debt of the other countries does. Our debt would approximately double if you included these amounts.
In 2008, Ireland had net debt equal to 12.5 per cent of GDP. The parliamentary library estimated last year that Australia's net debt, including that of State governments, will hit 12.3 per cent of GDP in 2012-13.
When I warned 18 months ago that the risk of the US default was "distant but real" people dismissed the possibility. I didn't think what I suggested at the time was all that remarkable. A static debt ceiling and an escalating debt, sooner or later the two lines intersect.
Our government seems fixated on the risk of catastrophic climate change, when the clearer risk is catastrophic global economic change.
It is time for our government to get real.
The next thing I want to talk about tonight is how a country really makes money and generates wealth.
There are really only two ways to make money. Concentrate on output or concentrate on cost. You must also play to your strengths, stay away from your weaknesses and minimise gambling on unknowns.
Most importantly, success in business is nearly always determined by pragmatism, perseverance and prudence.
Subsidies to any industry have to be seen through a very forensic and honest assessment of outcomes. There are occasions were certain industries should survive in the national interest, but occasional is the operative word.
What is anathema are frolics into such things as renewable energy. These subsidies are not only uneconomic in their own right, but you cannot isolate them like some peculiar pot plant in the corner of your office, they are an inherently inefficient and malignant growth, moving into every sector of the economy.
The Productivity Commission estimates that the multiple subsidies that we give to renewable energy amounts to around $600 million every year, and that is set to increase as the renewable energy target increases. The main effect of these subsidies is to make electricity more expensive for households and businesses.
Why are we giving such large subsidies to methods of generating power which are double to four times the cost of coal and gas fired power stations? China is building a coal fired power station every week on average, while we are barely investing anything in greater coal fired generation despite happily selling tonnes of the stuff overseas. It is absolute madness to think what is sinful in Australia is virtuous in China.
We spent twenty years in this country getting our power stations more efficient. Power generators were corporatised and in some states privatised. Union influence was removed. Productivity improved. Joh was part of this process in his famous battles with the electricity unions in Queensland.
By the end of it all we had some of the cheapest power in the world. In 2006 Australian electricity prices for businesses were the third lowest in the world. Electricity prices in real terms fell by 19 per cent from the early 1990s to 2005.
But since Labor was elected in 2007 electricity prices for businesses have almost doubled from 6 cents per kWh to 10 cents per kWh. Our electricity prices for business are now more expensive than those in South Korea and India, even though they use our coal.
You can have cheap power, cheap wages or no jobs. Take your pick.
Australia must take a serious look at the excessive subsidies it is giving to renewable energy. These policies are not going to cool the planet but they will make us poorer.
We have the coal and we have the technology. Cheap power will help us make money and create jobs. Alternatively you can go to your spiritual church in the scrub and dream about green but you will do it as a far poorer person than you otherwise would be.
Three cheers for efficiency in power, that is very commendable, but you do not get more efficiency because you demand it from an MRET any more than you get wings on a horse because you demanded it.
The person who develops the photovoltaic cell that is more efficient than coal will be the richest person on the planet. What more motivation do they need?
If Mr Howes wants to truly help manufacturing jobs, then he should stoically stand for cheap power.
The government, at the behest of the Greens, plans to spend $10 billion in off-budget financing to fund clean energy projects. The money is "off-budget" because the government expects these investments to make a commercial return. So while Bob Brown, Lee Rhiannon and Sarah Hanson-Young are picking winners, I can smell a provision coming on.
The experience of green energy investments, particularly those by governments, gives little hope that this money will stay off-budget.
Just last week a solar panel manufacturer in California shut down despite the US government granting it a $535 million loan guarantee in 2009. The Australian government has identified loan guarantees as one of the ways it will support clean energy investments.
There is no such thing as a green job, there are high-paying jobs and low-paying jobs. By definition, the carbon tax will shift production away from otherwise profitable businesses, which offer otherwise high-paying jobs.
Australia has to invest in the products that the world wishes to buy off us, and that is mining and agriculture. Together they represent about three-quarters of our exports. So where Australia should invest is in new ports, new railway lines, new dams and remove the plethora of Kafka-like legislation that inhibits the creation of new food bowls.
Once more there are people like Fred Pascoe, an indigenous Mayor voted for by all constituents, in the Gulf of Carpentaria, who screams out for dams not wild rivers legislation. There are dam sites on the Gilbert, there are dam sites on the Flinders. The O’Connell creek diversion would give the capacity to exploit the deep, self-cracking loams around the towns of Hughenden and Richmond.
These investments are no better exemplified than my own town of St George, where last year we produced $750 million worth of renewable income, predominately from irrigation. Not bad for about 5,000 people.
The third way to make money is to inspire the movement of people to where you make the money. Fly-in and fly-out is an inefficient use of capital. It is like the 27 year old kid who refuses to leave home. If that is where the nation is making money then we should be encouraging people in every way shape and form to move to where the money is made.
The standard of living is what frightens some people, so you will have to create some kind of incentive in lieu of the fact that the investment of the public dollar is not as evident there as what it is presently in Sydney, Melbourne and Brisbane.
If I don’t live near multiple hospitals, suburban railway lines, public parks, multiple billions of dollars of public infrastructure, then why should I be on the same rate of tax as someone who is? Especially if my privations of being without are the actual mechanism that creates the source of the GDP that maintains our nation’s standard of living.
If there are nine people sitting on a table and one person walks up, carrying with him, a $100 note, and devises a transaction to move that note around the other nine, then the GDP of that table becomes $1000. Ninety per cent of it from those who were initially sitting there. But if the person with the $100 did not show up the GDP of the table would be zero.
That person is regional Australia. That is where the coal mines are, that is where the iron ore mines are, that is where the wheat fields are, that is where the cattle are, that is where the cotton fields are and that is where many of the premier tourism venues are. And that is where you must invest if you want to make money.
Finally, and most importantly, is the role of government. Sometimes I believe that there is a person in both state and commonwealth governments who puts a map of Australia on the wall and says how do I devise legislation that sends this place broke.
Even on the conservative side we have made excuses for things that should, if we were philosophically sincere, be anathema to us. We have not only sat idly by but have participated in the removal of property rights. We justified it by saying it was good for people to have their vegetation rights stolen by the government. We agree with the closure of fisheries because of arbitrary lines on a map looked good and made us feel good that we created marine parks.
We seem to have progressed to this pseudo-religious belief that every tree is sacred. Not only is every tree sacred, but so is every drop of water and is owned by government even though it was delivered by God. We are listening to people who honestly want to shut down the Murray-Darling basin rather than calling it for what it is, barking mad legislative lunacy. If you carry on like that, not only will you go broke, you deserve to go broke.
We now even have the quite unbelievable proposition that bats have more rights than people. You can’t move the bats, you must move the school.
The latest piece de resistance of lunacy is a carbon tax. Yes Craig Thomson is doing a fine job, the Malaysia solution is tickety boo and we can engineer a change in the climate from Canberra.
I have always wondered what I would say to a client who walked in and said “I have this great idea; I am going to change the climate via a new tax”.
In Charleville, I used to stare for ages, during lunch, at what was a rain-making machine from around about 1900. What fascinated me was not the engineering of the conical blunderbuss, what intrigued me were the suckers who paid for it.
What doesn’t surprise me is the vitriol you receive if you don’t believe in their marketing plan.
Property rights are essential, no one is going to work to pay off something that they don’t actually own. Core costs should be minimised, you don’t inspire innovation by putting people’s power through the roof. We didn’t invent the wheel because we taxed walking. We didn’t invent the car because we taxed horses.
As George Orwell once said “there are some ideas so preposterous that only an intellectual could believe them.”
The answers are never black and white that is why the Nationals remain such a relevant force in Australian politics and I would like to finish tonight by talking about our role.
The Nationals have always been a pragmatic party that wants to deliver results not impose an ideology on the masses. We are not beholden to Smith, Marx, Keynes or Friedman. We are the exception to Keynes’ comment that practical men are the "slaves of some economist", defunct or otherwise.
I think that means that the Nationals are uniquely positioned to provide the commonsense judgments that others sometimes ignore because they are blinded by the theoretical lights, where acting stands in proxy for real life, small business and owner-operator experience. Make it work or lose your house is always good motivation.
Most of the big blunders in public policy come from the triumph of theory over practical commonsense. Tulips are worth lots and lots of money, except when in seventeenth century Holland someone discovered how you can propagate them. Paul Keating raised interest rates to 17 per cent because of something called the current account deficit, which is hardly been heard of since. Wayne Swan spent $90 billion because Keynes told him to. And we are now imposing a $9 billion tax per year because self-appointed experts warn that if we don't, we face imminent self-combustion or drowning or both.
It is quite ironic for the Nationals to be lectured at by others about the purity of free trade and unfettered commerce. The Country Party is the only party in Parliament today that advocated lower tariffs at its inception. The early Country Party under Earle Page was not completely anti-tariff but it recognised the high cost of the tariff increases of the 1920’s on the production costs of primary and secondary industries and argued against these increases.
As Paul Davey points out in his history of the National party, it was not a philosophical conversion that caused the Country Party to move away from its commitment to freer trade. Rather it was the political reality that it was unable to convince either of the major parties to support its lower tariffs platform. Instead, the Country Party adopted a "protection all round" view to provide assistance to both primary as well as secondary industries.
We still have both sides wishing to protect wages, protect the environment, protect free services to the cities, subsidise public transport, protect occupational health and safety standards. Apparently these are all meritorious so why would it be unreasonable to protect Australia from Fireblight from imported apples.
There is nothing that induces biliousness more than someone who talks free trade but you only have to scratch the surface to find that they are first to baulk at what real free trade means.
It seems that it was the same for Black Jack McEwen as it is now. As he stated in his autobiography:
It was my belief then — and still is now — that the whole of the Australian economy is protected in one way or another. It has to be once some protection has been given to certain sections of industry. You cannot logically protect one section and not protect other sections, given basically similar circumstances.At the heart of McEwen's philosophy was an urge to develop Australia. As an under-populated country, Australia needed to attract migrants to become a stronger nation. Migrants could only be attracted if there were jobs available, and the increasing mechanisation of the primary sector meant that the focus needed to shift to developing Australia's manufacturing sector.
McEwen's great achievements in opening up trade with Japan, only a decade after the end of World War II, demonstrated his commitment to developing Australian industry.
And The Nationals retain this basic driving philosophy. The Nationals are a party that embraces the vision of a stronger, bigger and more prosperous Australia. It is unusual in The Nationals party to hear people talking about the benefits of a smaller population for Australia. That is something for the chattering classes of the illuminated crescent, another form of protection for the sophisticate.
The Nationals have been at the forefront of developing the policies that will deliver Australia the courage of a new vision.
The vision to build dams, the vision to create new areas of wealth and opportunity. The vision to pilot zonal taxation as a mechanism to open up new areas where people don’t fly-in and fly-out, but fly-in and stay. The vision to create the infrastructure so that we evolve from a crescent moon economy, where all the light is merely on the south east edges and all the potential remains in darkness.
I think the Australian people are crying out for a government that has the strength to deliver on such a vision, in the face of the inevitable complaints from Greens and others who want Australia to turn its back on opportunity and aim for the quiet and selfish life of no economic or population growth, and therefore no strength to endow our values, which I believe are good, in a more prominent way in a world in which our area will soon be dominated by a totalitarian superpower, whether we like it or not.
Australia can aim to achieve the accomplishments that we have in the past but we won't if we continue to focus on the theoretical mirage that government spending can make us productive and that a carbon tax will unleash a green job creating machine.
Such fairytales are divorced from reality. If we do not as a nation begin to "get real" then we will do immense damage to our prosperity and economic strength.
Australia has more than an opportunity it has an obligation to be pragmatic. The world is changing and it is changing before our eyes. It is changing before you on your television tonight. Maybe those who cheated won but they won and there is not much we can do about it. If we believe that the freedoms that are in this room are worthy of a greater future beyond our days, then we must place our nation in the strongest possible position to protect the vital organ that will promulgate these views which is our people.
The only way that that event can come about is if we are strong. And the only way we will be strong in this new world is if we put aside our fanciful distortions created by well meaning but quite naive visions of the global economic reality.
Those who win the economic race write the rule book. The question for Australia will be do you want such things as a carbon tax or do you want to be able to pay for your vision of justice to have a greater voice in the global future.
Do you want the reality of security or are you happy to live with the bitter disappointment that you can’t actually conjure up a steel industry, when at that critical moment, your nation is at threat?
Do you want to go to the global dinner table with the strength of knowing that you have money in your wallet, or do you wish to beggar your nation and be the servants of the others who are there?
It is all happening before us and unfortunately, currently, we are not on the pragmatic, prudent path.
Office of Senator Barnaby Joyce
Leader of The Nationals in the Senate
Shadow Minister for Regional Development, Local Government and Water