Taking control of our destinyby Patrick Byrne and Brendan RodwayNews Weekly
, June 13, 1998
“Columbus goes down in history as the world’s most famous explorer, perhaps history’s most famous man, because he found the completely unexpected, the Americas, and they happened to be full of gold. One moral of the story is that it is important to be smart, but that it is even more important to be lucky. But ultimately Columbus did not succeed because he was lucky. He succeeded because he made the effort to set sail in a direction never before taken despite a lot of resistance from those around him.”
— Lester Thurow, “The Future of Capitalism”Policy 1: Reducing the $220 billion Foreign Debt
The burgeoning $220 billion foreign debt that has left Australia beholden to the vagaries of the foreign markets is the biggest single impediment to the development of the nation and a threat to its national sovereignty. What can be done?
Reducing government debt
Approximately one-third of the foreign debt is held by governments. Several steps can be taken to reduce this exposure.
First, a temporary 30% revenue primage duty on imports would bring conservatively about $12 billion into the government’s coffers annually. This is not a return to 1960s-style tariffs. The major shortcoming of the previous tariff regime was the absence of an industry policy that ensured an integrated and competitive manufacturing sector that prevented protected producers from becoming bloated and inefficient.
A primage duty is a short-term measure to help correct a serious trade imbalance.
Australia’s imports are valued at about $80 billion. So assuming that the primage duty halved the volume of imports — which would also be good for reducing the foreign debt — the revenue would be $12 billion. Part of it could be used to finance a Homemakers Allowance to provide justice for single-income families.
The advocates of “free trade” will argue that our trading partners will retaliate with their own tariffs on Australian exports. However, our international trade obligations are spelt out in the General Agreement on Tariffs and Trade (GATT), which makes allowances for countries with foreign debt repayment problems. Article XII of GATT specifically sanctions a general tax on imports “for the purpose of safeguarding the balance of payments” of a nation.
The economic theoreticians will also argue that a 30% primage duty would raise the cost of imports and be inflationary. However, the mark up on many imports is so large that primage duty need hardly affect sale price. If it does affect important items like farm equipment, then compensation should be paid to farmers.
A primage duty is temporary, to be applied only until the government’s proportion of the foreign debt is brought under control.
Second, as most multinationals pay little or no direct tax in Australia, the government needs openly to negotiate a tax rate with the corporations based on their turnover or their expenditure.
Third, 7,000 multinationals operating in Australia are claiming $30.5 billion annually in interest expenses. The tax deductibility of interest paid on foreign loans should be removed. Paying the company tax rate of about 30% on this amount would yield about $10 billion in revenue annually for the government.
Fourth, the Australian dollar is one of the most traded currencies in the world. Speculation on currency movements is about $53 billion a day in Australia. Nobel Prize winning economist, Professor James Tobin, has suggested that a tax of about 0.01% should be levied on such turnovers.
Because of the international reach of foreign exchange speculation an international response is required. It is not an area in which Australia can take unilateral action.
If it were widely introduced, at the level suggested, it would raise $1.3 billion a year for the government.
It is, therefore possible to reduce dramatically government debt in a few short period, without further wholesale privatisation of government enterprises, the sackings of tens of thousands of staff, and the loss of the profits of many of these privatised companies to overseas shareholders and creditors.Private sector debt
The private sector is carrying two-thirds of the foreign debt, about $150 billion.
As foreign debt is essentially the result of the failure of a nation to save, a critical factor in reducing such exposure is to raise the level of savings and to ensure those savings are invested in the country. There are several important steps necessary to achieve this.
First, Australia’s superannuation funds have assets of $260 billion. Currently, over $45 billion has been invested offshore, and this is likely to grow.
While offshore superannuation investments do not add to our foreign debt directly, the fact remains that this money is not available for investment in Australia. This means that governments and business have to look offshore to borrow funds, adding to the foreign debt.
A tax penalty on superannuation funds invested offshore would quickly see these funds returned.
Second, to boost the level of savings, Australia should emulate Singapore’s national compulsory saving scheme which has given them a national savings rate of 40% of the nation’s annual Gross Domestic Product. This has helped Singapore to become self-reliant in capital. It does not have to borrow, it lends to others.
Hence, while other Asian economies allowed large inflows of foreign capital to leave them vulnerable to an economic meltdown, Singapore was only indirectly affected by the Asian crash.
How the Singapore savings model can be applied to Australia is discussed later.
Third, the Federal Government must assert its control of the monetary system and have the Reserve Bank again create a proportion of credit at low interest rates.
This credit is needed in part for the establishment of a “People’s Bank” along the lines of the original Commonwealth Bank, for lending to small business and the rural sector at low interest rates.
It is also needed for the government to fund the expansion and renewal of Australia’s deteriorating infrastructure.
The point of this measure is that it reduces our reliance on foreign lenders, by making more credit available domestically, and at low interest rates.Stabilising the currency
Australia needs to regulate the flow of hot, short-term investment funds that can take flight from a country overnight, collapsing the domestic currency and sending an economy into chaos.
Chile has successfully regulated capital inflows. Long-term investment capital is welcomed. But short-term, speculative capital is restricted. All short-term investments for less that 12 months requires an equivalent 30% deposit with the Reserve Bank, where it is held for one year at a fixed interest rate. Chile has thus minimised the chances of facing an Asian-style meltdown.
Such measures demonstrate that the sale of Australia’s national assets — which would become unstoppable if Australia signed the Multilateral Agreement on Investment (MAI) — in order to reduce foreign debt, is entirely unnecessary.
Rather, a coherent set of policies can be applied to reduce dramatically the private sector’s foreign borrowings. This is a critical first step towards Australia’s immunisation against — in the words of Fred Argy, the former secretary of the Campbell Committee the recommendations of which ushered the economic rationalist program into Australia — “the new barbarians at the gates”, the financial markets.
Being freed from foreign debt would insulate Australia from the uncertainty and volatility of the international financial market