October 18th 2003


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Articles from this issue:

COVER STORY: ENVIRONMENT: Don't spoil a good story with the facts ...

CANBERRA OBSERVED: Reshuffling the decks

AGRICULTURE: Unrestricted water trading a danger to farmers

FEDERAL ELECTION: Deregulation, drought, the dollar and the $7.5 billion surplus

FAMILY: AFA Conference calls for strengthening of marriage law

COMMENT: Poor always the losers in a middle class game

LETTERS: WA capitulates on Competition Policy (letter)

LETTERS: Taiwan and the UN (letter)

LETTERS: First Mildura Irrigation Trust (letter)

LETTERS: Rural economy (letter)

LETTERS: The future of rail (letter)

TAIWAN: Making strides in biotech

STRAWS IN THE WIND: Flying down to Rio / Shooting stars and black holes / Digging holes and filling them up again

RELIGIOUS AFFAIRS: Dr Pell's new appointment welcomed

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FEDERAL ELECTION:
Deregulation, drought, the dollar and the $7.5 billion surplus


by Patrick J. Byrne

News Weekly, October 18, 2003
John Howard has warned his party of complacency as it would take only the loss of eight seats to lose government, following a Federal electorate redistribution.

His vulnerability is on domestic economic issues, in the absence of any major security threat to Australia. This stems from the 25 year destruction of Australian industries that has left the nation with a massive, electorally volatile underclass, and a foreign debt of over $360 billion.

Speaking at the 32nd Conference of Economists in Canberra recently, Professor Sue Richardson pointed out that 35% of men aged 35-44 years were not in full-time work and not married, compared to 20% of men in that situation in 1978. Half the men aged 25-34 years were in the same boat, compared to 30% in 1978.

Underclass

She said that increasing numbers of prime-aged men without jobs, wives, or children were creating an underclass "of the excluded and the dangerous" not seen since the 19th century. Australia's answer has been to offer these men welfare. "We ought to be offering them full-time jobs", Professor Richardson said.

Why are these men unemployed and on welfare alongside the women they don't marry, who are having their children alone? For these women, a regular welfare cheque offers more financial stability for themselves and their children than the irregular or absent pay cheques of the fathers of their children.

Partly it may be lifestyle choices, but it is also because of the destruction of industry. Labor market figures over the past decade have shown that for each job available, there are 7-10 people looking for work.

Even the family payments system, once aimed at helping all families with children, is now geared largely to supporting this underclass. It has become too costly to help both the underclass and the middle class.

The political consequence of this growing underclass and the working poor single income, middle class family is that there is no such thing as a safe seat anymore, as politicians now admit.

The problem of these two groups is now being driven by "the three Ds" - deregulation, drought and the dollar.

The driving idea behind economic policy for the past 20 years has been competition policy, or National Competition Policy. Deregulation of industries was to induce competition, free up the economy, stimulate industry development and create jobs.

Competition is a key driver of market economies. All the benefits of competition are common knowledge.

The question for Australia is whether a one-size-fits-all deregulation policy has delivered us competitive markets? Or has it created monopolies, oligopolies and cartels where large corporations have used their unrestricted market power to exploit their suppliers and consumers?

Shadow Treasurer, Mark Latham, recently pointed to some examples:

  • Coles Myer and Woolworths have captured 76% of the grocery market, whereas in the US the top five supermarket chains have only one-third of the market.
  • About 90% of brewing is now controlled by just two brewers.
  • Airline "competition" has seen Qantas take 70% of the airline market.


Under Federal and State agreed National Competition Policy, deregulation of rural industries has seen farm gate prices to groups like dairy farmers go down, while the price to consumers has risen. The middle men, the supermarkets, have creamed off the profits at the expense of both the primary producers and consumers.

A true competition policy should recognise that farmers are price takers not price makers. Deprived of market power, as they have been by National Competition Policy, they are now being exploited, and many have been driven into poverty or out of the industry.

The unilateral slashing of tariffs and import restrictions has seen cheap (often dumped) imports undermine the domestic market for food and fibre and manufactured products. This was also intended to make our industry more competitive. But it has also left Australia without any bargaining chips in various trade talks.

If we have already cut tariffs almost to zero, then we have less to offer other countries in exchange for them cutting their tariffs.

The combined effect of the National Competition Policy, the failure of the Australian Competition and Consumer Commission to curb the excessive market power of retailers, and the flood of cheap imports has done serious damage to agriculture and to manufacturing industry, much of which is the processing of food and fibre off the farm.

If our manufacturing industry was still up with the rest of the developed world, as it was 30 years ago, we would have 19.5% of the economy coming from manufacturing, like the other OECD nations. Instead, Australia's manufacturing is down to around 11.5% of the economy, with the sharpest decline in the OECD.

Today, the drought has exacerbated the rural sector problems. Its effect will be there for some years as farmers have to wear down their debts. Livestock industries will have to rebuild their herds.

The rise of the Australian dollar against the US dollar has worsened matters. Many rural commodities (like sugar and dairying), and many of our mineral exports are traded in US dollars. The more the Australian dollar rises, the less our producers receive for their exports.

The drought and the rising dollar are going to bring many of the problems caused by poorly targeted competition policy to a head in the next year, exacerbating the decline of rural industries already underway. Or to put it in reverse, it was the very low Australian dollar of recent years that temporarily kept rural incomes up in some key industries, masking the effects of deregulation.

But the government now has an opportunity to act. It has a $7.5 billion surplus. The government is undoubtedly being tempted towards tax cuts across the board.

Tax cuts deliver little unless the Federal government is prepared to index the marginal tax rates to inflation in order to stop bracket creep, where wage earners move into higher tax brackets and pay proportionally more taxes.

Instead, the government should be looking to seriously overhaul its competition policies, target infrastructure development and selected industry policies, all designed to expand industry and jobs. This is the only way to reduce the growing underclass.

1. There is an urgent need to restore appropriate regulation to industries where middlemen have been granted excessive market power. The states should be encouraged to undertake reregulation of industries like dairying, without being penalised by loss of National Competition payments. Those farm industries that are being devastated by competition policy, like sugar and dairying, should have assistance granted to them until new competition policies make them profitable again.

2. There needs to be a strengthening of the anti-dumping rules to stop dumped imports undermining domestic producers, and a strengthening of the Australian Competition and Consumer Commission to curb the excess power of middlemen.

3. Infrastructure works that assist the building of regions and industries are needed. Plans for various fast rail systems between the east coast capitals should be brought forward. This would help to develop regions along those lines for decades to come. Further, a serious feasibility study should be started to assess the long term potential of a fast freight rail system across the continent to Darwin, to help particularly our rural export industries shift to high valued fresh food exports into Asia, which is growing at around two Australian populations annually.

4. Broadband telecommunications should be rolled out throughout regional Australia. Fast communications is vital for regional industry and business development, for long distance education and even for long distance specialist health consultation. Then the major service providers should be allowed to compete for service provision on the network.

5. Rather than seeing farmer and business input costs rise with higher priced water under national water trading plans, investment should now be made in water saving in our large irrigation areas, and a national water audit commissioned to plan how to sustainably harvest water from our northern regions where the vast bulk of our usable fresh water goes untapped.

6. Investment is badly needed to lift base electric power production, or else Australia will soon face similar power problems of other developed nations, where privatisation has led to a fall in construction of base load power plants.

There will be no solution to the growing Australian underclass without such policies.

Do we have any political leaders with a vision beyond massaging marginal electorates with temporary projects, using large budget surpluses in the run up to periodic elections?

  • Pat Byrne




























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