September 25th 2004

  Buy Issue 2691

Articles from this issue:

NATIONAL AFFAIRS: Latham's campaign dilemma

EDITORIAL: Jemaah Islamiah: the shocking evidence

ELECTION SPECIAL 1: The real issues facing Australia

ELECTION SPECIAL 2: Reversing the rural decline

ELECTION SPECIAL 3: Voters must challenge candidates on moral issues

The Greens' dangerous naïvete

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The real issues facing Australia

by Patrick J. Byrne

News Weekly, September 25, 2004
The 2004 Federal election campaign is being fought around taxation and family payments issues, but may well be determined on security issues, following the bombing in Jakarta of the Australian embassy, Pat Byrne reports.

Important as are national security issues, of equal importance is Australia's loss of economic independence as the foreign debt soars towards $400bn, equal to almost half the nation's annual production, or Gross Domestic Product.

Not only is this threatening our economic sovereignty, it is threatening our ability to develop the nation for the benefit of the next generation, many of whom are being relegated to a growing underclass. Neither side of politics has even alluded to the growing foreign debt crisis.

Important as are tax benefits and family payments in giving some assistance to couples starting a family, they stop far short of solving the more pressing problem of male joblessness. Almost 30 per cent of Australian men aged 25 to 44 are without full-time jobs. This is undermining the marriage rate, pushing up the divorce rate and lowering the birth rate.

Family crisis

Most of these men don't have enough income even to marry and have a family, let alone benefit from tax and family payment changes. This underclass of struggling breadwinners and potential breadwinners need full-time jobs and an income, so that they and their wives can have the family of their choosing and pay for their mortgage, their children's education and health bills, and save for their retirement. That is, they need a family wage for their families to be able to live in modest comfort.

Important as are taxation and family payments issues, they cannot address our shrinking industry base, which is creating this burgeoning underclass and driving up the social security and welfare bill to unsustainable levels, which in turn is crowding out other crucial areas of the Federal budget, namely expenditure on defence, health and education.

This is a major human tragedy that is undermining family life, undermining communities, and undermining the physical and spiritual strength of this nation.

It threatens to undermine the next generation which will be saddled with unbearable costs, debts and taxation burdens - a massive foreign debt; housing prices beyond their reach; the burden of the huge underclass; the growing number of baby-boomer, social-security-dependent retirees; and huge consumer debt left by those about to retire. On top of this, the next generation will have to bear the cost of paying for their own health, education and superannuation.

This should not be happening, because Australia is one of the most resource-rich nations on earth.

It is happening solely because of the blind faith of successive governments in the ideology of economic rationalism, globalism and the invisible hand of the free market.

To overcome this human tragedy, a fundamental change in economic direction is needed. The solution demands new industry policy to build industries and meaningful jobs.

At this point, many ordinary people baulk at economic policy, because they see economics as involving specialist, technical issues. This is only partly true. Fundamentally, it should be recognised that economics is a moral science. It is as much a moral science as bioethics. It is fundamentally a moral science because it largely determines:

  • whether a person has an income sufficient to marry and have a family;

  • whether the banks will demand a family have two incomes for 10 years as a condition for a housing mortgage, what the taxation and interest burdens will be, and hence if, when and how many children the family can have;

  • whether people can afford a house and be true participants in a property-owning democracy;

  • working conditions and hours of work, which have a major impact on family stability, personal health and the welfare bill.

There are basic Judeo-Christian principles, that all people can grasp, which need to be applied to shaping economic policy and how families live:

  • Respect for the dignity of work and the family at the centre of society, and hence the provision of a "family wage" derived from a just wage; tax concessions and generous family payments for a spouse and dependants; and a savings system for health, education and family payments so that families are self-sufficient and not dependent on the welfare state.

  • Decentralisation of economic power to favour small business, the family farm and regional government over the large corporation and the centralised state; and

  • Economic independence of the nation, free of heavy foreign debt that leaves a country captive to the economic dictates of the international financial markets.

Economic rationalism and globalism reject these principles. The dominance of these ideas for the past 20 years in Australia has led to a fundamental division in Australian society.

Supporting this philosophy are those who believe that governments "shouldn't pick winners", should be "hands off", "non-interventionist", should have no direct industry policy, should let the "free market" rule.

This view has led to the deregulation of the economy, the abolition of those regulatory policies that essentially defended small businesses and family farms against the exploitative power of powerful corporations, such as major supermarket chains.

The dominance of this view in the political parties and the Canberra bureaucracy has led to the exploitation, and even destruction, of many small-business-based industries, at the hands of large corporations. It is also compromising the democratic system, as political parties are increasingly captive of these corporations when it comes to fund-raising for election campaigns, while the idea of a property-owning democracy has been denied to the growing underclass.

Opposing this philosophy are those who believe the economy should be geared to the economic needs of all families. They argue that the unbridled free market is dominated by large corporations, whose "corporate instincts" pay little heed to the needs of small business, farming and families.

They also argue that "big isn't necessarily better". Big doesn't necessarily mean more efficient. For these reasons, they argue that the government does have a major role to play in determining the nature of the economic "playing field", in determining basic issues of justice for small business, farmers, workers and families.

This election issue of News Weekly will in part deal with how the economic rationalist policies of the past 20 years have been destroying the economic base of hundreds of thousands of families, causing a devastating drop in marriage, rising divorce rates and falling fertility.

This special News Weekly is arguing for the policies that are fundamental to Australia's future, but which are not on the election agendas. News Weekly is arguing that critical to solving Australia's problems will be replacing National Competition Policy with industry policies - policies designed to build industries, provide meaningful full-time jobs, and so secure the economic future of this richly endowed continent.

A cascade of problems

Australia is de-industrialising, which is destroying the full-time job base for Australian workers.

In agriculture, if present trends continue, net-farm income is likely to hit zero about 2017, according to figures from the Australian Bureau of Agricultural and Resource Economics (ABARE).

Under National Competition Policy, deregulation of farm industries - such as sugar, dairy and pork - is forcing farmers to sell into the domestic market at corrupt world prices, leaving them to be exploited by the unchecked power of the major supermarkets and food-processors.

Manufacturing is down to 11 per cent of GDP, according to the Australian Industry Group, compared to the developed world's average of over 19 per cent.

Thirty years ago Australia was up there with the rest of the developed world. Now we are down to the level of Greece and Turkey in terms of manufacturing output and employment.

Manufacturing and agriculture are interdependent. The largest section of manufacturing involves the processing of food and fibre off the farm. Both have strong job-multipliers, i.e., for every job in farming there are three to five jobs in manufacturing, and for every job in manufacturing there are more jobs in service industries.

The de-industrialisation of Australia is creating a cascade of problems: social and economic.

National Competition Policy, which is behind the deregulation of Australian industries, is killing small business and family farms, pushing more and more people into the underclass and forcing up the welfare bill. The government must replace NCP with industry policies.

The welfare crisis: The loss of industry has led to the situation where 29 per cent of men, aged 25-44 years, cannot find full-time work (see Men and Women Apart, by Dr Bob Birrell et al.). This has caused the social security and welfare bill to increase from 27 to 44 per cent of the Federal budget since 1987, rising one per cent annually. To get male breadwinners into full-time work, Australia needs new industry policies.

The population crisis: Dr Birrell's study also shows that the major cause of the decline in Australia's fertility since 1986 has been the decline in marriage among the underclass. If this continues, an even smaller next generation of workers will have to carry the social security burden of the retiring baby-boomers. To boost the marriage and fertility rate, this underclass of men need jobs; for that they need industry policy.

Defence, health and education budgets are increasingly squeezed because of the ever-growing social security and welfare burden on the Federal budget. To cut the welfare bill and widen the tax base, Australia needs to put more people into full-time jobs. To do this, we need new industry policies.

The foreign debt is almost $400 billion - that is, about 50 per cent of GDP. It keeps rising because we are buying more and more imports - goods we no longer produce ourselves - owing to the destruction of our industries. This has to change. We have to produce more ourselves and become less reliant on imports in order to solve the foreign debt crisis. To produce more ourselves, Australia needs industry policies.

Interest rates: In this election campaign, Prime Minister Howard is arguing that the election of a Labor government could see interest rates soar as they did under Paul Keating. But the major cause of any future interest rate rises will be the rising foreign debt. The higher the debt goes, the higher the interest rate we have to offer foreign lenders to attract "hot capital" into Australia, in order to have the foreign currency to keep paying interest on the foreign debt. Should the international financial markets lose confidence in lending to Australia, domestic interest rates will soar.

To keep interest rates low, Australia must dramatically lower its foreign debt by lifting exports and cutting imports. That means Australia needs new industry policies.

Family payments and tax cuts have been a major issue in the campaign. These are helpful to families, but they can never substitute for getting male breadwinners into full-time jobs. Nor do tax cuts help dairy, sugar and pork producers, the bulk of whom are on negative incomes. To get men into jobs and industries profitable again, Australia needs industry policies.

A national infrastructure program - to replace ageing roads, bridges, power plants, etc. - is needed to provide the infrastructure needed to build new industries.

A new development bank is needed to finance the building of new industries.


A new Development Bank

A new development bank is needed to mobilise Australia's massive superannuation savings pool in order to finance infrastructure and expand industries.

Development banks are commonplace in other developed countries. They lend to businesses that are not catered for by commercial banks, for infrastructure development, and even for socially desirable reasons, as in lending to first-home-buyers.

Commercial banks measure credit risks against assets to lend for about 10 years. Development banks lend for 20-30 years, or even longer, and repayments are geared to cash flows.

While financial market changes have led to a wide range of mortgage services, for some sectors like agriculture it has come at a price.

Farmers often pay interest rates that are significantly higher than advertised market rates. Many pay two per cent above commercial rates, simply because they are in the risky business of farming.

They can also face interest surcharges on all their credit lines if they fall behind in any one of their credit lines or mortgages. This can happen because farmers face highly variable cash flows, due to seasonal variations, fluctuating commodity prices, pests and diseases.

Then there are bank fees and charges. Financial counsellors report that it is not uncommon to find farmers paying effective interest rates of 13 per cent and higher.

Development banks can also provide long-term low-interest capital for government infrastructure development, spreading the cost of large infrastructure works - like highways, dams, irrigation projects, rail lines, port facilities, etc. - across the generations that benefit from such projects. The long spread of such financing, low interest rates and inflation reduce the debt burden on taxpayers.

Development banks also lend for:

  • New small and medium enterprises that may have good commercial prospects but only limited assets;

  • Rapidly expanding enterprises - commercial banks will only lend to them based on their assets, not on their future earnings potential; and

  • Low-income home-buyers who need long-term, low, fixed interest rates for family security and stability.

Only a government-backed development bank can provide this form of investment capital.

As it does not have to generate high profits to maximise returns for shareholders, profits can be used to build the bank's capital base.

Development banks operate best as statutory authorities, at arm's length from government, but accountable to parliament.

Capital can be raised from several sources:

  • It would cost the Federal Government (or Federal and State governments) up to about $100 million progressively over two to three years to provide seed capital to set up a development bank.

  • As a government-backed bank, a development bank would have a triple-A rating, allowing it to raise funds in the financial market at lower rates than commercial banks. Funds can potentially be raised from the huge $600 billion pool of superannuation funds, of which about $120 billion is currently invested offshore.

  • The Reserve Bank can issue low-interest capital for a development bank. As US Federal Reserve Chairman, Alan Greenspan, has explained: "Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

"That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit." (Central Banking and Global Finance, Chairman Alan Greenspan, January 14, 1997, University of Leuven.)

Establishing a new development bank is absolutely vital to providing jobs and industry for the next generation. Mobilising our massive superannuation savings is the one chance left to develop our economy before Australia slips to second-world status, alongside Brazil or Argentina.

Infrastructure geared to Asian markets

Australia has strong economic and security reasons to develop its future trade with our near neighbours in Asia.

The population of Asia is expected to grow from around 3.5 billion today to about 5 billion by 2050. Then the population of Asia will be 10 to 12 times that of the US, and will boast at least one superpower capable of near-matching the US.

Asia will grow at about 30 million people annually, which is about one-and-a-half times Australia's population per year. China's electricity industry is growing at one Australian electricity industry per year.

Australia is ideally suited to be an exporter of fresh foods, commodities and carefully targeted manufactures and technologies to this vast market. Fresh foods can receive premium prices because they would be exported in the counter season.

Australia also has the potential of becoming a bridgehead for Western companies into the region. Australia provides a stable political system; a transparent financial system and property transfer system; relatively low priced land; a tolerant culture; English as the national language; a highly educated workforce, with a wide ethnic base strongly linked to Asian nations; a reliable and advanced telecommunications system; a developed Western culture and very favourable climate and cuisine.

Developing our population and domestic market, and gearing our economy in part to the export markets into Asia, should frame future industry policy.

Such development should involve promoting our regional economies. Across much of the sparse regions of northern Australia, the population density is less than 0.03 people per square kilometre. Just as there is a long lead-time in planning and expanding the defence forces, so population settlement and regional development of such areas will take decades.

Developing Australia's resources

Australia has the potential to develop and export into Asia higher valued horticultural and dairy products, substantially replacing low-valued, "tyranny of distance" goods, such as grains, wool and dried foods.

Australia also has big mineral and energy supplies that are in growing demand in Asia. Two things are required: a fast and reliable transport delivery system capable of rapidly accessing markets and a better use of our largely untapped fresh water supplies.

Emeritus Professor Lance Endersbee, a leading world infrastructure expert, has outlined several major infrastructure projects, which deserve serious consideration. They are designed to reorient Australia to the fastest developing, most populous region of the world, where their huge markets are within seven days' shipping.


The Asian Express

Australia's existing rail and port system was built to service the sailing ships riding the southerly winds from west to the east coast of the continent. Technology has superseded the need to rely on wind-power, and can provide far more efficient transport systems.

A very fast Asian Express railway, to deliver fresh products in less than 24 hours from as far south as Melbourne to an expanded, automated port of Darwin, would open up the Murray-Darling Basin, Goulburn Valley, Murrumbidgee irrigation area, the Darling Downs and other potential East coast agricultural land for such export production.

Ultimately, a fast transport ring rail is needed around the continent to supply several such ports.

The shorter the time it takes to reach the supermarket shelves, the higher the product value. Fresh foods have a much higher shelf value than canned and dried product - tyranny-of-distance products. A fast rail system overcomes the tyranny of distance and allows farmers to shift to higher valued agricultural production rapidly to market.

Shifting to higher valued agriculture would increase the value of land of both existing and new agricultural land. It would also make it economic for many farmers to switch from flood-irrigation pastures to drip-irrigation for horticulture, and assist in overcoming a variety of environmental problems. The more profitable farmers become, the more they can address adverse environmental impacts of current land use.

The Asian Express would also provide rapid access to Asia for mineral and manufactured exports from the three eastern states and the Northern Territory.

A two-track Asian Express rail would cost about $10 billion - less than the interest Australia pays on its foreign borrowings in one year.

The rail should also be extended through to Perth and Adelaide. Estimates of the likely freight volumes on the various sectors of the route indicate that the entire connection would be economic.


Current irrigation infrastructure

Professor Endersbee has pointed out that most of Australia's major irrigation diversion works are over 50 years old. Some are 100 years old.

The diversion structures, canals and irrigated lands were designed as gravity-feed irrigation systems, and this has led to salinity problems in some low-lying areas. At the time of design and construction, there was little knowledge of the need for control of groundwater levels.

The old irrigation systems were designed according to market opportunities, technologies, equipment, energy resources and funds available at the time. The deficiencies in the old system now create additional costs, and have caused environmental problems.

Many of these environmental problems would be corrected if pumping and pressure pipelines were used to allow farmers to be become less dependent on gravity-irrigation systems.

Plastic piping is available today. It eliminates the need for canals and diversion channels to follow an exact grade, reduces leakage into the groundwater and losses due to weeds in channels.

If the irrigation works of the Murray-Darling Basin were redesigned using all our new knowledge and resources, the overall layout could be significantly different, and be substantially more productive.

Australia's untapped water supplies

"While Australia can rightly be described as the world's driest continent, it does not follow that the country is short of water. On a per capital basis, few countries in the world are so favourably endowed," The Macquarie World Atlas points out in relation to surface water.

In relation to groundwater resources, it says that much remains to be learned and "it is possible to provide only estimates of their size and characteristics..."

"No resource is of more importance to Australia than water," says the Atlas, "yet it is a resource about which we still have much to learn. Large areas are still not gauged and about half of the continent's estimated surface run-off comes from ungauged catchments. Given the large dependence on estimates, the figures are subject to a high degree or error, possibly by as much as 30 per cent in northern Australia..."

According to the World Resource Institute, Australia has 51,000 litres of available water per person per day. This is one of the highest levels in the world, after Russia and Iceland, and well ahead of countries such as the United States (24,000) and the United Kingdom (only 3,000 litres per capita per day).

Only five per cent of Australia's average annual run-off is harvested for use. Of this, we export much of it as food, including rice, wheat and sugar.

Much of Australia's agriculture is in the Murray-Darling Basin. It produces about 40 per cent of our agricultural production, from a river system that has an average flow of 22,700 gigalitres, or about six per cent of Australia's annual fresh water run-off. (One gigalitre is 1,000 Olympic-size swimming pools).

In contrast, 60 per cent of Australia's fresh water run-off is above the Tropic of Capricorn. Yet, north Queensland (excluding the super-wet belt) produces only about one per cent of the nation's agriculture, while having far more water available than the Murray-Darling Basin.

Consider the magnitude of the available water in northern Australia's river systems, against that of the Murray-Darling Basin (MDB):

  • The Murray Darling Basin (MDB): 22,700 gigalitres.

  • Queensland's north-east coast: 91,500 gigalitres - four times that of the MDB.

  • Gulf of Carpentaria: 130,500 gigalitres - 5.7 times the MDB.

  • The Timor Sea rivers: 81,200 gigalitre - 3.5 times the MDB.

Some of the northern rivers making up these massive flows could be tapped with diversions and some dams, without threatening their environmental flows.

Tapping northern fresh waters

Until recently, the primary focus of national and state water policy has been on how to take water from farmers for environmental flows and for city use. However, in June this year, the House of Representatives Standing Committee on Agriculture, Fisheries and Forestry report on water rights was the first time a Federal government body had recognised the enormous water resources available in Australia.

The committee called for a national water audit to assess Australia's water resources and for programs to investigate the development of irrigated agriculture in northern Australia.

Again, Emeritus Professor Lance Endersbee has pointed out that there are several potential dam and reservoir sites at high levels in the upper catchment of the Gulf of Carpentaria rivers. Storages at these levels could command a wide range of potential irrigation areas in the Gulf country, in the catchments of the rivers flowing into Lake Eyre, and further south in Queensland, possibly extending to the Murray-Darling Basin.

Water from the north could be piped south, most of the way in low-pressure pipes. The eastern part of the Australian continent tilts towards the centre, towards Lake Eyre. Hence, water in the north gravity-feeds south-west. This means that water can be gravity-fed down the back of Queensland, possibly even into the Murray-Darling Basin area, most of the way without pumping or the need for high-pressure pipes.


Along such a path, water from the north would come though western Queensland, where many towns depend on artesian waters, and where there are huge, deep, salt-free, black-soil plains. That region can grow a huge variety of crops.

Were both the northern waters to be tapped and a Melbourne-to-Darwin rail line constructed running up the back of Queensland, it would provide a huge incentive to develop these regions.

The potential for irrigation from Gulf rivers has been examined in the past and found to be uneconomic, primarily because of the high cost to market. But a fast rail system would change the economics of farming, and make the use of this water economic.

  • Pat Byrne

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