Can manufacturing seize its opening?

Suddenly there’s a little momentum behind the notion that to save manufacturing, Australia needs to manage its boom better. From the SMH today:

The wave of job cuts in the steel industry, blamed on the high dollar, has reignited calls for a sovereign wealth fund to rein in the exchange rate.

After BlueScope Steel yesterday said it would shed about 1000 jobs, on top of 400 foreshadowed by OneSteel last week, a national fund to save more from the mining boom received backing from the Greens, the Australian Industry Group and prominent HSBC economist Paul Bloxham.

A sovereign wealth fund is a savings pool used by commodity-rich countries such as Norway to invest the windfall of a resources boom or to soften the blow from a sudden fall in commodity prices.

Mr Bloxham, a former Reserve Bank economist, said a sovereign fund would probably require higher taxation of mining.

”If you held that [extra revenue] in a sovereign fund, you would be slowing the pace of structural change in the economy and potentially put downward pressure on the exchange rate,” Mr Bloxham said.

”We are well into this mining investment boom now. What would have helped is if we had had a larger mining tax – it would have discouraged some of this investment from happening so rapidly,” he said. ”We could probably all do with a little less structural economic change.”

The chief executive of Ai Group, Heather Ridout, said Norway had been able to offset some of the pain of a high exchange rate by investing its fund’s assets overseas.

”We need a longer-term strategy to deal with the dollar and its impacts,” Mrs Ridout said.

”This needs to be articulated and advocated and may include the establishment of a sovereign wealth fund that stabilises the economy without the need for interest-rate rises when surges in commodity prices create the risk of overheating,” the industry leader said.

The Greens leader, Bob Brown, said he would propose a sovereign fund financed by a higher mining tax at the government’s tax summit in October.

A sovereign wealth fund has been supported by Commonwealth Bank chief executive Ralph Norris, Liberal frontbencher Malcolm Turnbull and the International Monetary Fund.

Yes, and me, pretty much alone, ever since rumours of the RSPT first surfaced. Not that that matters now. What does matter is that manufacturing, through its lobby, the Australian Industry Group (AIG), needs to seize this moment with the launch of a thoroughly planned and intensely unfair mutli-media assault on mining and the government, and the damage that the two together are doing to the broader economy.

This campaign needs to be ceaseless and relentless and must cause a moral panic throughout the manufacturing union’s grass roots membership, as well as the members of affiliated tradable goods sectors in education and tourism. Freaking the general public out is also very useful.

The core message must be that mining is going to cost everyone in these sectors their jobs. But several other key narratives will stoke the necessary outrage:

  • Over-dependence on the communist state of China
  • The fact the RBA has declared that 80% of Australian mines are foreign owned
  • An unrestrained mining boom threatens house prices
  • An unhealthily close relationship between Canberra and miners is a fourth

The campaign should have pre-planned and commissioned economic research to control the editorial agenda of the major papers. This can be drip fed as required. The campaign must also raise a special advertising budget and begin a coast-to-coast media assault upon the government. CEOs of as many major operations in the three sectors as possible should begin making bold public comments about impending job losses and sing from the same hymn sheet – that mining and its lackies in government are going to cost much larger employers many, many jobs. The AIG will need to establish a special task force to coordinate all of these media operations.

All of these voices must propose the same simple solution. A new tax on mining and an SWF to take the pressure off the currency. This can be argued within a broader macroeconomic narrative of “managing the boom”.

The goal of all of this is to get a new mining tax on the agenda before the October tax summit. It’s no good going into that summit with some genteel notion of discussing ideas. The summit must become a live or die event for the government in which they address the “manufacturing crisis” or face death at the subsequent poll. The summit must be the event at which a new mining tax is announced, based on Saul Eslake’s simple idea of calibrating the mining corporate tax rate against some notion of value:

Surely a better and simpler way of procuring for the Australian people as a whole a larger share of the value created by the exploitation of the finite resources of which they are the ultimate owners would be for the federal government to legislate that, for as long as the prices of prescribed minerals are above some level (such as their average in 2004-05), the tax rate paid by mining companies will be, say, 33 per cent…

That’s how to get policy change in this country.

Houses and Holes
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Comments

  1. Given the limp lobby effort to date H&H, what chance do you think they have of doing this successfully.

    It seems the unions are the key, as today’s $30m announcement demonstrates.

  2. launch of a thoroughly planned and intensely unfair mutli-media assault on mining

    Hey, that was my idea! I’ve been running a one man campaign against mining at MB (and other blogs) for months now.

    This campaign needs to be ceaseless and relentless and must cause a moral panic … Freaking the general public out is also very useful.

    Excellent. When do we start? I can help with some anti-mining slogans 🙂

    The Greens leader, Bob Brown, said he would propose a sovereign fund financed by a higher mining tax at the government’s tax summit in October.

    Everyone bangs on about the Greens supposedly nutty economic policies, but I don’t see any other major political party proposing such eminently sensible ideas.

    Cue Fanboy…

    • Lorax

      In regards to the destruction of the resources sector you are experiencing a little premature evisceration.

      Something along the lines of which I am sure you are familiar…

      Contain your excitement please, you’ll suffer anticipation fatigue. Because you will be waiting a long time for the fantasies you entertain to become a reality.

      • I don’t believe H&H suggests we destroy the resources sector (which is plainly impossible ATM) rather we should demonise it and force it to share some of its wealth.

        Look, the miners played hard ball with the mining tax, so I reckon the AIG can (and should) play hard ball against the miners. They’ve been far too nice until now, its time for non-mining Australia to push back.

        • The miners did what any other industry would do when threatened with an opportunistic and unfair tax. Any other industry concerned for its own survival and shareholder interests would do the same.

          It is not a question of AIG v Miners at all and to make it such is to trivialise the important issues at stake – primarily the continued viability of a sector long neglected and subject to the harsh realities of globalisation. Nothing to do with the miners.

          The miners did not float the exchange rate, miners too are affected by the higher dollar, much of the country has benefited greatly from globalisation but now debate needs to take place as to a long term future when economic conditions deteriorate. Not the fault of miners, simply a by-product, if you like, of the system we operate in.

          Vilification of any sector of the Australian economy is abhorrent – juvenile and mean-spirited. It embarrasses me to see us in this country behaving like spoilt Tea Partiers.

          We do ourselves a disservice.

        • “Vilification of any sector of the Australian economy is abhorrent – juvenile and mean-spirited. It embarrasses me to see us in this country behaving like spoilt Tea Partiers.”
          .
          Oh..Really?? Lets go looking for some choice Twiggy and Gina quotes and see if they sound like teatards, shall we?

          • Gina has very particular views. Twiggy is a great bloke.

            There are more than two mining entities in this nation!

    • Just the treatment the patient needs.
      What was the joke….
      Take away the pain but leave the swelling.

  3. Jumping Jack Flash

    Don’t worry Wayne’s on the case!
    How can our boom be spent overseas, It’s unaustralian!

    We’ll see some new laws forcing mining companies to buy expensive local steel from inefficient and bloated companies. Or better yet a government subsidy or cashback every time they buy some. It’s the Australian way.

    • Saul Eslake pretty much shot these tactics down on Sky this afternoon.

      Hopefully he has a role to play with respect to the tax summit.

        • That is how the global economy has functioned for the past 4-5 years…throwing good money after bad.

          Anything that doesnt allow for Creative Destruction is this

  4. All I can say it’s a bit late to be discovering you’ve screwed the manufacturing sector. I wonder if Bob has ever thought of the carbon footprint or whatever they cal it now if we have to import everything. Who can remember Swan saying a high AUD was good for the country (well only taking his wife to LA for a shopping trip crossed his mind). Ask any professor at any Australia Uni how many of their students get a manufacturing job as well (there are so many issue related to this that are not given a second thought by politicians).

    It’s only now when they see the prospect of 100K or more loosing jobs in the sector that anything is done. If it was a slow bleed they’d not care at all as there are no votes in it.

    Many are quick to can mining, and I don’t say everything they do is right, but don’t lump them all in together as they are not all BHP/Rio/etc. When miners go offshore usually there are a dozen people here and the rest are local hires so we as a country loose. The fact that mining can’t be managed is the tragedy. There must be a way rather than it’s all too hard.

    Tony, Bob, and Julia, are all nutters so the chances of us getting a good result are slim, and rather than fix the problem they’ll throw money at it that we the public will have to pay back.

    Sorry for the rant, but I’ve been writing to Labour for a year warning of this and asking for their policies. I don’t have the answers here, but some humility and the ability to liaise would help all the parties do justice to the country.

    • losing and lose. Sorry, I’m a spelling Nazi.

      Pretty sure Bob [Brown] has been supportive of Australian manufacturing through a higher mining tax and SWF for several years now. But they’re Greens, so they’re Communists by definition and never have anything sensible to contribute.

      Malcolm T. has been a big supporter of a SWF as well. Not sure where he stands on mining taxes, but if we freed from towing the Abbott line I’m sure he’d have something sensible to say.

      • You can’t say the N word these days 🙂

        Lindsay Tanner did reply to me, but it was double speak, and he never sent me the policies after many emails, and then he quit.

        On Bob he may have supported manufacturing, but I’m sure they all say that, but saying it and having the ability to deliver …

        I’ve lost faith in these guys, but I’d be stoked if they did something sensible.

        • Dumb_Non_Economist

          Lorax,

          Couldn’t help but laugh at you losing faith, you must be pretty young to have only just lost that!

          It’s a shame that most of the people attracted to politics are just the sort who shouldn’t be there in the first place. The political party in Gov at the time should utilize some of the bloggers here for any industry portfolios.

    • Yeah, must agree with you, Adrian. Watching Oz from outside (I’m in the US) it’s been tragic to watch unfailing jingoism that has met the rise of the AUD. Every “Dollar Dazzler” headline and politician head nod reinforced the idea that the good ship Australia was sailing blissfully into trouble.

      I’m pretty far left when it comes to most things, but a delayed knee-jerk into the mining sector’s groin seems ill-thought out. It almost craves a more subtle two-pronged approach – mitigate the situation for now, lay down policy for the future.

      Or there’s H&H’s take, which will be the approach taken, let’s be honest.

        • Oh, don’t misunderstand me. I don’t think the miners are paying anywhere near enough. My concern lies in the astuteness and comprehensiveness of a solution – an understanding that you can’t suddenly make everything better, that you can’t suddenly paper over your previous policy errors, that making one sector bear the brunt of political weakness serves no one good in the long run. I’d be happy to see the miners slugged monumentally, but simply doing it will achieve little. A comprehensive approach to the problem is needed.

          • I agree. The miners are not unreasonable. But the expectations are headed in that direction.

  5. If they want to help manufacturing then a mining tax should be used as a transfer payment to the slow speed economy (which I’m presuming is what Saul Eslake had in mind).

    …and again no mention from these advocates that Norway et al have current account surplus, i.e. sovereign wealth, and we don’t. A SWF is the craziest frakkin thing I’ve heard.

  6. AIG are way too weak to mount a serious battle. I doubt they will seize this moment. Same goes for the rest of them. It’s sadly all over. Happy to be proven wrong but I have little hope.

  7. H&H you disappoint. I did not expect you to descend to this level.

    Why the desire to drive a wedge in the Australian community at this time? Why the need vilification of a single sector of the Australian economy?

    Yesterday you said you largely agreed with my thoughts on the decline of manufacturing in this country.

    – A decline that has taken place over decades, with and without a resources boom.

    – A decline overseen by politicians on both sides of the fence, by educationists, some business leaders and most importantly the unions themselves. Just where was Doug Cameron, former head of the Australian Manufacturing Workers Union, over all those years – and he now has the temerity to demand the resources sector support the manufacturing sector. You often call to account journalists when they adequately investigate issues – well there’s one right there for you.

    – Where were all the cries for greater contribution from the banks, the big 4 – who have reaped enormous profits over the past years and what is more, these profits are derived from Australian businesses and Australian households (extracted from fellow Austalians) – at least the resources companies aren’t ripping off Australian businesses and households, but gaining profits from foreign (largely Chinese) sources.

    – Resources companies are legally operating businesses adhering to all Australian laws and corporate legislation, paying royalties to State governments, fees, payroll taxes, land taxes, Federal taxes – all legally due imposts and soon, an additional tax. A tax that applies to no other sector. And still, there is a desire to force these legally operating businesses to contribute more, and more, and more. When does it end.

    – There does arise the issue of sovereign risk of the kind normally associated with some despotic African dictatorship. These companies have invested large amounts into operations under an agreed framework, only to have that framework altered at will for political gain. This should not be a desired path for a modern democratic country that respects the rule of law and more importantly, the concept of fair play. This is un-Australian, or have we descended to that level?

    – Why is there no debate as to the fairness or otherwise of the expectation that one sector of an open modern economy is expected to contributed far in excess of any other sector, as a means of supporting a section of the said economy that is failing – not due to the practices of the sector required to unfairly and excessively contribute, but due to consecutive decades of mismanagement and neglect. Is this even the correct way of looking at the issue. I would suggest not.

    Finally, FWIW, I have supported the concept of a SWF via the proceeds of the MRRT. However, my understanding now is that is is not possible for run a SWF whilst in deficit in any case, will this be resolved?

    The record of the current government in structure and drafting of legislation does not fill one with optimism. Who would draft the required SWF legislation. Who would be consulted? How long will the process take? Will all proceeds of the MRRT accrue to a SWF? Will the SWF be free from political manipulation and invested for generational benefit only?

    Does anyone, and I mean anyone, trust the Brown/Gillard government to get such a potentially important Act drafted to a level of excellence, delivered to Parliament and passed with Bipartisan support and enacted into legislation. Really. This government driven solely by self-preservation (look no further than Dobell).

    Back to the beginning. H&H – I really thought you a more measured thinker and did not ever take you for a jingoistic sloganeer. I do hope to be proven wrong.

    • Au Contraire Fanboy. He’s finally seen the light!

      The wedge is already being driven between the winners and losers from the mining boom. You haven’t noticed (or don’t care) because you’re on the winning side, but believe me, people on the losing side are angry and getting angrier.

      This is all about closing the wedge not making it deeper. We asked the miners nicely if they’d share some wealth and we got millions thrown at an anti-mining tax campaign. So we’re not going to ask nicely this time.

      The miners played hardball against the mining tax. Now its time for manufacturers to play hardball against the miners. Their very survival is on the line, so expect it to get nasty.

      Ian Verrender put it well today…

      Were you among the multitudes who cheered last year when the mining industry managed to hobble Ken Henry’s proposal for a comprehensive resources rent tax?

      Did you begin to feel a strange sense of unease when, just a few weeks later, those same mining groups delivered earnings results that would have been unimaginable a couple of years earlier?

      You Greedy Bastards. You reap what you sow.

        • +1

          Whats funny is the cheering for foreign firms (Rio-UK, Xstrata-Swiss etc) stripping the land, selling and taking the profits elsewhere leaving a tuppence (Royalties).

          Who is cheering? The peasant soil tiller.

      • Lorax, I’m not a Greedy Bastard, I assure you.

        You just don’t get it – I despair is this this degenerates into a Manufacturers v Miners debate. Because it does not truthfully and practically address the issues. It is simplistic in the extreme. Whilst it’s a given I expect more from H&H, to be honest, I even expected a more sophisticated argument from you! The real issues, not corny Jerry Springer level mentality. Please.

        Step back from your rhetoric and tell me your version of the manufacturing decline in this country over the past 20 years or so, with or without a resources boom.

        Your words, not a cut and paste.

          • You are just as binary as he is…

            Manufacturing good. Mining evil.

            I live in a black and white universe. I’m a Dr Suess character after all…

            I am the Lorax! I speak for the trees,
            Which you seem to be chopping as fast as you please;
            But I also speak for the brown Barbaloots,
            Who frolicked and played in their Barbaloot suits,
            Happily eating Truffula fruits.
            Now, since you’ve chopped the trees to the ground
            There’s not enough Truffula fruit to go ’round!
            And my poor Barbaloots are all feeling the crummies
            Because they have gas, and no food, in their tummies.

          • Fanboy,

            This is all about maintaining a diversified economy.

            Previous tactics haven’t worked — the miners successfully changed government policy through a fear campaign — so new tactics are required. Those tactics will be simplistic, unfair, and unbalanced. They will play on people’s fears, and they will unfairly demonise the resources sector. But that’s what the miners did to us. You reap what you sow, and its high time you acknowledged that.

            This debate will become highly emotional, because in the slow lane of the two speed economy people’s lives are being turned upside down. Its certainly created plenty of upheaval in my life, and my former employees’ lives. You cannot expect us to just sit back and take it, and meekly shuffle off to Centrelink for a handout. We all had viable livelihoods with the dollar at 70-80c. Now we don’t. Now we don’t know if we’ll ever work again.

            How about you spend some time in a manufacturing belt, or a Queensland tourist region before telling us we shouldn’t running overly simplistic fear campaigns against the resources sector.

            Again, I don’t begrudge the mining sector’s success, but I do resent the fact that mining’s success has denied others the ability to earn a living especially when the miners have campaigned so strongly to minimise their contribution to society.

          • Nope. I operate in Western Australia and our interests are primarily Pilbara based. A wonderful region, a glorious industry.

            I think an effective campaign of truth and education can counter your concerns with the broader public.

            All cool.

          • I think an effective campaign of truth and education can counter your concerns with the broader public.

            From who? The mining sector?

            I’m sorry mate, we’re way past that. You played dirty — people are losing jobs — expect some of your own medicine.

            All this is to you is whether your (presumably) booming business gets slowed a tad. Honestly I don’t know why you’re so concerned. For us in the slow lane its a much bigger deal, and emotions are reaching boiling point.

            A bit of sympathy for our plight might be nice for a change.

          • Lorax.

            People are not losing jobs because of the mining sector. Find another way to solve your problems!

            Perhaps you could busk in the mall.

          • Strength in the resources sector is a good thing. High AUD difficult to manage with adverse impact in some sectors. End of endless retail spend and continuous house price growth, more troubling overall – deflationary mindset.

    • Dumb_Non_Economist

      FanBoy,

      No offence, but what a load of crap. Operating according to the law, EVERY company that is legit except organised crime operate according to the LAW, even most brothels!

      Mining does what the majority of most industries don’t do, it takes a non renewable resource and exploits it making huge profits, for which, in my opinion royalties are not nearly sufficient payment. I know that not all miners are in this position and I can’t for the life of me see why a resources tax cannot take this into account, but the likes of RIO/BHP/Woodside etc and the QLD coal miners should be paying a hell of a lot more for the privilege.

      • You are in danger of living down to your moniker!

        Miners takes a non renewable resource, and have done so in this country since the goldrush, sold to other entities that transform that resource into EVERYTHING in the modern world.

        You would not even be sitting at a computer, driving a car, flying in an aeroplane, watching a television, having a latte at the coffee house, giving your beloved a diamond ring, your wife a gold ring, your teeth a filling, enjoying the use of any manufactured product – if not for resources. This is reality.

        To ignore it is imbecilic.

        Oil, copper, uranium, iron ore, gas, aluminium, silver, diamonds, bauxite, magnesium – think Periodic Table for a few more.

        We need resources. If you don’t think Royalties are sufficient lobby your State member. Cos it’s hard to change the Constitution.

        And just what woodwork have all you non mining types crawled out of. Australia has operated under the present system since Federation…

        … and now you have a problem. FFS.

        Rejoice that we have this particular natural comparative advantage at this time – the global market wants nothing else we produce – apart from our natural resources, mineral and agricultural.

        • So your argument is “well it [the royalty system] has been in place for 100 years, we might as well not change it”?

        • Dumb_Non_Economist

          FanBoy,

          You’re certainly living up to yours!

          By the way, you left out timber, though I’m pretty sure it’s not on your table, periodic table, that is!

          Where have I said I’m anti mining, I just don’t think that the level of royalties reflect the price and huge profits of most minerals, even if there had been no impact on manufacturing I would still argue for a resource tax. I haven’t just “come out of the woodwork” recently, but since the boom started its been my view that iron-ore and coal are under taxed.

          I would suggest that supporting a resource tax via any forum is in effect “lobbying your state member”.

          I don’t believe anyone here who supports a tax has ignored the importance of mining to our economy. No one’s arguing about taxing it out of existence, just a far better return than the country gets now.

          • A resource tax has been negotiated – the MRRT.

            Is it the commodity itself or the profits or both you consider under-taxed.

            Do you think that paying royalties, corporate taxes on profits and MRRT on ‘super profits’ insufficient. If so, why?

          • Dumb_Non_Economist

            Fanboy,

            The commodity itself, but from what I’ve read in the MSM it would appear that BHP/RIO etc are going to be little affected by the MRRT which is why I thought FMG and other smaller miners were up in arms about the deal.

            I’m all for them making bigger profits, but just that the royalties should be on a sliding scale; the higher the price the higher the royalty.

            Some Geologists I know have laughed at the exploration arguments given (costs of and risk) with regards to the Pilbara and NSW/QLD coal fields. They basically stated that location of ore bodies is well known, just a matter to determine mine sit location etc. Not referring to offshore. If you go back to the early 60s the miners were up for ALL the local infrastructure, built, serviced and maintained the towns etc. They have none of those costs now and margins are ten fold what they were when it all started and nowhere near the same level of risk either.

            Call it a super profits tax/resource tax or whatever, the grossly high margin miners should be paying more. Employee pay etc will do nothing for this country in 100 yrs and I’d add I wouldn’t want the pollies getting their hands on it for electoral bribes either.

            Miners have cried wolf over taxes all too often.

            AS to your and others comments about manufactoring, I’ll give you my dumb_non_economist view; we are stuffed! We cannot compete on any grounds. Whatever it is it will be possible to do in China at far lower wage rates and higher margins for the manufacturer. Metal Fab is just a small example, see where Mono’s and Thiess do their fab;China and ship it down and large slabs of CAD as well and in a decade the design work will follow (Bechtel, KRB etc).

            Will the last person leaving the workshop turn out the lights, no need, the brownouts coming!

          • “from what I’ve read in the MSM it would appear that BHP/RIO etc are going to be little affected by the MRRT which is why I thought FMG and other smaller miners were up in arms about the deal.”

            Yep, gillard and co got played. What did they expect when they came up against the best in the business. That’s comedy gold.

            ” the royalties should be on a sliding scale” They are, the government gets paid a percentage of the recovered mineral.

            ” They have none of those costs now and margins are ten fold what they were when it all started” I suppose flying people in and out to camps that they run, maintain and service is free? Margins might be ten fold, but the dollar is worth a hell of a lot less than in the 60’s.

            We’d be more likely to compete if we had a weaker dollar.

          • Dumb_Non_Economist

            juk,

            Maybe my understanding is incorrect, I thought royalties were based on a % rate per ton. Whereas I’d argue that as the miners margins increase so does the %. I believe RIO/BHP have a cost base of approx $40 per ton and the last spot price I saw was somewhere around $120 and no change in royalty from 40-120.

            As to the cost of FIFO, you couldn’t get it cheaper, that’s why they’re flying around in 20-25 yr old turbo-props and the jets have around 50,000 hrs flt time up with the crew getting paid less than half what a ditch digger would get! The camps are transportable huts, I don’t think those costs equate to the cost of establishing Tom Price, Paraburdoo, Pannawonica, Newman, Wickham, Shay Gap (when it was running), South Hedland etc, etc. Roads, schools, real houses, power, water, medical centres and so on. Other than wages miners haven’t had it so good. Mind you I wish my old man was still around to find out what he was earning compared to av weekly earnings when he worked for Goldsworthy in the early 70s. I know it was good money, shame it ended up at the track!!

            As to competing with a lower $, maybe we could, but unfortunately unless something drastic happens it will be just a slower death!

    • Despotic African dictatorship ? Un-Australian ?

      That’s quite some nice sloganeering yourself ; )

      When does it end ? Well, it ends for Australia when all of that stuff is finally dug up out of the ground, majority of profits repatriated offshore, jobs and small towns/cities obliterated, and not so much as a measly SWF to show for so much wealth. Future generations will (hopefully) marvel at our gullibility.

      When strength in one sector of the economy so patently distorts the rest of the economy, when that sector is reliant for its profits on a finite resource, then it is arguably perfectly fair that sector should be required to contribute in excess of other sectors. Who said life was supposed to be fair anyway?

      • Mav – I actually think you’re pretty clued.

        Do you not see – it is not a question of the resources sector – but how to negotiate our way through the web of globalisation when all factors are not in our favor. Not manufacturing v resources – where were all these concerned individuals and organisations in recent times. I can assure you, I have argued manufacturing’s case for 20 years. That is how long is has been largely discounted and disregarded.

        But refuse to set one sector against another. This is one country.

        We cannot just change the goalposts!

          • If you had invested a large amount of your personal assets in a completely valid scheme or jurisdiction – and then opportunistic types changed the rules and jeopardised your investment, indeed confiscated partial profit – you’d just say “TAKE IT”.

            Really?

        • Mate, we ARE already on that slippery slope – where considered and rational debate gave way to shrill campaigns – where the one with the biggest ad budget won. Heck, they even managed to roll a duly elected prime minister, before night turned into day.
          .
          Mind you, I really dont know who put us on that slippery slope – some say it was the ACTU ad campaign against WorkChoices. But then, ACTU is almost a proxy for the ALP and represents a far greater number of people (workers) than the Mineral Council ever will. Has the Minerals Council become a proxy for the Liberal party or its voters?
          .
          And it isn’t about setting one sector against the other – it is about setting a value adding sector against the non-value adding one. But if anyone tried explaining the concept of value add to an ordinary voter, their eyes would glaze over. So the theatrics are merely a delivery medium to get the message across.

          • Mav

            Lose the dogma, it means nothing.

            Gillard and supporters rolled an elected leader. Good Grief, they’re maintaining support to one who appears to enjoy a good time at membership expense and then is spared the trouble of bankruptcy via the support of the union membership.

            You kid me.

            Mav, please, tell me…do you really think it is a question of manufacturing v resources.

            After 20 years or more of neglect to the manufacturing sector! Not even a resources boom to blame.

          • Where the F is the dogma in my post??
            .
            If you mean the PM rolling part – that was just for effect.

    • WTF, Fanboy. You carry on like mining is some delicate flower that needs protecting from big, bad H&H.

      Your conception of power relations is ridiculous.

      I have no faith whatsoever that any of this will be carried through. But I can promise you the following:

      – if it was, it has a good chance of working
      – notice my proposed end result is a mining tax and SWF, NOT the current bailouts that the bloody useless AIG have secured. These are national interest outcomes and if it means a few miners get upset, so what?
      – there is ZERO chance of this policy outcome without an AIG-like group taking an approach such as this because mining has already used the same campaign tactics to kill the policy
      – what do you want me to do? Hang up my spurs like Heather Ridout and co? Buy a hard hat and wait for China to crash?

      Sorry, no sale.

        • I suspect we want the same results but via very difference solutions.

          Oh really? Please do tell.

          • Viable manufacturing sector and diversified economy – in my view not the financial responsibility of resources, particularly after decades of neglect, and additionally under the current globalisation model in which we operate – at the end of the day, at some point, there is always going to be a cheaper producer

            unless it gets to the stage that it is

            and this is all under the auspices of a government that is enacting legislation to introduce a carbon tax which is most definitely a further cost impost on a an already challenged manufacturing sector.

            witness the ludicrous proposal of reimbursing Bluescope utilising funds set aside to compensate for carbon tax impact, which Warwick McKibbin advises will result in job losses.

            who really cares about manufacturing, or a diverse base, or anything apart from the next election?

          • The idea that the carbon tax will have anything like the impact of the rising dollar on non-mining trade exposed sectors is so absurd, so completely out of touch with reality, that I really have to question the validity of anything you say.

            Bluescope is clearly being compensated out of consolidated revenue because the carbon tax (obviously) hasn’t raised one cent in revenue. Gillard and Swan can call it what they want.

            The point is of course, Bluescope (and others) will at least be compensated — indeed overcompensated — for the carbon tax. There is no plan to compensate trade-exposed sectors for the much, much larger impact of the rising dollar.

          • No – compensated via the carbon tax assistance package $300m set aside for the steel industry, as far as I am aware.

          • Lorax,

            How do you acknowledge that the exchange rate is the problem, but the solution is to tax an industry that is subject to the same problem, where this won’t even fix the problem, just subsidise some of the symptoms?

            You’re clearly not looking for a solution, you’re looking to penalise. Tall poppy anyone?

      • H&H, it would be worthwhile sending this blog and all the comments to AIG, if u haven’t already, some great material to kick start the campaign.

    • The big problem is that the royalty deals are so badly structured. They should have been structured so that if prices go up, so should the royalties in a non-liner rate so that the larger of the benefits go to the Australian people and not the 80% of foreigners that own the big miners.

      I agree that they should also go after the big banks as well. Why can’t we have a progressive tax for businesses just as we have of individuals so that the big profit centres can help out the rest of the businesses that can then be taxed less?

      • WA is gradually modifying royalty intake. We should remember that until recently no-one really paid any attention to the resources sector – I have been in it for twenty years and well know that it simply keeps kicking along, sometimes boom sometimes not, but always a terrific industry.

        Don’t make it now carry the can for all past neglect of other sectors!

      • The royalty was set up so that the government got paid before anyone else. It was set up in a time where mining was uncertain. That hasn’t changed for most of the industry. The government should sleep in the bed they made.

        • You’re right, screw everyone and anyone not working in the mining sector. They should all be out in their backyards digging holes anyway to find the next deposit right?

  8. You guys are crazy.

    Mining is the problem hey? A successful business should be robbed to pay for the unsuccessful ones? And why? Because the exchange rate it too high? Surely we should just fix the exchange rate, no? Have you guys heard of the carry trade?

    We should change our interbank offer rate to near zero, pop a tax of 4% on loans so our banks could still charge 6% plus plus for a home loan, but where the government gets the 4%. That would therefore abolish the carry trade into australia, unless the plan was to actually invest the money in a business, which would actually benefit the country. That would smash our exchange rate over night, fix our export businesses and manufacturing sector and help the mining business as well and then we’d all be rich without the internationals taking all our money through the misinvestment we’ve partaken of so gratuitously into the housing sector. It would also allow for the thoroughly incompetent government to be thoroughly incompetent, who currently preside over the hill of stupidity.

    The greens having a good economic policy. Best joke i’ve heard all year.

      • Which is not about manufacturers v resources. It is about a fundamental rethink on the issue of a globalised market place when conditions are not to your benefit.

        The real debate. But tricky, because we’re all free trade and floating exchange….or are we?

        You tell me.

        • And what conclusion does a fundamental rethink of Australia’s advantages in a global market place lead one to ? It’s not a pretty picture, and the kind of structural adjustments necessary for us won’t come from a robust political debate, they will only come from change forced upon us in a way that makes us all question whether our notions of democracy can really co-exist in economies competing with anti-democratic global superpowers. The debate you’re alluding to ain’t gonna happen. It never does, never has. But arguing against mining companies paying additional tax on historically extraordinary profits on the basis of fairness – what planet are you living on ?

          • The very planet where in recent years the banks have achieved extraordinary profits… at the expense of all Australians.

          • And not a word in the wilderness despairing for manufacturing…

            Yep – they are all there now. Well, I tell you, I have been there for ten years at least – never heard from one of you newbies.

          • Ok, so let’s toss around some ideas about reigning in the global financial sector some other time. In the meantime, can mining companies not contribute a bit more to the adjustments required within our economy as is stands right now ? All those big adjustments we’re gonna need to make after our fundamental rethink of our place in the world. Whether politicians are capable or not of managing this process is another discussion altogether.

            Only just discovered this site so like most other newbies can’t be blamed for not weighing in before now. This “debate” is not unique to macrobusiness – it has been playing out at pubs and dinner tables and BBQs and letters to Parliamentarians for decades.

          • OK Ponz, lets not focus on fixing the problem, lets get back to blaming the mining industry for something they didn’t do and forcing them to disproportionately pay more than everyone else.

            Lets not worry about the other countries with the same problem who don’t have a significant mining industry, that would make it hard to blame the miners.

          • No-one is blaming miners. No-one is suggesting we don’t attempt to fix our underlying structural issues. The question is how we get there – the hard way, or the really hard way. As for whether you think that additional profits from mining should be compelled to play its part in the solution or not I guess is similar to whether you live in Germany or Greece right now. As for whether either creed of politics has a viable solution (or even a desire) to address our structural issues is another matter. As for whether this is inconsistent or unfair, that’s for history to decide.

      • So we preserve a diversified economy by removing the international parasites sucking a interest rate differential out of borrowed money. That’s our money being siphoned overseas. And you don’t care, you’d rather cripple the only business holding up our house of cards.

      • You still think it’s a domestic problem and you think that what we have is capitalism and that more unequal taxation will fix capitalism. I return to my original thesis, you’re all crazy; or you like to reassign the meanings of words to your liking.

      • I think that is a bit unfair.
        .
        IMHO, Capitalist rent-seekers are co-opting libertarians in their fight against government regulation. When I say regulation, I am referring to very basic stuff like property rights etc. i.e. Rule of the law.
        .
        i.e. Libertarians are a bunch of useful idiots to capitalist rent-seekers.

  9. The meme that mining is Australia’s golden goose, and that to harm a single feather on it’s plump body is to destroy the economy and throw everybody out of work, is so deeply entrenched in the phyche of the electorate that H&H’s suggestions have been outright political impossibilities up until this point.

    But if the non-mining unions and the AIG can throw their (considerable) collective weight behind a determined campaign, the impossible might just become possible.

    Can anyone think of any alternative way of preventing the eventual gutting of industries that employ far more Australians than mining does, other than resorting to old-fashioned protectionism through tarrifs etc?

    • We could restrict the parasite that is banking and finance. We’ve let the bankers go mad, much like the US and we’ll pay for it one way or another. It needs to be reduced to the service industry that it is. Then we could have more people in the productive part of the economy and hence be more productive.

    • Lefty, please. It is not about resources. The eventual landing place of globalisation policies are in the realms of ‘natural comparative advantage’ and those that fall outside of the narrow define, fall – collapse. Get it.

      Not resources at all. Ideology. Or timing. Or, whatever, but there is no need in Australia to vilify any sector. Policy, ideology maybe. But not fellow travellers.

      • That’s why I asked about possible alternatives. Nobody – well, not me at least – wants to kill off mining. Not that a MMRT would do that. All that’s needed is to bring down the overpriced $AUSD that is damaging the broader economy.

        H&H (or anyone) – do you think clamping down on the carry trade is a workable alternative?

  10. I have read this blog for about a month now and thought how reasoned and polite it always was even when there was a disagreement. Its quality was so much higher than others i have followed.

    How different is the reaction to this subject.

    I understand that Bluescope has been loosing money on exports in all but 2 of the last 15 years. So its not just a strong $A.

    Many people before the strong $ were holidaying overseas because it was cheaper and the quality/service was generally better than in Australia. Maybe Tourism could offer better quality experiences at cheaper prices?

    Before the strong A$, overseas education authorities in markets that would compete with Australia were improving their offering to prosepective students. We sat still and made the numbers on the basis of offering visas for lucky students. Maybe Education authorities could offer better education at lower prices?

    We know the reasons why retail is having problems and its not the internet.

    General manufacturing in Australia is dying. There is no way we can compete price wise with Asia.

    It has been government policy, starting with Labor and followed by the coalition and still supported by Labor today to have an open economy. This is what happens when you have a globally open economy, your weak industries disappear overseas.

    To counter that we are supposed to move upmarket into higher quality manfacturing and services. What has the government done to foster this, except talk …both sides?

    Without moving upmarket the only way to protect industry is to put up import barriers.

    To drive down the A$ do what the Brazilians have done, introduce taxes on hot money inflows into the A$.

    To try and weaken our currently only strong industry it is not wise and won’t help the weak ones. It might make the weak ones’ supporters feel better to see the strong being hit with taxes but it will help no one.

    In addition remember the Australian constituion. The minerals are the property of the states not of all Australia. The current MRRT will be challenged in the high court and might be thrown out…I am not a lawyer.

    Its great to see this discussion about whether manufacturing on a large scale can continue in Australia. We need a better discussion and specific recommendations not vague phrases and policies ‘signifying nothing’.

    I wish ths site had a spell check!

  11. Looking at the discussion here it’s shows the depth of feeling of an unbalanced economy. This unbalanced situation has developed over many years and it needs to be fixed at whatever cost IMO.

    We have an elected government, and they have an RBA and Treasury which are responsible for fiscal and monetary matters so what’s it going to take to get some workable policy to fix this?

    I honestly don’t think by 2015 you’ll need to worry much about future mining in Australia other than the big guys. If we want manufacturing to support mining, IMO if you’re betting on that I’d be hedging it.

    I’m one of many who can’t find a job in my profession in this country (six years at university) so I’m well versed in the problems, but to blame it all on mining is just considering all the years of neglect in this economy where housing, and mining ruled. I think there was a time when it was agriculture, but can’t we fix this rather than slagging each other off.

    I’m worn out by this negativity.

    • FOR THE LAST TIME.

      THIS IS ABOUT TAXING MINING IN THE NATIONAL INTEREST.

      THAT IS NOT BLAME.

      THE POST IS ALSO DESIGNED TO POINT OUT THAT IF YOU WANT TO GET SOMETHING DONE THEN THIS IS NOW HOW YOU DO IT.

      THE MINERS UNDERSTAND THIS, THE MANUFACTURERS DON’T.

          • No need H&H. Because whilst I agree with your desire for a diversified base, tenets of globalisation itself ensure that specialistion is the sustaining goal.

            Which would indicate the issue is other than an opportunistic assault on resourses – we have always had this sector and it remains with its fellow agricultural resources the only bloody thing anyone else wants!

            You are targetting the wrong issue.

          • “tenets of globalisation itself ensure that specialistion is the sustaining goal.”
            .
            Exactly, MRRT + SWF is to ensure specialization – i.e. turn dirt (iron ore) into steel before we export it. Where is the contradiction there?

          • Yes – you’re right, given 50 to 70 years we must evolve a sustainable economic system.

            At the very time the rest of world is doing it hard, we still have resources… If Chindia falters, we don’t. And?

            I’m still curious H&H, where exactly does this puts you on the globalisation platform. Because, unless we can finesse it in some way (not by this v that) the outcomes are not desirable.

          • Mav – that’s what we used to to – get?

            It goes to the cheapest provider and that is not us…and there lies the real debate!

          • What if the cheapest provider turn out to be unbalanced kooks who have NFI what they are doing and cut a billion corners?
            .
            Globalization is sustainable if there is balance of trade among the countries – the current trend of globalization is just madness – at this rate, China will be manufacturing sh!t that the rest of the world can’t afford to buy and India, the offshore hub for services (IT/call centre) that the rest of the world have no need for.
            .
            For starters – let China remove its currency peg and then we can talk about globalization.

          • Mav – it is for China to determine whether or not to remove the peg. Their determination not ours.

            And let’s be honest – most have been more than happy to buy Chinese shite!

          • Yeah, this year maybe next, who knows…caution with pinning everything on a SWF that is profit based from miners (my view is for something akin to royalty – minerals extracted as a better compensation for diminishing finite resource).

            Nothing last forever. Not even miners profits. Which means fix the problem, don’t bandaid it.

  12. Thanks for the piece, H&H. I feel your exasperation (in the comments). It’s particularly frustrating when people feel the need to frame their responses in partisan, emotional and/or ideological terms. Some seemed to cultivate their own mis-reading of what you’re saying.

    Anyhew, I’ve seen a couple of interesting posts related to the issues here. Without advocating or disavowing their contents, a couple that are talking calmly and rationally follow:

    http://clubtroppo.com.au/2011/08/23/dutch-disease-hollowing-out-and-picking-survivors/

    http://www.harryrclarke.com/2011/08/04/mining-booms-dutch-disease/ (also linked in above post)

    Keep up the good work.

    • Without going too much into some of the other points of the article and comments;

      Bluescope is facing trouble and laying people off is NOT related to the high exchange rate. They were mostly an export business selling product to the US housing market. So what we actually have here is a failed business, and not an excuse to remake the world in anybody’s particular desired direction.

      • The articles were generally about the dutch disease effect, which Bluescope (incorrectly or otherwise) has brought to the fore in news reporting. There are major changes underway, and the need for a rent tax to help manage the changes and more importantly safeguard the national interest into the future are some of the key discussion points.

  13. Why implement something which has proven to do WONDERS for nations’ economies (eg Norway and The Netherlands) when you can stir people up to decline something that would benefit them by simply putting a big fat TAX stamp on it.

    Honestly…

    • So the swiss can correctly identify the problem, but here in australia we just use this intentionally poor economics to move closer to communism and push through a bandaid for extremely poor financial management from our government.

  14. Wow! I crashed out in front of the telly for an hour and Fanboy has posted about 50 comments on this thread.

    Something must have upset him 🙂

    • Jumping Jack Flash

      Why pay more when you can get comparable quality for less from somewhere else in the global marketplace?

      Steel is steel. So long as it passes all the tests as least as well as another piece of steel does, it is the same.

      If the same steel is cheaper elsewhere, who are we to dictate who buys what from where?

    • Sorry BurbWatcher, price (e.g. cost of steel, irrespective of origin) is a better organiser of economic behaviour than morals (“buy Australian”). And were the government to enforce such a thing (and there’s no indication that they will, yet) it would take us back 50 years policy-wise.

  15. Well I have had a very entertaining time reading these comments (I should already be asleep). It’s certainly great debate and I have read quite a few good ideas on how to deal with this issue.

    The problem with good ideas is that in our morally bankrupt p#ss weak political system who is going to run with them and implement them? Unfortunately, in addition to the structural decline of manufacturing there has been an accompanying weakening in civil society (not that it was ever that strong in oz). Politicians run on 3 year election cycles and have no foresight and the reality is have very little understanding of how a modern economy works. It’s all just spin and reactionary last minute “policy development” to media scandals and lobby groups – hence the inefficient wasteful bailout announcement today.

    if u want to get something done here in politics u need to write the policy and say here “legislate this” and they will only do it under massive media scruitiny and if their election life is on the line.

    So while H&H’s method might be a little crude, unfortunately it is the only way you can get anything done on this issue. The better structural fixes suggested above are just not going to fly.

  16. I think H&H has just demonstrated one of the key problems with politicking in this country. To get anything to happen you have to resort to vilification of your opposition and create anxiety. Turn it into an Us vs Them fear campaign. Howard brought this into politics and Labor have been just as crafty with it.

    I don’t want to see a battling of vested interests between the Mineral Council and the AIG, this issue is too important for that.

    I also don’t want to see a TARP/GM like bail-out of companies that have been operating on a flawed model for too long. The government would be considered insane if they bailed out Harvey Norman, so why should we bail out steel companies? In fact, some good old Schumpeterian creative destruction could be a good thing long term for this country. But creative destruction needs a properly operating credit system – and we sure as hell don’t have that. We need to see the politico-housing complex gutted too.

    The problems in our two-speed economy have been building for a long time, and will not be solved with any short-term policy made on the fly (which is what will happen anyway). Here’s what I’d like to see, but I’ll probably die before then (and I’d be considered young in here).

    I’d like to see a lean economy – one in which the profits from our good luck in having nice rocks are maximised with minimal diversion into non-productive subsidies/bailouts/policies/etc, and the profits driven into investing in our long-term future prosperity, economic viability, and sustainability. This means:

    1. Some diversion of the windfall profits from the mining sector. Obviously this is the sticking point. A GBNT (greatbignewtax) is the easiest, but there could be other ways to maximise profits to the country. Is there nothing we can make out of the raw materials that we have in abundance at a lower cost than anyone else in the world? Nothing that we import that couldn’t be more cheaply made here with what we already have? Alternatively, if we can’t beat them, why not join them – what about a nationalized mining company? Set it up to employ and re-skill the hundreds of thousands about to lose their jobs. Make it one of the best in the industry (a long shot if govt run corporations like QRN/TLS are anything to go by).

    2. A restructuring of government commitments, policies and taxes away from middle-class welfare along the lines of the Henry proposal – raise the tax-free threshold and flatten the curve (or hell, tax the elite more). This also means scrapping all support to the housing complex. Lean budget – no fat. Also re-shape expectations – to ‘succeed’ financially you need to use your brains, work, and save-not just buy a house.

    3. A re-structuring of mortgage debts. The overhang is too large, and the de/dis-leveraging is too big a drain when we can’t afford it. When the govt support is removed, the bubble will implode. Make banks realise losses through debt-equity swaps, nationalise some if necessary, and effectively turn banks into REITS and debtors into renters.

    4. Make education, research and development policy priorities. This may mean a return of free higher-education as a means of encouraging re-skilling, reducing unemployment (full time students technically aren’t unemployed), and setting us up for more innovative, productive industry in the future.

    5. In higher-education, really get back to the core physical and biological sciences, mathematics, medicine, IT and engineering. Innovation in these fields are where productivity truly comes from. Education should not be left to market forces – markets are completely blind to the long term, and education is a very long term investment. We have too much campus devoted to Economics, Business and the FIRE industry – but this is where the universities were driven to during the Howard years in order to chase the full fee-paying (international) students. As an aside, could this be why the education industry is suffering? Less demand for finance/business careers in developing countries and more demand for, say engineering?
    I also think not enough teaching at the higher level is applied – too much wrote learning and not enough doing – and not enough encouragement of creative thinking and new ideas. You also need that next step to get to innovation, something that is lacking here too, but probably due to business rather than education institutions.

    6. Develop I.P. to create higher value products, find cheaper ways to do things, and find ways to make the most of what we have without having to go off-shore.

    7-9. …

    10. profit?

      • The problem is time, and will. None of that will happen in time.

        Pain is also a problem. It will hurt – now or later, there will be pain. Also, who should hurt the most?

        I am young, with little in the way of fortune or vested future, so I’d prefer to see the pain spread and see it sooner rather than later. Others will have other views due to their age, worth and vested interests. But this is democracy, so he who has the loudest voice will have his say.

        • Wow. Youth and wisdom. Alas I’ve lost the former and never attained the latter.

          Look forward to your comments on all subjects in the future. Thanks.

        • The loudest voice correlates directly to those with the most money and influence. Unfortunately this is not really a democracy, whoever shouts the simplest slogan the loudest and longest will determine which direction the herd goes.

    • LF, your ideas are commendable. If they are ever implimented will depend on whether we can maintain and develop a vibrant future as opposed to becoming a hollowed out economic colony.

      We need to act, soon.

    • Well said LF
      In other words lets become a SMART country. Take advantage of what we have and build a model around it to maximise the benefits and minimise the downside. As you duely noted the problem is politics and business and its very short term planning cycle. Wouldn’t it be a great to put into place long term plans to create a sustainable and dynamic economy.
      We can only dream!!!

  17. Manufacturing is hard. There’s no doubt about that. Even economies that host world-class advanced manufacturing sectors – the US, Germany, France, Japan in particular – derive progressively less and less of their income from manufacturing. I think in the US the share is down to about 15% of the economy, and yet, unless I’m mistaken, the US is still the world’s largest manufacturer. As a symbol of this, unless I’m also about this too, there is only one enterprise that appeared in the Dow Jones Industrial Average when it was formed in 1896 that still appears now – General Electric. The rest have come and gone as the economy has evolved.

    The debate here misses the point, which is that countries must work with their competitive advantages. That is to say, they have to specialize. Specialization works for a reason: it helps create the efficiencies and effectiveness that enterprises need if they are going to survive. In an intensely competitive global economy, it is essential to be both efficient and work from a position of advantage. The alternative is failure.

    There is a saying about this, something along the lines of – “If you can’t be competitive, don’t compete. You will lose.” This is very sound, practical thinking and should be our guide.

    Australia needs to think about where its
    future competitive advantages will lie in a largely de-industrialized global economy.

    We have abundant natural endowments that have been and continue to be a source of
    great prosperity. They create recurring surpluses that have been distributed into the wider economy and provided capital for all kinds of other enterprises.

    It seems to me to be self-destructive to set out to punish these industries simply because others lack the intrinsic advantages they need to be able to compete and survive.

    There are new industries to be created, based on science, on new technologies, on new materials, processes and products, on new demand.

    Australia must focus on this because it is where the future lies.

    There is one other point to note, and that is the high dollar is much more to do with USD-weakness than anything else. We have to stop being quite so Oz-centric in our reading of this situation. As well, at the end of the day, the currency is just one factor among the many that determine whether industries can prosper. The real underlying issues are more complex. Were this not so, protective tariffs would work as well as a lowered exchange rate to support domestic manufacturing. Yet we know that tariff protection does not procure real net economic welfare gains. It diminishes them. We could also reflect that if a high currency alone determined the end of manufacturing, there would be no secondary industry in Japan.

    Australia has many many advantages. It is time to think of these and to find ways to husband new industries that reflect them. We are by no means alone in having to do this. All economies face these re-design and re-structuring demands. What is absolutely certain is that we cannot succeed by dividing our economic base into goodies and baddies. After all, suppose we do create a new high-value industry based on, say, ultra efficient new energy production technologies. Suppose we export these new products to the whole-wide-world and the result is the exchange rate appreciates. Will we blame it too for the failings of other industries?

    • I think you make some good points David.

      To me this is a question about where Australia’s future competitive advantage is going to come from.

      As someone who would be considered the youth of this nation this issue is of great interest to me. Perhaps more so by the fact that I live in WA and am well aware of the nature of boom and bust cycles and the far reaching effects they have. As a keen student of history at the back of my mind is always an acute awareness of what happens when things come crashing down.

      As a thought exercise how about we step back for a minute and re-evaluate where & what we are in Australia from a global perspective.

      What in all reality are Australia’s advantages that will allow us to compete on a global scale?

      For a host of reasons we will never compete globally in manufacturing, that much is obvious. In a globalised economy manufacturing in this country will only exist in major way to service a domestic market and this is becoming even less the case over time.

      As much as I would like to think otherwise I really don’t believe Australia can and will build a large scale renewable energy export business. The technology advancements happen to fast and the technology is to slippery for a manufacturing base to work here. Thus from an employment perspective it is not really a non starter (I do beleive we have the ability to develop a major renewable energy generation network domestically to replace existing infrastructure however).

      I have my own ideas but I would like to ask what areas others think Australia has a real comparative advantage in which could lead us to building a future competitive advantage?

      Can we ever move beyond rocks and agriculture?

      If not, what are our options?

  18. Thank you Lighter Fluid for your well-reasoned contribution which contrasts to most of what has been written here.
    Unfortunately I think you left out the singularly biggest contributor to our current problems.

    The mining and sale of raw materials is not the major problem. It is not the major contributor to our high dollar – not by a long shot. We are still running a substantial Current Account Deficit so, by definition, we are not PRODUCING too much.
    The major factor in our over-valued currency is our loose attitude to Foreign Borrowings and, even more important, our willingness to sell off any and all of our industries just so we can have a high dollar and consume more.
    That’s a simple fact and has been so for 50 years. The dollar has been OVER-VALUED for 50 years. In that time it has destroyed our rural communities. Manufacturers were originally protected from this process by a high tariff wall. This was removed. At the same time the insane “Everybody loves Australia and “Foreign Investment is wonderful” and “Debt doesn’t matter” and finally we have the totally insane current mantra from one academic corner that Foreign Debt is simply an unlimited and free source of funds for the economy.
    Of course the FIRE economy championed all this academic nonsense. Politicians were easily swayed because it made it appear Aus was far more prosperous than it actually is. You always have more to spend if you are borrowing more and more or selling off your assets. This is what we do.

    Now, we must take control of the value of our currency. At the moment we leave it to a cartel of Bankers overseas to determine. By that I mean so much money is being created at zero interest rates and much of it is ending up here just because we are flavour of the month. The currency rises therefore we are a more attractive destination for speculative funds, therefore the currency rises etc etc. The trade in our currency is some 140 times that necessary to cover our imports and exports. Hells bells! So it is not actual trade in the produce of the miners that is causing the problem.

    This has to be the singularly most stupid policy that has ever been implemented.

    Lastly everyone ought to be damned careful what they wish for here. We are wishing for a devaluation of our currency at a time when our imported prices are rising at a very high rate. Domestic inflation is running at 5 to 6 % offset, until recently, by lower prices for imported goods. If the dollar does not continue to rise at 15% per year inflation will be fuelled by the rising cost of imports. A FALLING dollar will magnify this factor enormously.
    Then the question becomes what will the RBA do with interest rates if inflation is say 12%? Oh! That’s right! Put up interest rates which in our current regime means a HIGHER dollar.

  19. You cannot choose your industries – there is no such thing as ‘industry policy’…its all just a total joke concocted by politicians who want to appear to be doing something.

    The only thing they can do is delay the transitions forced upon us by the market

  20. It seems to me that a simple idea would be that all our exports should be priced in AUD and not an USD for resources. Farmers and manufacturing have to deal with a high dollar, why not the miners. Also automatic stabilisers built in to mitigate overshoots in the dollars values.
    Commodity prices have gone up so the farmers benefit but the its mitigated due to the higher dollar.

  21. I cant believe so many of you are championing the idea of punishing the mining sector because our manufacturing sector is crap. I dont have much hope for this country if thats how the majority is thinking.

    How about, instead of just taxing successful sectors, figure out what the actual problems are with manufacturing? Here’s a hint, we arent the only nation to have our industry gutted…the entire Western world is suffering from the same problems! Germany has suffered the least, as the Euro has kept their exchange rates lower than the Mark would have been. Its the exchange rate disparity with china that is the main issue here.

    Reducing the profitability of mining isnt going to help manufacturing, or the economy. Transfer payments to govt are a drain on economic efficiency and not a positive.

    I just dont understand it, given the otherwise high quality of analysis on MB…

    • Good point. Increasing taxes and transfering more money through government hands will just result in more money being siphoned off the top with less to show for it.

      Government should be working on reducing barriers to entry for new businesses and reducing the costs of doing business. Anyone that runs a small business knows that the three levels of government are vampires to business, looking for their cut wherever they can and providing little value with the money they take.

      As an example, while Workchoices went way to far in some respects, other aspects of the framework helped businesses to more efficiently utilise their manpower. Instead the baby was thrown out with the bathwater and now we have more government agencies regulating and placing costs on employment than ever before…

  22. I guess low labour productivity and rising energy costs have no part to play in manufacturing’s decline….

  23. I just had a look through the BHP results. Approximately 50% EBIT comes from WA iron ore, QLD coal, and Olympic Dam. Escondia copper makes up a large chunk (perhaps 12%) of the remainder.

    Positive price variance was greatest for iron ore, and significant for metallurical coal.

    Forex variance had the greatest negative impact on iron ore and coal.

    Seems justifiable to say that BHP (and other miners) are doing very well out of Australian resources during the current super-cycle.

    In my view, a tax coupled with a sovereign wealth fund is justifiable.

  24. Perhaps the mining tax and SWF could be repackaged as a ‘higher education, research and development fund’. Profits from the mining super-cycle could be directed into a fund, which was used to assist with education, research and development. A decent part could be directed at these activities in the mining sector, as a way of repaying the miners for earning the profits in the first place. For example, with the growth in LNG, CSG and other non-conventional gas resources, there must be areas requiring research and development, and more oil/gas engineers would be useful.

    On the political front, it would be much harder for the mining industry to attack a fund that focused on education, research and development, particularly if it was clearly intended to benefit our mining sector.