Morrison’s post-iron ore economic plan comes from Nauru

Australia’s evolving Cold War 2.0 circumstances continue with stunning speed. The personality-disordered PM is on the hustings today with a new round of China-bashing:

  • Morrison has warned about an emerging struggle between authoritarianism and liberalism.
  • The Indo-Pacific is its epicentre with the rising risk of conflict.
  • He aims to reform the WTO to fight economic coercion and to rally capital of the liberal bloc to aid states vulnerable to Chinese bribery.

All music to my ears. But while he galavants around the globe rallying it against China, Morrison appears to have given not a moment’s thought to what comes after.

We now know what that will be: the end of the iron ore age. For once, yesterday, CCP mouthpiece, The Global Times, made perfect sense:

  • Australia should diversify its iron ore exports away from China.
  • China will lift its proportion of scrap steel output to 30% by 2025 and 40% by 2030.
  • “For every ton of steel that is based on scrap steel, you save 1.6 tons of iron ore,” Suchan said. “By 2025, if China’s plan to make steel from scrap goes as planned, the country will save 480 million tons of iron ore imports each year. By 2030, imports will decrease by 660 million tons annually.”

Is this possible? I doubt it. The amount of scrap required to move that fast is surely impossible to source. But, that does not make the advice untrue. We know that Chinese urbanisaton is running out of rope at 64%. One more decade like the last and it’s at the 80% typical of developed economies:

By my own calculations, if we assume a 20% fall in steel output by 2030 and a ramp-up of scrap at the current rate of growth then China can still cut half a billion tonnes of imported iron ore by 2030:

So, what’s PM Morrison to do other than float around on his public jet sounding important?

There are two examples we could follow. One good and one not so good. The first comes from Chile:

  • Chile’s parliament is pushing through new copper super profits taxes.
  • There will be a flat 3% levy on sales plus a sliding scale of marginal rates topping out at 75% as prices rise.

Chile has a giant sovereign wealth fund that it stuffs with windfall commodity gains. Chile does this to keep the peso lower to avoid Dutch disease, ensure that the dividend from a finite resource is available to future generations, and guarantee a fiscal stabilisation fund that can be tapped when copper goes bust.

So, there’s your first blueprint. If we were to apply a blanket $20 levy to iron ore, half from extractors and half from customers, then we could raise $10-15bn per annum for the next five years and sliding away from there. It could double the Future Fund.

Next up, we need a “no holds barred” reform campaign for higher productivity. Not the bullshit lower-wage version promulgated by Michale Stutchbury and company. Proper multi-factor productivity that targets capital as well as labour, including:

  • Scrap negative gearing and capital gains giveaways for property.
  • Scrap the various superannuation giveaways.
  • Massively boost industry, R&D and innovation policies.
  • Slash taxes for industry.
  • Merge the RBA and APRA to ensure the lowest possible currency.
  • Slash immigration and launch a massive robotics push.
  • Crush the east coast gas cartel.
  • Re-install the carbon price to dramatically accelerate the low carbon energy transition and industry.

Combined, this policy mix will provide a big buffer of savings as the terms of trade are smashed to smithereens plus a competitive economy as we come out of the iron ore era and have established leadership in the industrial rebuilding needed post-carbon and within the emerging liberal bloc.

The second possible plan is not quite so good. It comes from Nauru. It is to allow the savings of the guano boom to be frittered away on unproductive stuff like house prices by a greedy generation that leaves behind it nothing but deflated assets, a vast debt overhang and massive inequality for successive generations to have to clean up. In the process, this leaves the nation vulnerable to being pushed around by larger neighbours seeking to dump their political garbage on the island.

Welcome to Morrison’s post-China “plan”.

David Llewellyn-Smith
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Comments

  1. Sigh….I hope I’m wrong, but the creation of a false-binary Nauru-type narrative is easily the most profitable….we’d need an utter crisis for us to change, as we’re just so stuck in the mud as a people, on average, protecting the status quo at all costs 🙁

    • C'est de la folieMEMBER

      The status quo………

      Its all about the status quo –

      Spurious & Incoherent 1% apologia ignoring that the fact that Australia’s 1% are big spongers off the state, and exist in profoundly uncompetitive economy, made moribund by restrictions on access to key high income employment sectors…..and don’t mention the politicians and public sector high income types…..

      Australia’s 1 per cent: Budget reliance on high and middle income earners grows

      https://www.theage.com.au/politics/federal/australia-s-one-per-cent-budget-reliance-on-high-and-middle-income-earners-grows-20210607-p57yrj.html

      By Shane Wright Updated June 7, 2021 — 7.25pmfirst published at 6.38p

      Four in five Australians earn less than $100,000 with new tax figures revealing the federal budget is increasingly reliant on the nation’s best-paid 1 per cent to cover the cost of growing services and infrastructure.

      Starts off with a ‘hook’ to get people looking – ie something they will agree inherently with and know perfectly well – in this case that the vast bulk of us aren’t mega earners. Then proceeds off onto more marginal ground by suggesting that we are increasingly reliant on the 1% to fund the budget. That immediately positions the entire budget funding dynamic as between the 1% and the rest (which of course it isn’t).

      Doesn’t go within a bulls roar of what the 1% do to get their 1% status, and the caveats which apply to that, the economy within which our particular 1% earn their crust, what it may be they take from the budget, or what other forms of taxation there may be out there (like maybe taxing the resources – or national bequest – we flog off overseas) or even posing the questions ‘why don’t we create a competitive economy that earned money?’

      Data from the Australian Tax Office also shows that to be a member of the top 1 per cent of taxpayers requires a taxable income of at least $350,000. By contrast, an income of at least $700,000 is needed to get into the top 1 per cent of American taxpayers.

      Well the backdrop to that assertion is that maybe our 1% might like to go to the US (guns and all) and do whatever it is they do here over there. Or maybe our 1% can do things here that their 1% cant do there? (like write off real estate speculation?). And is as much of our 1% earning off the state as is the US 1%?

      The annual taxation statistics from the ATO, covering the 2018-19 financial year, reveals there were almost 14.7 million individual taxpayers that year, a 2.7 per cent increase over 2017-18, who paid a combined $213 billion in income tax.
      Eighty per cent of those taxpayers had a taxable income of less than $100,000, the lowest proportion on record. In 2012-13, 90 per cent of taxpayers had a taxable income below $100,000.
      One in nine of all Australians, with a near even split between men and women, have a taxable income between $50,000 and $60,000.

      Some straight numbers reflecting a population growing by 2% plus per year. Inflation will tend to reduce the numbers of people earning below a given point per year. What is Ninefax suggesting? Circa 12% of all Australians have taxable income (after deductions for uneconomic or speculative purposes like real estate) between 50-60k per annum. And 60-70k? and 70-80k? and 80-90k? Why not look at distinctions between taxable income and earnings? (wouldn’t want to offend the government subsidy reliant property speculation sector?)

      The ATO, which broke the nation’s taxpayers up into single percentile groups, revealed the top 1 per cent included 82,000 men who had an average taxable income of $760,853 while for women the average was $753,481.
      The men declared $62.6 billion in taxable income while 28,000 women declared $21.4 billion.
      The men paid $26.5 billion in tax, the most of any group, while women paid $9.1 billion. Combined, these 110,000 people paid 17 per cent of the nation’s income tax.

      OK, we have our hat tip to the gender sensibilities of the age. If the ATO is divvying things up into the single percents then there is a very good question of why they haven’t also stated quite baldly what tax the 1% have paid on that income and what deductions they have claimed as well. This is ‘taxable income’ not earnings remember. And that’s 17% of income tax, not 17% of all tax.

      Those in the top tax bracket, which starts at $180,000, paid almost $70 billion or a third of the nation’s income tax bill.
      As part of the federal government’s three-stage tax plan, which started in the 2018-19 financial year, high-income earners will not receive a tax cut until 2024-25. The Labor Party has yet to decide whether it will continue to support these cuts.

      Before we get to whether the ALParatchiks sign their own extinction warrant by supporting those tax cuts, let us ask what percentage of income tax receipts are paid by the 1% worldwide (and are Australia’s 1% doing better or worse than their offshore peers in relation to how much of the national income tax take they cough up). Let us add in the question ‘what are those 1% offshore doing to be part of whatever national 1% they are part of in comparison with our 1%?’

      Then we could head over to ‘what other taxes are there?’ if we don’t want to tax our people through their incomes? Do we want a load of consumption taxes like in the United States? Should we (cough) tax our resources more? (particularly while it looks as though our biggest consumer is posing a strategic threat).

      Ratings’ agency S&P Global, which on Monday lifted Australia’s triple A credit rating to stable from negative on the back of the country’s strong economic recovery, said the budget was benefiting from growing tax collections from companies and individuals.
      “The pace of the economic recovery, and exceptionally strong demand for key commodity exports – namely iron ore – have provided a timely boost to government revenues such as company and income taxes, the goods and services tax, and conveyance duties. We expect key revenue lines to outperform the central government’s own forecasts,” it said.

      This is the buttering up paragraph which should have an asterix and exclamation mark stating ‘we can afford it!’ following the governments mantra of we are somehow doing better out of the Covid rebound than any other location on earth and we should spend our good fortune on ourselves (or those of ourselves most entitled to it) now.

      The OECD, in its global outlook released last week, said the Australian economy would be “buttressed” by the federal government’s budget decision to extend the low and middle-income tax offset for another year while urging states to overhaul their property taxes.
      “More states and territories should replace taxes and fees on property transactions with a recurrent land tax to promote mobility and more efficient property use,” it said.

      This is the secondary buttering up paragraph, a gentle reminder that peons (like us) have had another years worth of bribes proffered and implying we should give away everlasting tax cuts to the uber set as a fair tradeoff.

      Of the men in the highest earning group, more than 18,500 reported a net capital gain of $6.8 billion – by far the most of any income group in the country. Another 13,000 women in the top 1 per cent declared $599 million in net capital gains.
      Men reported average rental losses of $6100, the largest of any group, but women reported net rental income of $5180 — one of the few groups not to lose money on their rental properties.

      This is the man woman divvy up. There is a gender pay gap in the top 1% too. But somehow the women 1%ers aren’t gouging the rest of us for real estate speculation the way the 1% men are. Are they gouging another way?

      Amongst this group are the nation’s best-paid people, headed by 4150 surgeons who had an average taxable income of $394,303.

      But within this occupational grouping, some did much better than others.
      The best-paid people in the country are its 180 neurosurgeons. The 150 male neurosurgeons had an average taxable income of $630,000 while the 30 female neurosurgeons had an average taxable income of $304,290.
      The next highest paid group were the nation’s 125 ear, nose and throat surgeons. Of this group, the 102 men had an average income of $509,428 compared to the 23 women with an average $287,130.

      Now we get to some substance. The 280 thousand people who make up Australia’s 1% – 5%. And their occupations.

      Of the top 10 income earning professions in Australia 5 are medical professionals. Is that is what makes it so important to create an eye of the needle environment for ordinary punters to get into these professions, while the people ordinary punters bump into down the local medical centre as GPs tend to be from Iraq, India or China and have got their medical educations in Russia or China? Australia wants these people earning uber amounts, and the industry doesn’t want too many of them. And policy supports that. And what percentage of their incomes are we paying through our Medicare levies? (and even if they don’t take public patients how much of a floor does that slap under their incomes?).

      Why don’t we look at some other things while we are at it. Let us start with those GPs we see and the specialists they refer us to.
      This site here gives us a sighter – https://www.oecd-ilibrary.org/sites/0acc1895-en/index.html?itemId=/content/component/0acc1895-en#figure-d1e24397

      But note that chart suggests all Australian medicos are ‘self employed’ meaning that for Australian taxation purposes they are small businesses and can write off virtually everything they do to feed that status. And the people they are billing is us, through Medicare, for the most part. That chart suggests that circa 50 thousand Australians in the specialised medical professions earn significant volumes from us. And how many Australian kids have access to those professions? If junior would like to be a doctor tell them to get 99.5% in their high school results if they want to do it here, or prepare to head over to China or Russia to do Medical school (where 80% secondary school results will do the job) and come back after some expensive exams to work in Australia before sitting on the other side of the desk from you and telling you to lie down and have a Panadol.

      Then after the 5 medical professions we have Financial dealer. Now we can say what we like about financial dealers but for the most part they really do operate in a global market and if they are expensive then capital will go elsewhere looking for someone to deal.

      Beyond those guys we have the legal profession, with the uber ranks again funded by the state (that’d be your judges and magistrates or commissioners etc) and about half the legal profession working off the real estate Ponzi in the guise of conveyancing types. At least the profession can state it lets anybody in, with Australian Universities turning about 15 thousand graduates out per year for a sector which employees roughly 65 thousand all up.

      From there we go to engineers either mining or managing. The mining engineers we can assume are paid on basis reflecting someone somewhere buying what the mines they engineer sell, so theres a case for considering that as a market. Of the rest presumably some (in this day of shovel ready stimulus packages) is funded by the taxpayer too, and we could be sure that any given engineering firm will be pretty interested in the next big project which presumably will have taxation breaks and offsets revolving around it even if it isn’t funded by the government outright. But we could also presume that much of what they do represents capital considering that whatever it is they are managing is important. Of course we should never ever forget that Engineers and Medicos, even Lawyers, require technical expertise and competence.

      From there let’s go to the circa 190 thousand individuals with an average taxable income of 164 grand who are either chief executives or managing directors. 2/3 of the 1% – 5%. The 2/3 not saving or improving peoples lives, or replacing faulty body parts, or making sure bridges don’t collapse or our dams don’t burst. But these guys dont require technical expertise or competence, and it isnt difficult to find some who cannot string a sentence together without stuffing it up or who blanche at the prospect of working out some basic percentages or multiplying something, and have only one strong suite which gives them their status – that of spewing out whatever bullshit is spewed to them to those underneath, and to customers, the ‘team player’ where the only member of the ‘team’ is the individual and the regularly kissed buttocks of whatever team member is above them. All subordinates are expendable, or dismissable as canaille, and the easier the world makes it for them to do so the more their power is over those underneath. Often deranged psychopaths, invariably self serving. Prone to self pontificating, convinced of the righteousness of …..themselves.

      They are the 2/3 posturing, posing and generally bullshitting their way through your days. The 2/3 making sure you behave with the right obsequiousness in your place of employment, the 2/3 who do your performance reviews and the 2/3 beaming you inboxes full of staff questionnaires or censuses, which are invariably bullshit.

      Is Australia that well managed? Are these managers managing world leading enterprises or living it up inside a population Ponzi fuelled bubble? Are they the people behind your casualised employment, or rewarding bumlickers nepotism or some other bullshit at your expense? Are they the people telling you a pay increase cant be afforded while getting their nose in the trough?

      Now before we leave that 1% – 5% let us also consider a couple of other likely residents who would ordinarily be hoping to avoid recognition in this crowd. Let’s call them politicians and senior public servants.

      Australia’s politicians are amongst the most superbly remunerated in the world. A couple of charts tells the story….. From Parliament House we have Australian politicians in relation to average Australians…….
      https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1920/BaseSalary2019

      And although this is a tad old (2013) – one can assume our politicians haven’t lost their world beating lead in recent years…..

      These are the people who will be talking about efficiency and tightening our belts as soon as they think they have a mandate to do so………

      They are of course advised to do so by the senior bureaucrats – of whom there are about 15 thousand who would ostensibly lay claim to being in the top 2-3% if not 1%ers…

      Back into the article at hand however there is standard real estate spinning line for anyone unaware that real wealth in Australia tends to live near the coast in Sydney or in the chenille lipped suburbs alongside the Yarra.

      Double Bay in Sydney remains home to the people with the nation’s highest incomes, where 3572 taxpayers declared an average taxable income of $202,541. No.2 postcode in the country was Melbourne’s Toorak at $201,926.

      Then we have some devoutly wedded to the idea of personal tax minimisation surely highlighting something to be addressed and some number-genderwang .

      While paying a lot of tax, some high-income earners manage to avoid handing over anything to the ATO. There were 42 people who earned more than $1 million in the year but had a taxable income of less than $6000.
      This group had $205 million worth of tax deductions, of which $158 million were gifts or donations.

      The number of people earning more than $1 million in income grew by 3 per cent to a record 15,358. More than 6600 of them live in NSW while another 4000 are in Victoria. Men declared $3.5 billion in taxable income compared to $3.1 billion for women. Men paid $629 million in net tax while women in this group paid $611 million.

      Both men ($2388) and women ($959) registered average losses on their rental income while overall capital gains were $18,700 for males and $19,800 for females.

      They also have some of the highest HELP debts of any group, with men owing an average of $26,400 while women owe $23,500.

      Are women better property investors than men? Should we be extracting more University fees from higher earners? Then we get aspersions cast upon the poor – are they really retirees, or are they really negatively gearing speculators? – before getting to another angle on the tax avoiding = wealth accrual end of things….

      The figures do show the bottom 1 per cent, at an income of less than $21,907, but this includes part-retirees drawing a part-pension who are also earning taxable income from investments including rental income.
      The next most important source of revenue for the government is the business sector.

      There were one million companies tracked by the ATO through the year. Very large firms accounted for just 0.1 per cent of the number but paid 62 per cent of total tax, while 76 per cent of firms were considered “micro” entities that paid 11 per cent of the company tax bill.
      Finance companies such as banks paid $25 billion worth of company tax while the mining sector paid $22 billion. The nation’s superannuation funds, which do not count towards company tax, paid $29 billion in tax.

      So presumably some of those micro entities including self-employed types minimising their taxes with a range of gears and offsets, while the ordinary mug punter is being told to lap up another years worth of low income offset.

  2. That’s all nice but our saviour will be when telsa decides to make cars here. Simple instead of 1 million cars being imported every year we will make a million here and export some. That’s about 40 billion saved. The best thing the government could do would be to buy tesla shares.
    Oh and they have already stated that they want a factory on every continent. So its coming

  3. The source of the scrap is in your urbanisation chart. Not merely will China urbanise another 150 million this decade(taking them to 75% urban) but they will also have to rehouse most of the 90 million (or more accurately their children) urbanised in the 1980s. The apartments built in the 1980s were public housing, low quality and often in what are now more desirable inner city locations. They will be redeveloped this decade and provide the source of scrap needed to build new apartments. The result, both China steel demand/production and scrap availability will be higher than you think. When urbanisation ceases there will be a large reduction in demand (perhaps 20% to 40%) but I now think it will not occur until 2030s.

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