TREASURER Joe Hockey bans the foreign takeover of Graincorp as it is “against the national interest”.
Yet he – and the rest of the government – are contemplating letting foreign airlines buy control of our national icon Qantas, on the basis that would be “in the national interest”.
They are also trying to decide what would be in the national interest: Giving more taxpayer money to the foreign car companies, Holden and Toyota, to keep them in Australia; or to let them go, permanently shuttering local car-making?
What’s going on? Do we have a treasurer and a government adrift without any clear policy direction, grabbing at “easy” but inconsistent and indeed contradictory, confidence-rattling options?
At the same time, as data from the government’s Bureau of Resource and Energy Economics revealed during the week, the ominously foreshadowed “resources investment cliff” looms ever nearer.
Indeed, almost on cue, Rio Tinto announced it would shutter its Gove alumina plant, throwing more than 1000 out of work and essentially closing down the Northern Territory’s fourth-biggest town.
Does that signal the start of the cliff? Are we headed inexorably over it? Is that just a first taste of what we will likely hit at the bottom?
Most would hope that it was going to be something softer. That there would be some alternative “there, there”. Or better still, that we go over it like a bungee jumper, springing back before the bottom.
Finally, to round off the murky and complicated picture, Reserve Bank deputy governor Philip Lowe spelt out the outline of the challenge we faced in a major speech.
Simply and brutally he detailed, how over the past decade or so, Australia’s national income had been rising every year at a faster pace than our national output. Thanks of course, to China.
We now had to produce more to sustain that income.
But produce more of what exactly (my question, not his) if plants – whether car ones in Geelong, or alumina ones in Gove – are being shut rather than opened?
What this all tells us is that life – and decision-making – is complicated. It is at best illusory, more probably dangerous, to
demand “consistency” over intelligent pragmatism.
I don’t know whether the Graincorp decision was “right”, but I’m sure as hell uncomfortable with the chorus from those who know, and I mean know, that it’s wrong. That an “open for business” government has to green light all foreign takeovers.
The real world’s more complicated than that. The previous government signed a “free trade agreement” with Thailand.
The way it works, cars made in Thailand come into Australia all-but tariff free. The same goes for Australian cars going to Thailand; but now they get hit by a special 50 per cent excise tax.
The trade’s “free”, it’s just that there’s now a special one-way “tax”. Thailand sells nearly 200,000 cars a year to Australia; we sell zip in return.
It’s similar but subtly different with airlines. Three government-owned foreign airlines – Etihad, Singapore and Air New Zealand – now essentially own Virgin Australia.
They can compete savagely with Qantas in the domestic market. Making money is secondary; the key aim is to underwrite linkages to their international flights.
It’s the opposite for Qantas. It loses money on international; it desperately needs domestic profits
It has no good choices. Abandoning the international would reduce its losses in the short-run but make it hostage to its partnership with Emirates, and indeed further, perhaps terminally, weaken its domestic business.
Neither does the government. Should it buy a stake in Qantas? Guarantee its debts?
Just abandon it to “competition” in the “free market”?
And much the same unpleasant choices go for the car industry.
Meanwhile, the resources cliff ticks ever closer.
When the current $ 100 billion-plus of big gas projects are completed around 2016-17, there is nothing definite to take up the slack.
Sure, there are a host of “possible” projects. But they will only kick into gear if Chinese demand is still rocketing along and construction costs in Australia are slashed to make building the projects here viable.
Soberingly, if we had our t’uthers, like the advice to the proverbial tourist in Ireland, you “wouldn’t want to be starting from here”.
The “here” is $ 40 billion-plus of annual budget deficits, net federal government debt already more than $ 200 billion and going higher, a corporate tax rate that’s too high in international comparison, too much red, green and black tape, far too restrictive IR, etc etc etc.
Given these realities the two things we do not want from government are a simplistic clinging to either end of the policy spectrum.
That the government takes a totally hands-off – let the market work completely unfettered – approach to everything.
And if that means foreigners take over our key companies and indeed industries, our carmakers and airlines disappear, so be it.
Or at the other extreme, that the government announces itself as a soft touch for anyone wanting a taxpayer handout, or self-interested protection from competition or takeover.
The government has to chart a middle course based on intelligent pragmatism.
Sure, with the biggest risk of being sucked into well-meaning subsidies and protection rackets.
And we are going to have to try to do this in the very, very, uncertain world of what happens to the global financial system on the one hand, courtesy of uncallable developments in the US; China on the other, and all the complex facets of the resources boom.