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The Special Budget: Bread and Butter Serves That Anticipate a More Wholesome Longer-Term Budget Brunch?

By Denis Bright

Dr Jim Chalmers is offering Australians bread and butter serves until global strategic and economic problems work their way through contemporary geopolitics. The real threat to our economy comes from too much investment in purchases from global military industrial complexes at the expense of commitment to Labor’s social goals.

Resource rich Australian states are benefiting from temporary gains in exports, property transfer fees and royalties but the early rebound from the COVID-era is not expected to be sustained into the mid-2020s. Queensland has seized the opportunities presented by an improvement in state finances with the release of an energy and jobs plan that addresses future cost effective power supplies that support action against global warming and regional employment guarantees.

Queensland will be home to the world’s “largest” pumped hydro scheme and stop “regular reliance” on coal by 2035, under a $62 billion energy plan announced by the Palaszczuk government (Kate McKenna for ABC News, 28 September 2022):

Premier Annastacia Palaszczuk unveiled the state government’s new 10-year energy plan, which she said was estimated to support nearly 100,000 jobs by 2040, in her CEDA State of the State address.

She also said the state government’s new renewable energy targets – of 70 per cent by 2032 and 80 per cent by 2035 – will be legislated, and Queensland’s coal-fired powers stations will progressively become “clean energy hubs”.

“We must invest now. Not just for our climate,” she said.

“We must address this issue at the same time we focus on new job opportunities to bring everyone along with the clean energy industrial revolution at our doorstep.”

The $62 billion of investment up to 2035 would be between the public and private sectors, Ms Palaszczuk said, including a “new down payment [today] of $4 billion committed by our government over the next four years”.

The government said “just over half” of the $34 billion funding for the new power generation was expected to come from the state government.

“This will be factored into our borrowings and the modelling supports us,” she added.

She said a detailed treasury analysis found the overall investment would not affect the Queensland’s credit rating and would “still mean our net debt is lower than New South Wales or Victoria.”

Ms Palaszczuk said the Queensland government would like to see contributions from the federal government, especially on the hydro projects.

The multiplier effects of productive investment can overcome the negativity as financial clouds gather on the global horizon. The US Reserve Bank has raised its cash rate by 0.75 per cent as an anti-inflationary measure which is likely to tip the world’s largest economy into recession. To prevent a run on the Australian dollar as in the mid-1980s, our Reserve bank (RBA) must play catch-up at its next review of our cash rates on 4 October 2022 with a likely lesser rate rise of 0.50 per cent.

For Australia, net capital flows have been on a downward trajectory since the GFC and the end of the resources boom as shown by the latest RBA charts. Our future lies within the Asia Pacific Region where corporate leaders are keen to break out of the investment restraints imposed during the COVID-era.

It is logical for Asian countries from Japan to Taiwan, Hong Kong, China and strong economies in South East Asia to become a stronger source of net capital inflows for Australia.

 

 

Improved commercial relations with China, assisted with Australia’s recovery from the GFC in 2008. Australia was protected by growing investment ties with China. The current state of investment flows between Australia and China is more difficult to assess. According to DFAT, combined foreign investment from China and Hong Kong in 2021, is somewhat lower than in 2019 and well behind investment from the US, UK, the EU and slightly behind Japanese investment.

Both sides of Australian politics will still welcome improved trading ties with China which will be popular in federal regional electorates. Our export markets in China are well developed and are in highly positive territory with 43 per cent of all Australian exports destined to China and 29 per cent of imports coming from China in 2021. However, the restoration of investment ties with China will take longer to reset.

Placing our strategic future in the hands of the US Global Alliance is indeed an expensive exercise with a country that boasts of its trading surplus with Australia as defined by the Office of the US Trade Representative in Washington:

Trade Balance

  • The U.S. goods trade surplus with Australia was $9.0 billion in 2020, a 40.5 per cent decrease ($6.1 billion) over 2019.
  • The United States has a services trade surplus of an estimated $9.3 billion with Australia in 2020, down 30.4 per cent from 2019.

Investment

  • U.S. foreign direct investment (FDI) in Australia (stock) was $163.5 billion in 2020, a 1.4 per cent increase from 2019. U.S. direct investment in Australia is led by nonbank holding companies, finance and insurance, and manufacturing.
  • Australia’s FDI in the United States (stock) was $98.0 billion in 2020, up 10.0 per cent from 2019. Australia’s reported direct investment in the U.S. is led by manufacturing, professional, scientific, and technical services, and finance and insurance.
  • Sales of services in Australia by majority U.S.-owned affiliates were $54.7 billion in 2018 (latest data available), while sales of services in the United States by majority Australia-owned firms were $15.4 billion.

No mention is made about the problems of corporate use of global tax havens on the site of the Office of the US Trade Representative. Profits made on Australian commercial activity by US, British and EU firms are often conveniently written off to administrative expenses incurred in tax havens like Caribbean Island states, Bermuda, Ireland or Luxembourg.

Months before the arrival of the Albanese Government, the Future Fund released its discussion paper on the need for a less colonial style of economic policy making in Australia in its position paper on A New Investment Order (released 6 September 2021). While the Position Paper certainly endorsed a continuation of the neoliberal order, it contained some progressive elements which could be part of the national conversation anticipated by Dr Chalmers.

Some suggestions in the Position Paper would grate on the values held by Labor’s true believers:

Challenges to corporate earnings

Since 1990 businesses have been capturing a rising share of total economic income. In the US corporate earnings have increased from around 5% of GDP in 1990 to 8-10% today. This has been driven by the use of technology and innovation to drive productivity improvements from intangible assets, capital friendly tax arrangements allowing forum shopping, restructuring, offshoring and automation which has reduced costs.

If these trends come to an end, or reverse, (perhaps as a result of deglobalisation and populism) and without new sources of growth, we can expect downward pressure on earnings and equity returns in the decades ahead.

If Dr Jim Chalmers can focus on enhancing the private sector investment multiplier and still deliver the essential election campaign commitments, the forthcoming special budget can be a game-changer like the Queensland Government’s energy plan. The budget brunch can come later when the economy has a capacity to deliver real outcomes over short-term tinkering.

Business confidence is still no higher than in 2018 when Scott Morrison was in the early stages of his leadership watch.

Predicting future trends is a hazardous art but Queensland’s energy plan may have let the cat out of the bag in relation to speculation surrounding the special budget on 25 October 2022.

Our optimism might increase if there could be more quality Australian content on free to air television networks in Australia. Australian quality productions can be exported to global markets and to the US itself as recommended by Wendy Haslem, Associate Professor of Screen Studies at the University of Melbourne. It should not be left to multinational screening services to offer their own version of acceptable Australian content as re-defined for local audiences by Disney, Stan, Netflix and Amazon Prime Video as welcomed under the federal LNP.

On the other side of the Pacific in the USA, our cultural exports like the ABC’s Bluey are edited or unavailable for streaming on Disney channels according to a media statement from Victoria University (24 August 2022):

In 2021, the federal government removed the quota requiring local children’s programming on Australian commercial television. This has resulted in a significant decline in the broadcast of children’s content.

Australia is not as conservative a nation as many political insiders assume. Perhaps this week’s release of the Queensland energy plan is the dawn of a new era of responsible intervention in the public interest.

Readers must wait to assess the style of that forthcoming special budget on 25 October 2022. Let’s hope that Australian leaders do not follow Britain and the USA into the doom and gloom era when investment flows from neighbouring countries can offer brighter futures. In a rebuff to the federal LNP’s election advertising, Dr Chalmers can prove that Life Can Be Breezy Under Albanese if Australians join Queensland in resisting the reflexive call for investment in more guns and the leanest serves of bread and butter.

 

 

Denis Bright is a financial member of the Media, Entertainment and Arts Alliance (MEAA). Denis is committed to consensus-building in these difficult times. Your feedback by using the Reply button on The AIMN site is always most appreciated. It can liven up discussion. I appreciate your little intrusions with comments and from other insiders at The AIMN. Full names are not required when making comments. However, a valid email must be submitted if you decide to hit the Reply button.

 

 

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12 comments

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  1. Nora

    Take us out of colonial ways ASAP.

  2. Leila

    The case for a Queensland led recovery strategy

  3. Indigo

    The media should give more attention to tax avoidance by US multinational fast food outlets. Australia is not getting value for money from fast food franchises which are conttributing to the national diabetes epidemic from consumption of fatty foods and sypripy drinks infiltrated with sugar: Check out the Annual Report of KFC operating as Collins Food in Australia

    https://www.collinsfoods.com/wp-content/uploads/2021/07/J0711_Annual-Report-2021_WEB.pdf

  4. Tessa_M

    There is no military led economic recovery!

  5. James Robo

    Let’s check out the tone of the special budget and hope that Dr Jim Chalmers is prepared to take some political risks from the example given by the Queensland energy plan.

  6. Andy56

    labor is doing what a good liberal party would do. Unfortunately they have been cowed into accepting neo liberal orthodoxies. thats our fault for kicking them when they did want to improve our lot. Its going to take a big disaster to get a real modernisation of the economy, A big social upheaval. Like any revolution, you dont know what comes after, could go either way.
    Its quite clear to me that laissez faire economics is reaching its use by date. Either we grab the situation and mold it how we want or its going to have a mind of its own. The electrical disruption happening now is a prime example of what i am going on about. Between EVs and solar power, the system as we know it will disappear. people are rightly concerned about their jobs. We can waste another 10yrs arguing or get on with helping people with the transition. And that’s the thing, neo economics doesnt give a fuck about people, they are just units.
    My idea is to have policies based on data, not assumptions about human behaviour. Super for a start would go and a UBI would be implemented. Thats $140b that can be redirected to making peoples lives better. No more fucking your life till you retire so that you can have a good retirement, what a fucking joke that is. Push the price of housing DOWN. Thats another economic winner. If your rent falls by $200 a week, you wont want a pay rise for quite a while.

  7. rubio@central coast

    Great response Andy. Keep asking for what you want.

  8. New England Cocky

    @ Andy56: Agreed about the city Labor-ites adopting neo-liberal orthodoxies, probably because they know no better.

    However, your funding source for future development to advantage the best interests of Australian voters has overlooked the key expense areas, private school funding, rebates & subsidies to foreign owned multinational corporations & international tax avoidance (oops!! tax minimisation). Then remove the incentives for petroleum exploration, remove fuel rebates to the motor transport industry linked with renovation and re-development of interstate rail services and encourage super funds to invest in useful major infrastructure projects.

    To reduce residential real estate prices then negative gearing of residential property must be grandfathered, citizenship inducements for foreign investors must be removed and local councils required to keep balanced financial positions.

    Certainly the UBI would pay for itself by reducing demand on health services, as occurred in Canada.

  9. totaram

    Andy56: “..Unfortunately they have been cowed into accepting neo liberal orthodoxies. thats our fault for kicking them when they did want to improve our lot. ”

    So true!! Thanks for putting it out there for all to see.

  10. Stella

    Denis, thanks for a well-researched article about the Australian economy with specific mention of the new Qld energy plan. An impressive commitment to mitigating climate change and reducing emissions. You raise a good point about lost government revenue through corporate loopholes via tax havens and more needs to be done to address this matter.

  11. Pat

    The mix of guns and butter got the world into the bloodbath of the Great War in 1914.

  12. Louise

    Thanks for your positive outlook Denis

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