Of course we have a weak economy, I suspect most voters don't want to know, they seem to live in an eternal present. In reality, the Howard government has ruined the economy and wasted chances for economic development because of short term electoral considerations. After the debt bubble bursts the adjustments might take a generation to correct the situation and will be very difficult politically, ask the Argentines. The economic fantasy is that since our foreign debt is private we are magically protected from disaster, we will see. I'm sure that if Labor wins office, the Liberals and the Murdoch newspapers will suddenly become alarmed at our debt levels.

This is the best comment on our future economic problems that I have read. John Howard's economic credentials were always suspect once he commissioned the Campbell Report. Placing a real estate businessman in charge of a financial institutions investigation was a recipe for the wrong outcome and that is what we received.
Each treasurer since that time has been devising means of delaying the day of reckoning but that day is getting closer. The prosperity of the citizens of both the USA and Australia are now at the whim of the Japanese and Chinese governments.
Our industries are now at the stage that we could not supply our own troops with boots and clothes let alone munitions, armaments, truck transport and planes if we are at any time called on to mobilise to defend ourselves. I doubt if we could build an electric motor on short notice.
Our infrastructure is deplorable and in this age an effort like the Snowy is beyond the mental concepts of our political leaders, or at least the leaders of the present government.
We need an industrial development policy that defends any Australian genuinely productive industry using near world's best practice. If that requires some tariffs so be it.
The article mentions what is included in GDP. That figure includes coffee serving, waiting on tables and many other services that we could each provide for ourselves, tasks best described as "taking in one another's washing." These tasks really add nothing to the real worthwhile economy. If those are the only jobs our economy can create we would all be better off if more people stayed at home to look after the children and to do woluntary work for the less well off.
But no politician close to an election would dare point out the truth of Australia's economic position.

The article quotes:

"The proud claim of an unemployment rate of only 4.2 per cent is achieved by including everyone with over one hour’s paid work a week."

Can anyone out there point me to a source (ABS perhaps?) which clearly states this 1 hour per week statistical input?

Thanks.

I would agree that this is an excellent article. I cast my vote for article of the year.

It always rains eventually, and the draught is guaranteed to finish within a few years, but what is happening to Australia’s economy and industry can go on for decades.

In an act of total economic stupidity, our treasurer now wants to reduce tax rates for the rich, instead of spending the windfall from the resources boom on skilling up the workforce.

The brain drain is now becoming a major problem for Australia, but meanwhile our universities are becoming training grounds for the opposition. In some of the more technical subject areas, there are now more foreign students enrolled in Australian universities than Australian students.

A major industry in Australia has become building houses, although the population is hardly growing, and the total population will begin to decline within a few decades.

The Australian economy is now copying the US economy in many ways, and the US economy is on the verge of collapse

Iluvatar,

Have a look at this website. The one hour a week business is not an urban myth.

http://www.abc.net.au/worldtoday/stories/s236260.htm

I agree with Valerie Yule and all the previous posters. Part of the problem seems to be that many important people in politics and big business see themselves as part of a cosmopolitan elite and feel no special concern about the Australian people and environment. They can always take their loot and move on as the rest of us go down the toilet. One method of regaining control might be to simply put all incumbent politicians last and keep doing it until they pay some attention to our long term future. There is a US website devoted to this

http://www.voidnow.org

I have one slight quibble with the article, which is the idea the only way voters can influence economic policy is via elections.
Not true. As voters, we can refuse to buy imported goods. We can refuse to borrow more than we can really afford. We can refuse to partake in activities that supply profits to industries that aren't doing everything they can to reduce their environmental impact.
Our foreign debt is bad, but ultimately it's the outcome of the individual choices of Australian citizens. At some point we have to take responsibility for it - government policy can only go so far in swaying consumer behaviour, and worse, can backfire if not implemented wisely.
We can "vote" with our wallets just as powerfully as we can at the ballot box.

there is a simple cure for most of our problems, it's called democracy. ozzies don't want to know about it, it requires active participation from at least a large minority of the electorate. if you're raised in a wheelchair, you don't think you can get up and walk and that is probably the case.

so ozzies will turn to the sport pages, or the celebrity mags, and complain when things go wrong, but never ever demand direct elections, citizen initiative, or open administration of public affairs. the limit of their hopes is a 'firm but fair' favorite uncle for a prime minister.

unfortunately, climbing the political ladder requires moral qualities that would get you disqualified from the east l. a. pimps union- they have higher standards than pollies can afford. so there won't be any philosopher kings at the helm, and the tooth fairy is confined to the under-8's. what you're going to get is big brother: surveillance cameras, databanks on every resident, house arrest for political whingeing, 'disappearance' for active protest, and relentless lieing from the media in support of government policy. can't happen here? it is, already.

so what's going to happen with the schools, hospitals, roads, and environment? more of the same from tweedledee as from tweedledum, except dee is likely to have less resources. the quality of life can only fall so long as the economy is built on looting nature while increasing population

you wouldn't elect dee if he was suddenly afflicted with truth telling, if he reported the consequences of selling the farm overseas with it's consequent export of investment finance, you'd vote for dum again. there will always be a 'dum' to tell you convenient lies, and a nation of stooges will swallow them.

so never complain about the quality of oz pollies- they're as good as you deserve.

"That figure includes coffee serving, waiting on tables and many other services that we could each provide for ourselves,"

Foyle, hang on, whoah. Of course services are part of the economy.
Tourism is a huge industry. Are you expecting tourists to cook
their own dinners? Of course not.

We've been down the tariff path and landed up with a fat, lazy,
complacent manufacturing industry, which took from the poor and
gave to the rich, hanging out at the Melbourne club.

As an exporter, all those tariffs increased my costs, making my
products less competitive on world markets. Many Australians have
to compete globally, why can't the rest of you?

The real problem is that a whole generation have never known
bad times, so don't have the foggiest about putting something away
for a rainy day. They want it all and they want it now. The
thing that has changed most is peoples expectations. In the 60-70s,
people wanted a 3 by 1 house and a Holden. Now they want a McMansion,
with everything that opens and shuts, 2 cars in the driveway.

Australians have become alot richer, but have also thrown caution
to the wind. Those plasma screens are walking out the door at
Harvey Norman's.

If the Australian $ lands up going down as the US$ is going down,
so be it. I just can't see that happening in the short term,
unfortunately.

Yabby, I'd argue that we've been down the "let's just slap great big tarriffs on all imported goods and leave them there" path, which was, no doubt, a big mistake. It is not correct to therefore conclude that tarriffs are never justified. Carefully targetted tarriffs to address specific imbalances, with clearly set expiration schedules, can and do serve a useful purpose.

My wife and I are constantly frustrated how hard it is to find Australian-made goods (other family and friends concur). We're quite prepared to pay more for it, but because retailers seem to think they'll do better by selling more and more of the cheapest stuff possible that they can get from China. Hence there's not even the possibility of a new Australian manufacturer even getting off the ground these days. Maybe tarriffs aren't the best solution, but I'm open for better ones.
We still live in too uncertain and unbalanced a world for it to make long term economic sense to be utterly reliant on overseas manufacturers - global trade has collapsed before (in the 1930's depression). We're a big enough and rich enough country that we should at least be able to manufacture the basics for ourselves.

"My wife and I are constantly frustrated how hard it is to find Australian-made goods"

Nic, the point remains that Australia, with only 20 million,
is still a piddlefart economy. Fact is that we cannot make
everything, let alone do it well.

I am sure that you are not alone in your quest for Aussie
made goods. Yet we all know that manufacture is only a small
part of any product, distribution is a huge cost. As Westfield
have shown, its far more profitable to build shopping centres
where people flock, then to manufacture anything.

The internet provides new opportunities for consumers and
producers linking up together, to cut out the many middle men.
So perhaps you can find some of the goods that you seek online,
or perhaps they are just not made here, as consumers have
decided to buy imports, as they vote with their wallets.

Its virtually impossible in today's economy, to decide as to
what is critical and what is not. The cow may be willing to
donate her milk, the farmer willing to milk her and sell it.
The milk manufacturer might be willing to onsell it, but if the
the bottle plant which makes the bottles breaks down and is
made in France, without spare parts from France, the whole
thing comes to a stop. So are parts for milk bottle machines
critical, so should be manufactured here? The list goes on..

(...making no apologies for skirting suffocating posting limits!)

Yabby, if for some reason we were unable to purchase bottle-top-making machines from France for 5 years, we would make do without too much inconvenience. On the other hand, if we were unable to purchase any bottled drinks from overseas for 5 years we'd be quite seriously affected. I'm certainly not suggesting that Australia needs to become anywhere near self-sufficient, though I dispute that 21 million isn't a big enough population to sustain a self-sufficient economy (accepting it would be a somewhat less technically advanced economy - plenty of much smaller economies have far more robust manufacturing sectors). It doesn't bother me particularly that we don't manufacture plasma TVs here, but it does bother me that we no longer manufacture basic items like children's clothing, fridges, kitchenware, toilet bowls, bicycles, etc., without any of which we would be truly be forced back to a rudimentary sort of existence.

I don't see why distribution is an issue - 10 or 15 years ago you could walk into David Jones and buy a toddler's outfit made in Australia. What's changed since then?

For anyone that has done Economics 101, one of the signs of a growth economy is that huge investment is made in machinery and equipment which generally leads to a increased foreign debt.

By any recognised economic measure the Australian economy is one of the most robust in the world. The article tries to fly in the face of reason by poking a stick at some of the anomolies that arise with strong growth.

This article is not based on economics, but probably more on numerology. What's next? "is the earth really round?"

THANKS FOR THE EDUCATION, all your posts as well as the original article.I lived through the 1939 to 1945 war and "economy" was to me "How to save money!" I remember a farmer with 6 kids at the Rodeo and he called the family to lunch.On the back of his truck he had a big tin of TREACLE.He handed each a piece of bread he cut off a loaf. {Nothing sliced back then.} No butter, it was rationed,"Help yourself he said and handed a spoon to each in turn.I WOULD LIKE SOME OF THOSE FACTS I've learnt to be thrown at "aspirational" polititions!

Shadow Minister,

What huge investment in machinery and equipment? Let's see how much of the debt is financing consumption and inflating asset prices such as housing instead of the purchase of capital equipment that will produce an income stream. (Economics 101.5). After 10 years of Howard's economic mastery we are deeper and deeper into the swamp.

a few have beaten me to the punch (eg Yabby) but here it is anyway

“Thirty years ago we were up with the rest of the world in manufacturing; now we are down to 11 per cent of GDP”

That historic performance came at a price.

The price was a high local cost for manufactured goods made in sub-efficient factories, sustained and supported by a tariff and quota regime which meant the consumer was continually screwed and blackmailed into paying around 3 times the competitive price for the privilege of inferior locally manufactured goods.

Do not get me wrong, I wish Australia did have a strong and vibrant manufacturing sector.

I wish we applied greater effort in areas like secondary processing of the minerals and agricultural products which we presently export in bulk.

However, we seem to have full employment.

We are importing people to augment the local work force.

The decline of manufacturing is something I have good reason to personally regret but I would not wish to see its resurgence made possible by deploying the tyranny of quotas and tariffs, which featherbedded the 1950s and 1960 growth companies by raping the wallets of consumers.

One thing I can predict.

When the boom ends and the national economy declines

A recession will sort out the borrowings.

House prices will become more affordable overnight

Opportunities (like the secondary processing I mentioned) will represent and with more unemployed (freed up from the presently successful, really “marginal”, businesses which always fail in recession) will be available to man them.

Imports will decline – as available credit dries up – due to lack of security for foreign lenders from assets (eg housing) in which prices are declining.

The “economic equilibrium” will return.

However, the real difference is plain.

If the government do nothing to halt any recession when it occurs, the outcome will immediate, than if it tries to stave it off. However, the ultimate price for staving off the inevitable (by tariff, protectionism, or socialist nationalization ) will be ultimately be far more severe and far more disastrous to everyone.

Mac,

Every large engineering company and most of the small ones are so busy that they are desperately trying to bring people in from abroad, and even having to turn work away.

The amount of money being spent by businesses, both mining and manufacturing, is breathtaking. The ports are choked not only with exports of raw materials and imports of consumer goods, but also heavy industrial equipment. This I know first hand and don't have to rely on other posts or articles.

This all will translate into further growth later. The real threat to future growth is constrictions such as the unions would impose on the labor market. The boom is here, the danger is in thinking that it is bullet proof. If we stuff it up we will have only ourselves to blame.

Pretending that the economy isn't strong or that it is purely a coincidence that it has happened in the last 10 years is like trying to pretend that you can't see the elephant in the room.

Shadow Minister the fact that you "know first hand" ports are choked with heavy industrial equipment is not proof that our debt is sustainable. The fact that our ports are choked is a problem in itself, that the current government has done little to alleviate in the last 10 years, but more importantly, it doesn't change the fact that the bulk of our foreign debt is in credit cards and mortgages.
Col Rouge is absolutely right, when the boom finally ends and recession bites, it will sort out the borrowings, and it will not be pretty. But surely the point of prudent governmental oversight of the economy is to prevent the situation getting to that point. Sadly, it's probably too late already, but certainly in the US many economists are calling for greater regulation of lending institutions, simply because too many of them have yet again proven themselves incapable of adequate self-regulation, and yes, many customers have proven themselves incapable of judging their own ability to manage debt. If it were true that only those that over-borrowed or over-lent paid the consequences, it would be one thing. But it's never that simple, and the pragmatic position is to accept that having regulations that prevent irresponsible behaviour is generally less costly and dangerous than allowing it go on unhindered.

"Sixty-seven percent of the public can cheerfully think that health is the major election issue."
You can rest assured health will continue to be a big milking cow to capitalize into huge profits. As well, that is what is presented - but the Iraq war is the hidden major issue. As agreed by Labor, Liberal, and the Greens the war will be the great unmentionable during the election. Wars are always presented after the election, as if, they did not know beforehand. Already, there is agreement through utter silence on the upcoming war with Iran for oil and the conquest and domination of that area of the world.
Nor is there any mention about the Howard government's colonial aspirations and interventions into the Pacific region. Presently, Howard is instituting a dirty tricks campaign against Papua New Guinean Prime Minister, Michael Somare, contemptuously defying the outcome of PNG’s August elections. Canberra had hoped the elections would result in a more pliant administration, and is now considering unrestrained “regime change” operation, like the one it recently carried out in East Timor, and is currently orchestrating in the Solomon Islands. What should be rejected with contempt is the cynical fraud by the Liberal, Labor, and Green parties that its interventions have anything to do with humanitarianism. There are resources along with economic and strategic interests at stake; colonial aspirations are back on the agenda. Who is Howard and for that matter Rudd, to claim or lecture anyone, on humanitarian interests with their undeclared war on public health, education and boosting the exploitation rate of workers? The peoples of New Guinea and the rest of the South Pacific have the right to determine their own future.

Shadowminister,

What would Australian management do without the unions to blame? I could say that the restraints on innovation and production in Australia are due to relatively poor and grossly overpaid top local management compared to its Asian counterparts. This was certainly the case 10 years ago when I took a course on the problem. What ever your experience in your segment of the economy, industrialists in this country have not risen to the challenge, our current account deficit indicates this. Too much of the borrowed funds have been wasted on consumption and asset inflation, the Howard government has wasted a decade in order to pander to short term considerations, the economy is weak and the next unfortunate government will take the blame for Howard's incompetence. We will be left with no industry and an empty quarry. I suggest you read an economic history of Japan or Korea.

Wiz, you are right, 2 posts is restricting. Perhaps everyone could
send GY an email, suggesting that this is changed to 4 posts,
as in General.

Bottle tops might not be an issue, but bottles certainly would be.
Most PET bottles are made on the run. That needs functioning machines
to happen. So its a globally interdependant world now.

Aussie made kids clothes are available on the net:

http://www.googoogear.com.au/

So if you can't find things at David Jones, do a google search.

Australia will have a more dynamic manufacturing economy, when
we have flexible labour, innovative management and lower overheads.
Right now, exporters are not appreciated in Australia, instead
they are taxed with payroll tax. Perhaps if the Aus Dollar crashes,
people will wake up.

As to regulating how much people borrow, the question arises as to
how much you want a nanny state. By rights the pokies should be
shut down tomorrow, that would save workers billions.

Fact is that Aussies are bad savers, but taxes are geared such, to
make them so. Given that profits from own homes are tax free,
people prefer to plow their money into their houses. If they
save the money, inflation takes half, the Govt takes the other half,
of any interest payments.

Distribution is a huge issue, as its such a major cost. Go and
ask a small shopkeeper in a shopping centre how much rent they
pay, you'll see why then need huge margins. The internet can
shorten the chain from manufacturer to consumer, at much lower cost.

Good article.

not convinced that a strong heavy industry sector is a sign of a healthy economy.

yes we need to move forward with 'green' technologies and we can be world leader in this. but do we need to manufacture washing machines, ovens or cars?

because of trade barriers which favored Australian manufacturers production efficency was low, as was quality, design and innovation. top loading washing machines are a prime example.

i have come to be a 'protectionist', because i think some things are more valuable than cheap consumer goods. if oz integrates it's economy with the rest of the world, it becomes unable to manage it's political and social affairs as an independent nation.

in simple terms, by being dependent on cheap chinese imports, we can not effectively protest against chinese national policy in thibet. neither can we protect low-skilled ozzies from unemployment or low wages, when there is no tariff protection from cheap imports.

the best protection is a tariff wall on people: simply by stopping immigration, the bottom half of the labor spectrum would get better comparitive wages due to simple market forces. by stopping immigration, industry could be forced to pay for educating and training new employees for higher level jobs. by stopping immigration, we could begin to relieve the population pressure on the environment.

we should aim to feed, clothe, house and educate ozzies first, enrich foreign corporations last. this need not result in having to settle for inferior goods either. nokia manages to make top quality phones with no national competition, perhaps a 'one or few but good' policy can be better than open slather capitalism.

Wizofaus “But surely the point of prudent governmental oversight of the economy is to prevent the situation getting to that point.”

Prudent government has the sense to recognize what it is good at and what the vehicles of private commerce are better at.

The reality is taxes are not the best source of venture capital funds, stock markets are.

Governments are not the best planners or managers of commerce. Commercial businesses assessing risk and opportunity, without the concerns of a general election are in a position to take a better long term view and balance the return to the assessed “risk”.

Governments are there to regulate and ensure ethicacy and standards of public conduct, as Richard Pratt & Co are finding out.

As for all this “debt”.

The debt is of a private, not a public, nature.

In that lies the difference. Private borrowers cannot “fix the market” or deflect the consequences of poor borrowing choices, governments can (especially by screwing more from tax payers).

The problems which some have alluded to here with borrowings, ignores that these are private debts.

Any fallout or “collapse” is not going to materially affect a significant number of borrowers, only a tiny minority (who are possibly overdue for a good lesson in real-world economic management).

“But it's never that simple, and the pragmatic position is to accept that having regulations that prevent irresponsible behaviour is generally less costly and dangerous than allowing it go on unhindered.”

We have heaps of regulation. Companies Acts, employment regulations, etc

There are always those who get suckered into schemes and false reporting.

The reality is, every system of regulation runs behind the inventiveness of the criminally inclined. Many dupes ignore the commonsense advise “if it sounds too good to be true, it probably is”.

“Regulation” must not be so proscriptive as to hinder the ability of the real venture capitalists to develop, invest and be rewarded from their investment in risk and innovation.

absence of venture risk-takers reduces the opportunities for all in a way government cannot compensate for (viz real jobs and trade).

Demos, whilst your intentions might be very noble, in reality things
are just not that simple.

Introduce tariffs, the biggest losers are in fact the poor. Clothing,
bicycles, paint, food, you name it, they pay more.

I remind you that the biggest cost in the economy is not profits,
but waste. Look at the balance sheet of most large industrial
companies. Profits are only a tiny % of turnover, costs are the
big issue.

The reality is that no competition means complacency, which means
waste. All those office workers, staring out of windows, watching
the cars go, cost somebody, for their wages have to be paid.

Thats why Govt is usually so hopeless at running anything.
They have no competition, so can waste time and resources with
relative impunity.

Try to force international capital, they will simply pack their
bags and go elsewhere. As to Australian capital, the largest
shareholders in Australian companies are in fact workers, through
their super funds. The vey beneficiaries of high Australian
corporate profits, are the owners, the people who own 1 Trillion
$ worth of investments in their super funds. Australian workers
of course.

Nokia did well by being internationally competitive and giving
consumers what they want. That is all about great entrepreneurship
and management, not about Govt policy. Any Australian is free to
start a Nokia tomorrow, if he thinks he has the ability.

Yabby, it also has to be said that Nokia got its start as a shareholder in a government-controlled company. However, it was largely because Finland was on the leading edge of deregulating the telecommunications market in Europe that it was able to grow to such an early position of prominence. There's no question that there are areas that governments generally do better by staying out of.
OTOH, they have fully taxpayer-funded tertiary education, and very well supported universities, where early adoption of modern communications networks was a critical factor. Perhaps by far the best thing the Australian government could do to promote development of new high-tech industries here would be to dramatically lower HECS fees, and put a whole lot more money into universities.

Regarding whether tighter regulation on borrowing and lending would lead to a "nanny state", that's a little absurd: money is a concept that absolutely requires strong government legislation and regulation to have any meaning. We aren't allowed to just print our own bills at will, and there are already regulations prohibiting banks from lending more than a certain multiple of their deposits. So a little extra regulation to protect borrowers from overstretching themselves is not unjustified: indeed, it need not be "thou shalt not" type regulation, simply "if you borrow more than x% of your income, the government will charge ever higher fees on what you borrow". Customers would be far less likely to be talked into that shiny new interest-free Harvey Norman card, if once it was determined that, already owing most of their income in interest payments on other cards or their mortgage, there would be a $100 monthly fee charged.

The supporters of the economy is weak camp all seem to be labor leaning. The political reasoning for this is:

- If the economy is weak then the coalition haven't done a good job,
- When the economy goes down the plug under labor, they can then blame the weakness of the previous economy. (pre building excuses for failure)

In the last 10 years, wages have had a 20% real growth compared to the negative growth under labor, unemployment has halved, a $90b federal debt has been paid off and there is now a constant budget surplus.

The debts are for individuals, corporations, and the states (labor). The lending mechanisms in Australia are much more strictly regulated and the sub prime lending crisis in the US is not reflected here.

There is no real sign of weakness within the economy yet, and the shadow cabinet has not even dared to suggest it.

I also notice that when ever the word myth is used, it is to attack something that is generally accepted, by sniping at small imperfections, and claiming that the measurements are generally flawed.

Future threads coming:

The employment myth,
The budget surplus myth, and my favourite,
The round earth myth,

Perhaps some of us are "Labor leaning" *because* we don't believe the economy has been managed nearly as well as it could have been. I've voted Liberal more than once in the past, when I genuinely believed my particular representative was the best choice, and I generally find the core philosophy of the Liberal party insufficiently different to that the ALP to choose either on ideological grounds.
I agree that calling the economy "weak" is a bit of a stretch, but Costello himself said it best: "finely balanced". Or in other words, vulnerable: too dependent on factors that we have no control over. Even the resources boom hasn't benefited us anywhere near as much as it could have financially: our resource exports have barely grown in quantity in the last 10 years. Now, as it happens, I don't actually believe we should be shipping off all of our raw resources to China as fast as we possibly can, but if the sole aim of the government has been to allow this process to generate as much short-term profit as possible, it hasn't done a terrific job of it.
OTOH, while I do not accept, like some, that economic growth is fundamentally incompatible with limits imposed by mother nature, as it is right now, virtually every extra $ that is added to our GDP means more greenhouse gases, more habitat degradation, more irresponsible water usage, more particulate pollution, more toxic waste, more landfill, more dependence on foreign oil etc. etc. That's clearly not an equation that can continue much longer.

Do I think Labor would have done a better job in the last 11 years? If anything, they would have further increased our infrastructure capacity, thus allowing our resources to be dug out and shipped off at even higher rates, and unfortunately there's not much reason to believe a significant percentage of the profits from doing so would be reinvested back into transforming our economy into one that actually works as part of our natural environment, rather than fighting against it - a fight that it is guaranteed to ultimately lose.

Shadowminister,

I could claim your arguments are straight from Liberal HQ, it's always short term considerations for the Coalition, anything to keep Labor out. Here's a few "myths" for you, generally ignored by the Liberals and their rural socialist allies.

1 The lack of venture capitalists - True
2 The chronic current account deficit -True
3 The enormous foreign debt - True
4 The debt is private so nothing can possibly go wrong
-false
5 The steady decline of manufacturing -true
6 Service industries will compensate for 5- false
7 Global warming - probably true
8 The twin deficits theory- false
9 The widening in income distribution - true
10 economic "growth" based on national rather than per capita figures

Mac,

The information on which the claims I have made are based are freely available on goverment statistics websites.

It is in the Coalition's interest to trumpet them and Labor's interest to ignore or undermine them. If John doe is arguing that the sky is blue and Joe Blogs is arguing that the sky is red, the sky will still be blue.

I have some serious criticisms of the goverment with respect to climate change, the war in Iraq etc, etc, however, with respect to the way the economy has performed the statistics speak for themselves.

By comparison Bush has cocked up the US economy so badly after being handed a going concern by the democrats, by poor fiscal discipline.

My concerns with a labor gov is not the other issues, but precisely with their past record of poor fiscal discipline.

I am not particularily enamoured with either party, but if you ask me who I would prefer to ensure my personal financial future for a further 10 years, the present incumbents are a safe bet.

Rather than comment on how labor could have done better, simply show me that my stats on the last 10years and the previous yrs under labor are wrong and I will be the first to change my vote.

Mac, I'm not into party politics, but issue politics.

A couple of points regarding your list. Yes, manufacturing
has declined, but then backward inefficient industries, no
longer protected by huge tariff walls, had to be weeded out.
In that sense we are still in a state of restructure, with
new niche industries arising. Take ferries for instance.
Building them is booming, they are screaming out for workers.

Employment in mining has grown 50% in the last five years,
employment in construction around 32%. Surplus workers have
clearly been absorbed into more efficient industries.

I tried to buy an Australian made MIG welder this week.
I was told that it was 500$ more expensive then 6 months
ago as "mining is booming, we can sell all we make".
Clearly there is a huge amount of business investment going
on, into new capacity. But rather then making shoddy, overpriced
consumer goods, they are making more specialised products.

If you want more export orientated venture capitalists, so create
conditions to encourage them to invest in Australia. Getting
rid of payroll tax on exports would be a good start. Penalising
exports is not exactly how to encourage an export economy.

Shadow Minister & Yabby, in reply

Shadow minister,

we all have access to journals or the ABS, I'm not disputing your figures, my claim is that in the aggregate ,the situation with our current account deficit is not improving and the aggregate is the only real statistic to rely on if you want to demonstrate your argument. Climate change could be disastrous for Australia,there has been no planning, it was treated as an ideological battle, that is an example of gross negligence. Fiscal discipline is useless if there is nothing fiscal to distribute, government surpluses were supposed to correct our external imbalance, this is nonsense. Foreign lenders will not allow our external debt to increase year after year without requiring higher interest rates.

Yabby,

I suppose what we are disputing is whether or not our economy is restructuring, this is not reflected in our current account figures. You mentioned the inflation caused by the mining boom, after 100 years of independence mining still drives our economy, when it's all over we will be left with an empty quarry and few other industries. All the income will have been squandered on pork barrelling.

And finally, I'm sure that Labor has its own areas of incompetence, usually lack of vision is not one of them. Australia needs a development/industry policy desperately, heresy!

Only history will tell for sure whether Howard has ruined our economy, I'm sure that Labor will get the blame for the consequences of the Coalition government's reckless policies.( Economics is not a science, there is too much grit in the wheels of theory, that's why I recommended economic history).

Mac “Australia needs a development/industry policy desperately,”

Any plan can only be better than the Button Plan to remodel the auto-industry and the mid 1980’s manufacturers Bounty regulations, administered by Customs and Excise (basically taxpayers money disbursed to directly subsidise and unequally advantage certain manufacturing sectors).

I further recall massive subsidise available for textile clothing and footwear sectors, often taken up before the companies went belly up.

“Only history will tell for sure whether Howard has ruined our economy,”

Ask yourself, how much more public debt interest would we all be paying if the debt-hungry socialists had been in power for the past decade?

How much more would income and company tax rates need to be to cover the public debt which the Coalition deliberately paid down.

There would be
Higher tax rates
no superfund co-payments
lower income tax thresholds
there would still be a massive unfunded civil servants superannuation debt.
there would still be tax payers money being poured in to cushion the incompetence of Telstra unionised employees and institutional management.

And Keating would still be buying his suites in Paris, (so much for defending TCF policies).

If anything, the current economic circumstances are testimony to the Coalitions competence and ability to plan and manage to avert an inherited disaster, rather than any producing any ruin.

Had the socialists been in power we would now be the "Banana Republic" which Keating envisioned when his bunch of jelly-men were screwing the national economy.

Mac, our current account reflects a lack of savings by ordinary Australians,
as much as anything. If Australians saved more, owned more of BHP for
instance, profits would stay here, rather then be sent offshore.

If the current account stays high, so let the Aus $ drop, to reflect the value
of exports. Instead, we tax labour on exports.

How much economies change in 50 years tells me that we don’t have the
foggiest of what the Australian economy will be like in 50 years and nobody
can predict it. I have an old geography book from the 1960s here. That
states that Australia has virtually no iron ore, the largest deposit being in
South Australia. Our largest export by far at the time was wool. So to
start being concerned about running out of resources which we haven’t even
discovered yet, is a little premature.

I’m certainly glad that Costello paid off Govt debt. In 1996 it swallowed 7%
of federal expenditure. Increasing tax rates by 7% to pay interest, is not
my idea of good economic management.

I certainly don’t believe that Govt is able to predict what industry should be
doing. Far better to create a suitable climate for exporters, then let talented
entrepreneurs and venture capitalists find the niches. I was involved in
innovative exports for many years. On the one hand there were well meaning
Govt officials trying to interfere, on the other hand there were other Govt officials
inventing more red tape and restrictions. If they both got out of the way and
all those costs were reduced, we’d be far better off and results might improve.

Restructuring an economy from one that depended on the sheep’s back, where
manufacturing was a mollycoddled, overprotected dinosaur, to an innovative
market economy, is not going to happen in a few years.

All credit to Keating, he started it and Costello has continued it. But we still
have a long way to go. Meantime mining is certainly assisting to help
fund that transformation. So be it.

Col Rouge and Yabby

Yabby,

"let the $A drop, to reflect the value of exports", it won't will it, as long as the mining boom keeps it high, the boom is not financing restructuring but pork barelling such as first home buyers grants. Mining geologists are already expressing concern about the decline in available high grade deposits. The Howard government has, too late, realised its mistake and is starting to implement policies to encourage venture capital and R&D, our venture capital is about 1/3 of the OECD average expenditure and R&D about half. " resources we haven't discovered yet" are you serious? When? Where? The Japanese and Koreans used industry policies to develop their manufacturing bases and let the fiscal side of the economy serve their aims, not the other way around as in the Anglo neo- liberal fantasy.

Col,

We are a already banana republic, with a foreign debt of 1/2 a trillion dollars and no prospect of turning the situation around with the current policies. You are concentrating on government surplus as the only measure of competence. Just wait and wait and let the market perform its magic,someday. The industrialists in NE Asia will buy and sell us long before then.

Mac, given that Australians have 2.4 trillion$ worth of assets, why should
500 billion of debts be a problem?

http://www.smh.com.au/news/business/were-all-richer-we-just-dont-realise-it/2007/10/01/1191091029764.html

We are still a young country, debt is to be expected, unlike old Europe,
where wealth has accumulated over hundreds of years.

I would not panic just yet about iron ore reserves. Last I looked, they were
still busily drilling to discover how much they actually have. We are mining
ore with 60% iron content, the Chinese are mining ore with 10%. The NW
gas fields are still being drilled, most projects have not even begun production
yet. BHPs uranium reserves recently doubled, when they finally got around
to drilling around their SA mine site.

You sound determined to have Govt tell industry what it should do.
That might work in Japan, where compliance and conformity are part
of the culture, but they are not part of our culture.

I remind you that the Swiss have no industry policy and their industries
have done extremely well in the global economy, by developing high
value niche industries.

I disagree that our current account won’t be turned around. What was
always lacking was our ability to save. Now we have enforced savings,
through the super levy. That’s added 1 trillion$ to our wealth accumulation.
That will continue. Many of the mining projects now being invested in,
won’t even start production for a few years, so it will take a while for
those figures to show in our current account.

New niche manufacturing industries will be created, if innovation
is allowed to thrive and is encouraged. We are not doing that yet.
In my experience, when entrepreneurial types do undertake a venture,
they are usually bogged down in State Govt red tape to such an
extent, that in the end they throw in the towel and decide to go and
make their venture happen elsewhere.

Yabby,

I hope you're right, however I don't share your optimism given the country's past record, the "Lucky Country" description still applies. Just a few points, first a simple arithmetical comparison between assets and liabilities is not adequate as any accountant will tell you. Much of our debt is used to finance consumption, not income producing assets, and the mining boom is currently squeezing industry. The super levy was a Labor initiative, wasn't it, Gasp! I spent some time comparing the Japanese and Australian economies and you are carictaturing MITI's industry policy as authoritarian, it was far more subtle and flexible than that , and yes obviously it's a different culture and Japan has negligible natural resources. The Swiss were also Hitler's bankers, I wonder if they have a better class of client now. Even if you're correct we still have the problem of servicing that debt until we reach the neo-liberal nirvana. In say, 5 years time, one of us we be able to say "I TOLD YOU SO"

Yabby, it's not a question of the Govt *telling* the industry what it should and shouldn't do, but where and how the government the spends money in infrastructure, education, research, incentives etc. etc. make a huge difference in the direction the economy takes.
As I've pointed out before re your favourite example of Switzerland, the Swiss government pumps far more money in to education and research than our own. Further, governments there haven't been obsessed with keeping the budget in surplus over and above all other considerations. There is the Swiss Office for Trade Promotion that actively helps out exporters and other corporations wishing to operate in Switzerland, sometimes with tax breaks, but mostly through cooperative research and market analysis. There are still considerable agricultural tariffs, with no concrete plans to remove them. And while not part of the government per se, the Swiss National Bank's policy is explicitly to encourage the Swiss Franc to ensure trading terms remain favourable. Oh, and FWIW, 25% of its workforce is unionised.
Anyway you look at it, the Swiss economy is hardly some paragon of a laissez-faire, unmanaged economy. It has just as many "well-meaning" government officials doing their best to keep the economy running smoothly - and they obviously do a very good job, for the most part. Indeed, pretty much the only economies that could be said to be truly laissez-faire are black-market ones, and those of failed African states. Which should tell you something.

They say our massive foreign debt is kept from the notice of the media and public because any reduction will lower the value of our exports?

Can any of our bright minds explain how this can come about, because it sounds we will be broke whatever way we go?

Cheers - BB, WA.

Mac “We are a already banana republic,”

You might be but I am certainly not.

The debt is not a “taxpayer financed government debt”. The “foreign debt of 1/2 a trillion dollars” is private.

As Yabby correctly observes, “2.4 trillion$ worth of assets, why should 500 billion of debts be a problem?”

So, if some bunny has hocked himself up above his neck, it is his private and personal problem and likewise a problem of the fool who lent him that much.

Speaking personally, I have a debt to asset ratio of around 1:5 (about ankle high and capable of eliminating same debt in under 2 years if I needed to). As things go, I am certainly not a “private banana republic” and when the bell tolls to ring in the debt, am not going to sweat any.

“You are concentrating on government surplus as the only measure of competence”
Not at all the incumbent governments debt reduction strategy is having and will continue to have an ongoing benefit for future generations of Australian, just as the history of “socialist debt funded spending junkets” would leave a taxpayer funded interest bill for our children and grandchildren to pay.

The attitude of the incumbent government in not pretending to run a nanny state which knows better than private commerce is the same government who has freed up the labour markets from under the jackboot of unionists and demonstrates a government going the distance to maintain Australian competitiveness in the face of “The industrialists in NE Asia” who seem to be you boogey man.

I might add those same “industrialists in NE Asia” reflect the “spirit of venture capitalists” which we need.

Such “spirit” will not only overwhelm but be beyond the comprehension of those who think there is any solution to be found in the hypocritical socialist alternative of a “committee of experts” who are prepared to take risks with tax payers funds, so long as they don’t risk their own security blanket and resources.

“There is the Swiss Office for Trade Promotion”
Australia has maintained the bipartisan equivalent for years.

Col Rouge,

You can't use your own personal balance sheet as an analogy, or simple arithmetic. The national assets and liabilities are the aggregate of thousands of individual enterprises each with its own financial health and all interlocking in some way. According to your logic the Great Depression never occurred. During a recession or a drought you can be sure the Nanny State will come to the rescue of the rugged individualists when they come bleating for a bail out or some kind of government intervention. Private profit, socialised loss.

Sooner or later private debt is public debt, most of us will be affected in a severe recession.

The NE Asian industrialists are not my bogey men, they are examples or real entrepreneurs,we have to compete in their world, not in a textbook fantasy.

Aussie Know-how?

Col, certainly agree with you somewhat, but much of our overseas debt trouble surely must relate to the lack of production of our own rolling stock?

Possibly you are too young to realize that most of our farm gear even during the Great Depression was produced by HV Mackay, Sunshine Victoria taking the name of the company.

Not only did they produce the world’s first stump-jump plough as well as the Sunshine grain stripper, both much favoured in Argentina, but also a generally whole farm plant, reapers and binders and so forth also produced with the Sunshine Aussie touch.

Furthermore, from out of patent overseas ideas Sunshine also built the first true reaper-thresher, now sold back to us in the shape of the big Yankee Combine Harvesters some now worth three quarters of a million bucks a throw.

Now with a re-rising China with its demand for our precious pitstocks, it seems we have forgotten how innovative we once were, having reached the stage that we don’t seem to encourage major innovation and production these days, leaving it to both the old and new overseas producers, with us too much relying on what was also called in the colonial days quarry economics, most of that machinery of course being owned by the big companies, and of course, also imported.

Finally, Col, your success plan seems too much searched over by a study we did called The Changing Global Political Economy, which though seemingly good for the Third World, still talks about farm products bought six to ten times less at the farm gate, than eventually sold in the shops without much more cost to the Big Biz buyers.

Could say, Hey Ho to the renewed Corporate Culture.

Cheers – BB, WA.

Wiz, I think you will find that Swiss companies like Nestle, Roche, Novartis,
Schindler, Saurer etc, have done well globally despite the Swiss Govt, not
because of it.

These companies all spend huge amounts on r&d, had to compete globally,
had to be well managed, or they would have gone broke a long time ago.

Contrast that to Australian industry, which was largely geared to hide
behind high tariff barriers and did not have to invest in r&d, as they lacked
global competition and the outcome is for all to see.

Yes, Swiss agriculture is subsidised and protected, that’s why its one of
the least efficient in the world and is carried by an efficient industry sector.
Exactly the reverse of our economy!

Just throwing money at something is not always the answer. How its actually
spent matters greatly. What the Swiss do get right is their education system.
They have a good vocation system, which means that apprenticeships are
the norm, thus they have a highly skilled workforce. That’s what we lack.
But that’s not just a Govt problem here, but an industry problem too.

Just throwing money at an industry, does not mean it will thrive, as our
MV industry shows. We have yet to find more niche industries that we are
good at, but then we are still in a state of change, from a backward,
overprotected industry sector, to one which has to learn to compete
globally.

My point in quoting Switzerland is not to say that they are perfect in
every way, as you seem to presume. My point is that these companies
have done well in a global economy, without Govt protection,
without Govt interference or industry policy like MITI. What matters
is good management, a skilled workforce that is flexible, great ideas
and innovation, tied up with great r&d. The best thing that Govt can
do is facilitate things for industry, not interfere with tax dollars.
Best to cut out the taxes in the first place, not pick winners at the
expense of others, as some here still want Govt to
do.

Yabby, on what possible basis can you demonstrate that businesses have done well *despite* government policies, instead of because of them? I might as well argue that Australian manufacturing has been slowly failing despite government policies that are genuinely supportive.

And of course just "throwing money at something" is no solution to anything. However, there's not a lot you can do without significant amounts of money being involved.

“I might as well argue that Australian manufacturing
has been slowly failing despite government policies that are genuinely supportive.”

Wiz, you could well argue that and you would be correct.

I’ve seen plenty of Australian businesses obtain various Govt grants, despite
faulty business plans, poor marketing, slack focus on the consumer, etc.
Rather then improving their deficiencies, its sometimes easier to farm the
taxpayer. Some become extremely good at it. Yet if the business is fundamentally
flawed, it will still fail in time.

This is the problem with well meaning Govts. One Dept will dish money out,
like there is no tomorrow, another will add unneeded costs and red tape.

If Australia were serious about assisting business, they would cut out all those
various grants to those who know how to screw the system and address serious
flaws in our cost structure, which makes all businesses less competitive in the
global marketplace, so affects the fundamentals.

If all manufacturing businesses were given a rebate for payroll tax paid on
manufacturing export products, that would level the playing field for all,
not just megadollars for those with the greatest spin doctors, who manage
to impress Govt officials.

Roche, Nestle etc, have become great companies based on their economic
fundamentals, so have no problem attracting capital investments from
the market, based on their performance. Investors risk their own funds
and lose, if they get it wrong. Govt officials on the other hand, hand
out taxpayers money. If they get it wrong, they have little to lose, for
they have been seen to “assist industry”, which many claim is such
a good thing.

I remind you that given a chance, private enterprise is just as good as
pissing taxpayer funds up against walls, as Govt departments are, for
neither have anything to lose, its not their money after all.

But Yabby, I don't consider grants to companies with faulty business plans, poor marketing, etc. to be "genuinely supportive". That is simply "throwing money" at a problem, and it doesn't surprise me in the least that it comes to nothing half the time.

Your "rebate for tax on exported goods" idea sounds entirely worthwhile. But it's still an example of government intervention in the market, and it would cost significant amounts of money.

This is a great article. Australians have gone in debt for what? A considerable amount of debt has come from us bidding up the value of our residential property without any increase in productive capacity. This is lunacy and shows that our economic gurus and advisers have let us down badly. It is time to rethink the way we do things. We have allowed ourselves to become victims of an economic orthodoxy that stores up trouble for the future, has let our environment degrade, has increased the gap between the rich and the poor, has let greed drive public policy. To see some more arguments against what is happening and to look at the problem from another point of view look at "The cult of the market"

http://epress.anu.edu.au/cotm_citation.html

One of the best articles on this subject I have read. Problem is, we need more of such ilk to truly expose the politically-funded myths. Also highlights the paucity of real investigative journalism when the real situation is not being reported. The real sadness is also that neither major, nor can I perceive any minor, party bringing this to the fore. Leaving one in something of a quandry, don't you think, about where to place one's vote?

A bit laden down with high-flown acamedic rhetoric, but still makes some good points, not dissimilar to the ones I've been making myself: that tariffs/protectionism aren't necessarily a bad thing, but rather that many of our particular policies in the past were just poorly thought out, hence dismantling them has been generally beneficial.

Also echos my own sentiments re competition, and the thrust behind the privitisation movement:
"What was required was not simply a trite assertion that competition was inevitably good because it promoted efficiency, which in turn promoted welfare, but a historically informed analysis of the purposes served by those institutions and arrangements, and a more realistic assessment of the real welfare consequences of change."

Mac “analogy, or simple arithmetic.”

If the debt was “public debt”, incurred by government in the name of taxpayers, you would be right.

As it is, the debt is private and coincidentally, my debt:asset ratio (5:1), approximates the national average (500 billion to 2.6 trillion).

I am not responsible for the private debt of third parties and they are not responsible for my debt.
It is wholly appropriate to consider the national private debt as a magnification of an individual private debt. What you have failed to appreciate is this

My capacity to pay down that debt to nothing within 2 years.

The problems arise when short term debt is used to finance long term need (what brought Alan Bond’s empire crashing down back in the 1980’s). it is like buying a house with a bunch of credit cards, the available funds might be plentiful but the comparative interest rate are destructive.

Bushbred “but much of our overseas debt trouble surely must relate to the lack of production of our own rolling stock?”

You might well be right.

“Possibly you are too young to realize … was produced by HV Mackay, Sunshine Victoria”

In the 1980’s I did work, briefly, for an agri-implement manufacturer in Sunshine Vic, not far from the Sunshine / Massey Ferguson site. That is where my reference to Button’s Bounty payments was sourced.

There is always more that we could do to be more self-sufficient however, the history I observed in Sunshine and many of the other “manufacturing operations” I have been associated with in Australia is a pitiful lack of entrepreneurial flair combined with an inability to see beyond the local market and a capacity to excuse poor performance on anyone else standing, suppliers, customers etc.

I note, the capacity of farmers to demand local market loyalty whilst buying tractors and cheap implements from Russia, etc.

Being a firm supporter of free-trade and anti-protectionism, I would surmise, these days, a successful market supplier has to have a longer term strategy and plan than most Aussie “entrepreneurs” are prepared to envision, let alone commit to.

“But it's still an example
of government intervention in the market, and it would cost significant amounts of money.”

Nope, its giving back to exporters what was taken in tax from them in the first
place, so levelling the playing field. How many countries apply an employment
Tax?

Given the low level of manufactured exports and everyone crying that we need
manufacturing industry to export, why are we charging them extra taxes?

Then we have Govt officials going around handing out infrastucture grants,
marketing grants and various other grants, to those industries which they
deem suitable. Scrap all those grants, then let companies and their
customers decide how best to spend their available Dollars. Some might
want to increase r&d, some might want to increase marketing, etc. This
is the thing, Govt doesn’t know better, Govt usually gets it wrong.

Its simple really, if you want manufacturing exporters to compete
on global markets, don’t tax them extra.

Given the low level of manufactured exports, clearly its not going
to cost so much either.

Its pointless bleating that we need tariffs, that we need Govt to invest
here and there, when we don’t even get the fundamentals right,
like placing extra taxes on companies employment, to impede
their ability to compete globally.

You suggested a "tax rebate" for exporters. That implies to me that the rebate would not apply for non-exporters. Or are you saying we currently place a specific tax on exporters?

BTW, if you are arguing against infrastructure grants, then you're taking an even more extreme position than the IPA, who at least grudgingly admit that government spending towards infrastructure that benefits multiple businesses is usually justified (Alan Moran claims to be "relaxed" about the spending on the synchrotron in Victoraia).

As far as grants towards "industries deemed suitable" - if governments in virtually every country in the world all agree that areas like rewewable energy, nanotechnology, biotech etc. etc. are worthy of extra spending to help get them off the ground, then what hope would we have in Australia if our own government decided it knew better, and opt for an "every man for himself" status quo?
Further, government grants should quite specifically be towards activities that are *not* expected to see an immediate return in profit - i.e. scientific research, prototype development etc. etc.
An activity such as marketing or final product development is very much expected to be profitable, so there should be no difficult obtaining funding from banks or venture capitalists.

Long term debt on the current account is mostly funded in Au$ and is purchased on the open market. The fact that this is being bought at the present strong exchange rate would indicate the confidence that the foreign bankers have in the Aus economy.

If the debt were to become less attractive, the exchange rate would drop and the foreign bankers would lose out in a big way. (As they have profited with the rise in the dollar)

As a large portion of the debt is long term (10yrs+) the people who are putting their money on the line seem not to share the pessimism of this thread.

This subject is dealt with comprehensively in http://www.rba.gov.au/rdp/RDP2007-02.pdf

Wiz, companies that manufacture for the local market, will have
an advantage over imports, in terms of logistics, no need for
a commission agent, local loyalty etc. etc. What we see in
Australia is that most manufacturing companies find it easier to
stick to local, as they are competing with each other, in terms
of the playing field. The global economy is all too hard.

What I am saying is that if you want Australian manufacturing
exports, don't tax them extra, to impede their progress. That
is effectively what we are doing, with an employment tax.
Other Australian companies might pay it, but I don't know of
too many countries around the world which impede exports with
an extra tax.

To level the playing field for aspiring exporters, when they compete
on the global market, what I am suggesting is that they get back
the tax that was imposed on them, on the export component of their
production.

In terms of grants, both State and Federal Govts dish them out
to various companies. Basic research, as is funded for CSIRO etc,
is another issue. I know companies that have received grants
to build infrastructure, sometimes classified as "innovation"
Companies can apply for marketing cost reinbursments, all sorts
of other lurks and perks, if you know how to screw the system.

If you search through all the State and Federal agencies, you
will find all sorts of funding dished out by various committees,
for what seemed like a good idea at the time. In the real world
I've seen huge amounts of these sorts of funds, pissed up against
proverbial walls, by those expert enough to know how to lobby
Govts for money.

Yet I also know of excellent Aussie companies, who paddle their
own canoes, achieve what they have on the basis of merit, yet
their are impeded by things like payroll tax.

The market and consumers are better able to decide
which companies have merit, then Govt commitees.
Scrap all those various grants to companies, spend that money
on eliminating tax on exports, if you want an export industry.

Col Rouge, again.

I can't see how you can take the ratios in the total debt as a guide, as I pointed out this data is the sum of A&L for many separate enterprises, some are highly geared. These are the weak links in the chain. The belief that private debt is insulated from the rest of the economy and that public debt is undesirable is an ideological position. The market sometimes behaves irrationally,and has far from perfect knowledge, that's why we need the big bad government as regulator. We're all in the middle of an uncontrolled experiment, let's see what happens. There is one development that I can confidently predict however, if Labor becomes the government the Murdoch press and the Liberals will be very quick to emphasize our massive foreign debt.

Hmm, my last post went missing...can't be bothered rewriting the whole thing, but my essential point was that money spent investigating an idea that ultimately goes nowhere is not necessarily "pissed up against a wall" - it's simply the cost of finding that out. If no time or money was ever put into projects with a limited probability of decent short-term profits, we'd still be back in the Dark Ages.

Anyway, I don't think we disagree as much as our posts would suggest - government funding should primarily be towards funding projects that have a reasonable chance of a long-term benefit for a large sector of the econonmy. Specific attempts by particular corporations to take a working prototype product to successful commercial roll-out can generally be funded by banks and venture capitalists, who, I might add, can be just as capable of picking losers as government agencies.

"who, I might add, can be just as capable of picking losers as government agencies."

You are quite correct Wiz, they are. But firstly its their money,
not taxpayers money. Secondly there are lots of them, some
win, some lose. The best will survive in the markets and prove
themselves. With Govt, its some obscure official or academic
who makes the call, with little at stake personally.

My point is, do not tax those with potential extra, to impede
their progress, then wonder why you haven't got an efficient
export manufacturing industry.

The best thing that Govts could do is act as facilitators. For
the amount of red tape bogging down business ventures is enormous.
Its so bad in WA, that one Govt project is bogged down in red tape
by another Department, so nothing proceeds. No wonder venture
capitalists tell Australia to shove it and go elsewhere.

Banks and other lending institutions most certainly do use taxpayer's money - very few of us *don't* have money invested in banks or super funds that put money towards all sorts of projects that we have no personal say in. OTOH, governments risk very tiny fractions of the total money available to them on long-term investments in new technology, so even if they had a bad 10 years, and not a single cent spent saw any return at all, it would have very little effect on the average hip-pocket.

The lack of venture capitalists in Australia is definitely a problem: no doubt excessive 'red tape' is an issue, but is it really that much worse in Australia than most other developed economies? I doubt there is any one single reason behind this, but a commitment by the government to offer a more attractive enviroment for such investors would definitely be welcome.

For those who wish to become even more concerned about our economy and the route we seem to inevitably following visit
http://www.debtdeflation.com/blogs/?p=41
We clearly have to do something other than follow the path that "traditional" economic models and the policy formulated by those that use those models as guidance.
We should not blame those that take advantage of the system to increase their wealth for no productive input but we should blame the system and those responsible for setting the parameters within which our markets operate. There are better ways of organising markets to stop these undesirable outcomes of booms and busts, excessive consumption and unnecessary environmental damage and it is time for economic advisers to lift their game and become part of a market based economic advice industry where the remuneration depends on the results.

"very few of us *don't* have money invested in banks or super funds that put money towards all sorts of projects that we have no personal say in"

Hang on Wiz, you are free to choose your bank, free to choose your
super fund, free to negotiate the terms etc, free to start your
own super fund. You are not free to choose about paying taxation.
Big difference!

As to the reasons for venture capital going where it does, you
are correct, many little reasons make one big reason.

In the end it comes back to comparative advantages, which matter.

Australia has good and bad, when it comes to various decisions,
so do other countries.

What is becoming more common is that some great research can
be done by Govt and other institutions in Australia, but when
it comes to the next step, the whole lot is simply taken off shore
for further development. Companies need good reasons to do it
here, or they won't.

You really think the average guy on the street has the time or expertise to sit around working out which banks or superfunds are investing in the best projects?
And technically, you do have a "choice" not to pay tax, if you choose to earn under the tax-free threshold. Further, we collectively have at least some choice as to how we want the government spending our taxes...although typically it appears this election that neither major party is listening. Ultimately there's no realistic alternative but to accept that the government's responsibility is to invest wisely in health, education, infrastructure, science and technology research etc. etc. They may not always do the best job, but most of us would agree that leaving it entirely to private enterprise is a far more dangerous proposition.
As for the problem of projects being taken offshore for development, absolutely agree that this will be the downfall of Australia if not addressed. But it is essential that the government is involved in this process, by accepting that Australia lacks many of the advantages of the U.S. and Europe, and ensuring that funding and other assistance gives us a chance to remain on a par with the rest of the world.

Why do we have this myth that governments are the only ones to spend taxes. For a large number of things we can be given taxes as long as we promise to pay for such things as "health". For example instead of joining health funds and having bulk billing everyone gets some money that they have to spend on health. If they don't spend it then they get to keep it for next year. This would in one stroke "solve" the Federal/State funding of health issue. Of course it is more complicated than this but the principle still holds. Give taxes to people and let them make the choice but direct where the money must be spent. We do it for superannuation - why not health?

Yabby “Given the low level of manufactured exports and everyone crying that we need
manufacturing industry to export, why are we charging them extra taxes?”

Actually the problem is Australian government interference in commerce remains crippling.

FBT is a spiteful tax which requires extensive calculation for little revenue.
GST is clumbersome, when compared to the equivalent taxes in other countries (although it is better than what it replaced).
Personal Income and Companies Income Taxes are ambiguous.
Stamp duties and other state taxes continue being levied, when they were supposed to have been cancelled due to GST.
Payroll tax directly burdens employers for employing people.

Without seeking to alter the overall level of taxation to all collectors, state as well as federal or to favour different sectors of the population (rich v poor), I do wish to see a profoundly simpler system of calculation, which would benefit all and would make evasion (through the loopholes of complexity) a more difficult proposition.

Neither side of politics have grasped this nettle and it is now well overdue to be weeded out.

I am in favour of small government. Fewer “directed injections” of grants and government funds, which means lower taxes needing to be collected.

I am against the idea that government should plan economies simply because they are not omnipotent and have not developed the culture of risk which is the hallmark of real entrepreneurs.

Government should track economic trends and regulate to deter corrupt practices (ACCC, companies reporting requirement, oversight commissions etc) but government should not seek to set up their own monopolies or compete with commerce or attempt to hold the conflicting dual roles of “partisan competitor” and supposed “impartial referee”.