Australia At An Economic Crossroads

By John Richardson

RoadSign_428x269_to_468x312THERE is no such thing as level playing field when it comes to the chemicals industry and, for that matter, probably any other industry.

China has long-subsidised many of its industries through soft loans for new projects, cheap land, cheap electricity and tax breaks in special economic zones.

Some projects in Southeast Asia also feel as if they are as much about nation building as they are about economics, by which we mean job creation.

We have therefore long found it worrying that when everybody else is doing it –   i.e. tilting the proverbial manufacturing playing field in their favour – Australia doesn’t want to join in.

It has low tariff barriers, relatively high taxes and burdensome and constantly shifting business regulations that only keep politicians bureaucrats in work.

Crucially, also, it has an energy policy that makes almost as much sense as Europe’s energy policy – i.e. one that makes hardly any sense at all.

Australia’s Plastics and Chemicals Industries Association (PACIA) made some interesting comments in this regard in a paper published in February in February – A Strategic Roadmap for the Chemicals and Plastics Industry.

The document argues that:

  • For every Aus$1 gained in gas export revenues, Aus$21-24 in money can be earned from domestic industrial production. This means that Australia gives up Aus$255m in lost industrial output for every Aus$12m gained in export output.
  • With gas reserves of more than 430,000 petajoules – equivalent to about 184 years’ production – it is policy settings that are
  • broken not reality. Policy settings are skewed towards LNG exports with no value-add.
  • Domestic gas shortages have pushed up prices while exports take priority. Long-term  gas supply beyond 2016 to local industry is thus almost impossible to negotiate, creating a so-called ‘gas cliff’.  Natural gas prices in eastern Australia have already increased by more than 70%  and are likely to go higher.

In an echo of the US, it proposes that there should be an immediate moratorium on further approvals of export-based LNG projects on Australia’s east coast while a gas supply and price solution is sought for manufacturing industries.

PACIA, as it should do, also goes into bat for chemicals by highlighting how the industry’s products and services help cope with the megatrends.

The megatrends highlighted by the association include the need to provide the developing world with greater quantities of safe water to drink, better agricultural yields and improved food safety and transportation and storage.

We would add one more megatrend to this list – the most important megatrend of all: Demographics.

And we think it is equally important that any debate on Australia’s future must also look at the consequences of the economic reforms taking place in China.

There will be more on these latter two themes in future posts on Australia.

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