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Wednesday, 24 May 2006
Page: 172

Mr LAMING (11:27 AM) —Let my haste in rising to my feet reflect only my unreserved enthusiasm for the Export Market Development Grants program, which has been a long-existing program set up by a previous administration. I rise not only to speak in strong, favourable terms about export market development grants but also to reflect upon our export performance. There has been from the other side of the chamber some confected cardiac arrhythmia about the fact that our current account deficit has increased by about a quarter of a per cent. So today I respond to the member for Batman and the member for Griffith as much as I speak favourably about these great export market development grants.

Let us go back to the take-home messages from the last time we were sitting in this chamber talking about the Export Market Development Grants program: 77 per cent of all money goes to small business, which I think needs to be remembered. I am reminded that $123.9 million of total grants has gone out to I think 3,277 very worthy recipients. The figures speak for themselves. But, of course, making these grants simpler and more accessible has also been the mission of government. It is not just about volume; it is sometimes about how well you can ensure that. Government responds to the needs of business: they are busy people and their area of expertise is not engaging government. It is our job. It is our prerogative to make our grants as accessible and easy to apply for as possible.

That has been done through public submissions. They have been received and, clearly with these amendments, they have been responded to. The grant system is extended for five years, as will be recalled from last time we debated this. Also the rules for Australian origin have been reviewed. Issues around disposal of intellectual property and, of course, principal status will make the scheme more accessible for emerging exporters. That is the objective of this grants scheme. All of these amendments will streamline administration and will make a great difference for the very small and medium sized exporters, which in my electorate of Bowman are applying at this very moment for upcoming rounds.

Bruce Goodrick, from Seafood Innovations in my electorate, is developing a remarkable trout-stunning system—a humane way of ending the life of the noble trout so that it can be processed in the food industry. He said, ‘The grant has allowed us to do research that we could otherwise never have done.’ He said the first trial of his automated fish-bleeding machine had a 93 per cent success rate and that the machine is comparable with machines produced in Denmark but significantly cheaper. This gives us a strategic advantage and an ability to provide to our part of the world some fantastic new Australian technology. Edward Bunker of Redlands Nursery said of the EMD grant: ‘The grant was necessary for our growth. It has assisted us to develop markets in other countries, including Canada, the United States and a total of 13 countries in Europe.’ They have even made inroads into the Japanese and South African markets. I think there is general agreement on both sides of the chamber that anything we can do for emerging exporters is a good thing.

I would like to move now to the more contentious area of how our exporters are performing. One of the touchstone issues on the other side of the chamber is the claim that Australia’s manufacturing is dissolving away to nothing. It is rarely articulated that profits in manufacturing are as high as they have ever been. Australia is holding up very well, albeit that parts of our manufacturing sector are changing and responding to international demand—and that is, of course, what you would expect in a developed economy. But let us go to the figures. When I look at export performance, I find a fundamental difference in how the two sides of the chamber approach the issue of investment in infrastructure. This government strongly encourages private investment in infrastructure. There is $31 billion worth of private investment in infrastructure. I do not think it is unreasonable to hold the position that the private sector investing in infrastructure allows the government to focus its resources on more needy areas that are not met by the private sector.

What has been the outcome of that? The $31 billion provided by the private sector is $31 billion that is not taken out of taxpayers’ pockets. The problem of the bottleneck at Dalrymple Bay is being addressed. By addressing the bottlenecks, we have had massive improvements. The commodity prices at the moment are a lucky turn of events for Australia’s terms of trade and we are in a position to maximise those changes in our terms of trade. Many countries cannot respond quickly, update their contracts and see the flow-through into their economies. Australia is doing as well as any nation. Our giant coal industry is worth $21 billion and our iron ore industry is worth $11 billion. That is a 78 per cent increase, which is an extraordinary difference.

I often look at the debate over petrol prices, and not for one moment do I say it is not going to be difficult this year, compared to last year, to fill the fuel tank of the family car. We ride the commodity boom and accept all the profits from iron ore and coal, but we somehow carve that away and make an issue out of the rise in the price of another commodity—petroleum. You cannot have one and not the other. We are riding a commodity boom, and Australia is well placed to do that; but, as part of that, we have international parity pricing on gasoline. We are benefiting enormously, but indirectly, from a range of commodities. In the last year, iron ore was worth $11 billion, aluminium was worth $4.7 billion and natural gas was worth $3.7 billion. The size of the natural gas market is up by an extraordinary 41 per cent. Motor vehicles exports are up by 12 per cent. The medications industry is worth $3 billion, as is our alcohol industry—primarily, our wine industry.

Our export performance is excellent, but, more importantly, we are capitalising upon terms of trade that favour us. Australia does not determine its own terms of trade. As a medium sized economy, we float on the rough waters of international finance and trade. So, while the terms of trade are good, the question should be: are we optimising what we do for our exports to neighbouring economies? I put it to you that, if we look at the performance of other economies, we are, in the main, doing that extraordinarily well.

Australia is also doing incredibly well on export of services. We know that the export of education related services is high, at $7.3 billion—and that is up by 10 per cent. I do not believe we would have that impressive export performance had there not been substantial private sector investment in education. Without ever giving a figure for overall investment in education, the shadow spokesperson on education will often repeat the claim that public investment in education is down. We need to look at the whole picture. It is obviously up, thanks to a mix of private and public provision.

If we have to drag the other side of the chamber with us into generational change to accept that, we will do it because right now private sector investment in education is up enormously, and far more than any change in public investment, and because we are reaping the rewards directly in tradable goods. It is one thing to be providing educational services at home but quite another to be maximising our opportunities with education related services that can be exported. Also on that list of service exports are business related services and transportation services, both exceeding $3 billion, and of financial services.

Given that profile of our exports, I want to turn to the analysis of the current account deficit. I know at this moment there is often an element of shifting dullness, where the opposition moves from one side to the other of a fairly impressive economic performance looking for isolated figures and then trying to form some sort of picture that there is poor economic performance. The latest one was the increase in the budget deficit. It needs to be pointed out that, when one sector of Australia’s economy booms—and it might well be resources—and those that dig the resources out of the ground and send them overseas are not wholly Australian owned companies, of course some of these profits are repatriated overseas. It is my understanding that, over the last three decades, we have moved towards a more liberalised financial economy. That means that, if a company selling iron ore overseas from Australia is 55 per cent foreign owned, 55 per cent of those profits are repatriated overseas. The only alternative that I can recall from lessons in economics is to send that company packing and find an Australian company that can do it. That cannot always be the case. That is why you have a very dominant two or three players doing most of the mining. Australians are welcome to be shareholders in any one of those companies, but it is worth knowing that, when their profits boom, we do not keep all of them because it is not an Australian company.

It is a fundamental lesson of economics that, if we have a coal led or an iron ore led boom, our current account deficit can widen but our net position is enormously enhanced. I think that point is never clearly made by the opposition. We have had a series of enormous price gains: in hard coking coal, up 120 per cent; in thermal coal, up 20 per cent; and, in iron ore, up 70 per cent. We are not talking about seven per cent here: these are enormous jumps in contract prices. They take time to flow through. That does not happen in three months, because we have pre-existing suppliers with whom we are replacing contracts. China is holding out, trying to avoid paying a 19 per cent increase for iron ore. Every other domino has fallen, and I predict China will do the same shortly.

So, while we ride the wave, the question is not: has our current account deficit increased by a quarter of a per cent? I have given a good reason for that having occurred. The question is: is Australia doing everything it can to capitalise upon our endowments and look after Australian people as a result? I would argue that every dollar of profit that is repatriated back to the Australian economy is, logically, a dollar that we do not take out of the pocket of a hardworking householder. That is what we have seen in the last two budgets.

Moving from issues of export to infrastructure, there have been debates about state and federal responsibility in areas like Dalrymple Bay and the Port of Newcastle. Those two very important bottlenecks are now being addressed. It is an important challenge for every economy: as a sector of the economy and its export performance expands, government and the private sector are together mandated to find solutions to bottlenecks. That is occurring, but it does not occur overnight. The other issue affecting our export performance has been the drought. It was welcoming to hear that there have been really impressive rainfalls that have made 2005-06 the second biggest year on record for our farm sector.

Ongoing global demand for what Australia can produce insulates us against future shocks. Australia has already shown—through, in no small measure, the efforts of this government—that we have negotiated a number of crises over the last 10 years within our own region. Where most observers would have expected that Australia would have fallen foul of international crises, we did not. No government can guarantee a crisis will never happen. I think it is incumbent upon the opposition to always point out that there may be trouble over the horizon, but it does wear a little thin when the member for Batman and the member for Griffith are continually talking about the bubble bursting. All I would say to those two members from the other side—and I would expect better from two who pride themselves on their economic credentials—is to have a look at what the financial markets are saying. They say:

... strong world demand and expansions in production capacity make for a positive growth outlook for resource export volumes over the remainder of 2006.

You cannot have a bubble burst, typically, without someone starting to say that that forecast is wrong and, until that occurs, I suggest that the opposition might like to move to another frontier of attack because criticising our export industry, I would put to them, is wasted effort. What we also have in Australia is a very high exchange rate, so our terms of trade are good, our dollar is quite high and our trade weighted index sits at around 63, so predictions can only be made around those inputs which we know and control. But one thing is fairly certain and that is over the last decade or so Australia has fairly closely followed US monetary policy. As a result, we have seen a move away from the 1980s and the enormous fluctuations in economic performance, and we have seen more stability. I think that has been good—that a medium sized power like Australia, which is a major exporter, has found a way to stabilise some of the toing-and-froing of economic performance. And, if you look at what has happened in cyclical moves in exports and imports, that is exactly what we have witnessed.

Of course the income deficit is still tipped to widen in 2006 and 2007. There were some high estimates by Treasury that exports would grow by between zero and six per cent, and that did not materialise. This was focused on very closely by the member for Griffith, who was quite critical of the high estimates for export growth. My only response there is that, again, one makes the best estimates one can from information available. But I am not terribly worried about whether an estimate from Treasury is a few per cent out. What Australians care about is that the platform is being laid for strong export performance in this country, and from the dividends of that strong export performance I am sure Australians can make their own decisions about what they choose to buy—and they may well choose to import. We have seen, in the last quarter, imports increase by $3 billion and exports increase by $1.1 billion. Therein lies the current account deficit that we are discussing today. In the end, individuals are making private purchase choices and that is a whole lot better than the government making purchasing decisions on their behalf, going into debt on their behalf and ultimately servicing debt on their behalf.

The factors contributing to the widening current account deficit are primarily those of a stronger export sector and, as I have said, companies involved in the export sector are not always Australian owned. It is also worth noting that as long as the petroleum price remains at over $70 a barrel that will be a major driver pushing inflation up towards the three per cent mark. As long as it sits somewhere between two and three per cent we are within the Treasury benchmark and the preferred channel in which we would like to see inflation sit. But the great fear, of course, is that secondary effects of rising fuel prices can cause the price of other commodities and other local products to rise for Australians. That will be something, I know, that the government will watch very closely.

Australia is a strong exporter. Over the last 12 years, the size of our economy has moved from 16th to 12th on OECD rankings. It is incumbent on us to look at our performance relative to other OECD economies to see where we are moving and whether we are actually capitalising upon the endowments we have. Australia was very active in Doha—one of just six nations that led negotiations in that round. We are a leader in freeing up trade, which we know is probably just as important as foreign aid for the developing economies that seek to capitalise upon the opportunities that liberalised financial markets give them. This government has negotiated a number of free trade agreements: with Singapore and Thailand already; with China, ASEAN, Malaysia and the UAE shortly; and we are already moving ahead with Japan, hopefully, towards the end of 2006.

Mr Deputy Speaker, in closing, this is a government absolutely committed to our export sector and particularly focused on the needs of small to medium exporters. Those in Bowman that have been recipients of this important grant round cannot speak highly enough of it. I support these changes which indicate that this government is listening and responding. I would like to see it continue on and that my exporters in Bowman remain able to access it, and that we continue to insulate Australia’s future with a particularly strong export performance.