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Thursday, 8 February 2007
Page: 8

Mr CREAN (10:15 AM) —I rise today to speak in support of the Export Finance and Insurance Corporation Amendment Bill 2006. It impacts on one of the key challenges that face this nation—that is, the issue of improving our export performance. EFIC actually undertakes a number of key functions. It facilitates Australia’s trade by providing insurance and finance to Australian companies and individuals who are involved in exporting, it encourages banks and financial institutions to provide financial assistance to exporters and it provides information and advice to Australian exporters regarding insurance and risk. EFIC provides these services on a commercial basis where the private sector will not. It is a very good example of where government must become involved to correct market failure and to provide a service which assists our economic growth, a service which, if left to the market, simply would not exist.

The provision of these services has become all the more important over the past decade. A growing share of opportunities for export growth in fact goes beyond our traditional developed economy markets, with some of the greatest gains to be found in developing economies and the large number of newly created states. At the same time as presenting new opportunities for export growth, these emerging market economies also present much greater risk, risk which the private sector would probably not be willing to bear. In the circumstances, EFIC can step in and provide the insurance, finance and information for these markets that would not otherwise be available.

We support the bill because it does, as the minister has indicated, really implement a number of the recommendations that were made by the Uhrig review. Essentially, Uhrig came to the view that EFIC should be managed by a board. The bill will result in a managing director being appointed by the board after the board has consulted with the minister. It will also see a reduction in the size of the board. I, too, join with the minister in giving our thanks to those who have served in this capacity in the past. The bill itself will have no regulatory and financial impact on the Commonwealth and EFIC’s mandate and functions; they will not be affected. Along with interest groups and EFIC itself, we support the bill. I note that the webpage of EFIC states that it will be self-sustaining in its operations. We will continue to monitor that as an outcome.

Important as these changes are, they will not arrest Australia’s woeful trade performance. That woeful performance is even more apparent when one considers the appalling trade performance over the past 10 years, particularly the past five years. We had a timely reminder of it on Friday of last week, with Australia recording yet another trade deficit. The deficit, for December 2006, was not only a massive monthly deficit of $1.3 billion but also the 57th in a row. Australia reached a new milestone in 2006 when foreign debt passed the half a trillion dollar mark. I can remember when this government came to office and was making great play of the debt trap. Foreign debt at that stage was around the $180 billion or $190 billion mark. It is now $522 billion, up 170 per cent. That means Australians spent almost $30 billion over the past 12 months on foreign interest payments. That is $30 billion that we had to send overseas just to pay the interest on loans borrowed to buy more goods and services from foreign countries. Interest payments on foreign debt have more than doubled under this government’s watch, yet they want to lecture the opposition about debt and financial pressures.

Australia’s higher debt places upward pressure on interest rates as the risk of lending to Australia increases. That is why Australia has the second highest interest rates of the OECD countries. Australia’s standard household mortgage rate is 7.05 per cent. Compare that with housing interest rates in Canada at 6.3 per cent, the United States at 6.14 per cent and Germany at 5.27 per cent—just to name a few. This is a government that likes to compare what it has achieved in interest rates against the past; it never wants to compare it with the present—the present, as we have indicated, shows that we are well ahead in interest rate payments as a consequence of the massive foreign debt that this country is experiencing.

The DEPUTY SPEAKER (Hon. IR Causley)—I understand that the member for Hotham wants to move an amendment. At present, he is not speaking to the bill. If he wants to move his amendment, he should put himself in order.

Mr CREAN —I appreciate the point that you are making, Mr Deputy Speaker. The point I am making is that this bill is being introduced to assist the country’s trade performance. That is what it is being introduced for. That is what the explanatory memorandum says. Whilst we support the bill, I am highlighting what that trade performance is.

The DEPUTY SPEAKER —If the member for Hotham could just simply move his amendment, that would facilitate it.

Mr CREAN —I formally move:

That all words after “That” be omitted with a view to substituting the following words:

“whilst not declining to give the bill a second reading, the House:

(1)   notes that the bill will do little to correct Australia’s trade balance which:

(a)   has been in deficit for a record 57 consecutive months;

(b)   recorded a trade deficit of $11.7 billion in 2006;

(c)   is contributing to a current account deficit of $54 billion; and

(d)   is contributing to a record $0.5 trillion foreign debt; and

(2)   calls on the Government to take all necessary measures to address these failures”.

The point I was making before I moved the amendment was that we are paying more in interest rate payments than the rest of the world, and our massive foreign debt is a contributing factor. Australia’s high foreign debt also puts it at risk of a sudden loss of confidence in Australia as an investment destination. Such a sudden loss of confidence would cause depreciation in the dollar and an increase in the cost of imported goods, leading to inflation and leaving the Reserve Bank with no choice but to raise interest rates even further.

The fact is that this is a government that has racked up the worst trade performance in Australia’s history. I have mentioned the deficit figure from last week of $1.3 billion; that is for the 57th consecutive month. This is the longest uninterrupted period of trade deficit in the nation’s history. Each trade deficit adds to our current account deficit. In 2004-05, Australia recorded its worst current account deficit on record—$55.2 billion—with only a marginal improvement last year. What is more, this has happened at a time when Australia has been experiencing the best terms of trade in 50 years.

At other times in Australia’s history when we have experienced a resources boom, Australia’s trade balance has in fact gone into surplus, with the value of our exports exceeding the value of our imports. This is not the case with the current boom. As Access Economics points out:

Superheated commodity prices were meant to send our trade accounts whirring back towards surplus. Instead, the current account deficit is lingeringly large.

Instead of the surplus that should have been the story out of the resources boom, we have had an endless string of trade deficits. It did not have to be this way. What we have really had in this country, in my view, is a squandering of the nation’s prosperity. That has been contributed to by our poor trade performance.

I remind the parliament that Australia’s exports averaged annual growth of eight per cent a year in all of the years when Labor was in office. From 1983 to 1996 there was average growth of eight per cent per annum. How does it compare with the figure during this government’s 10 years in office? There has been average yearly growth of just four per cent per annum over the past 10 years and, over the last five years, just one per cent.

The point I make is that, had Australia maintained the rate of growth in exports achieved in the eighties and early nineties, Australia would now have an annual trade surplus of $14 billion rather than the actual outcome, which is a trade deficit of $12 billion. Not only would that have taken pressure off interest rates at home; it would have seen an improvement in the quality of job prospects in this country, an increase in the nation’s prosperity, stronger growth and, importantly, a rebalancing of the components of growth being driven and contributed to strongly by exports.

They were the overall figures—eight per cent being halved and then going down to one per cent. But let us look at manufactures. Elaborate manufactures exports have slowed to a crawl over the past five years. Between 1982-83 and 1995-96—again, under a Labor government—elaborate manufactures exports averaged 13 per cent per annum. Under this government, the figure is just three per cent per year. Is it any wonder that our manufacturing sector has lost 145,000 jobs—60,000 of them since the last election? It is a similar story when you talk about services. Export volumes in services averaged growth of 10½ per cent under Labor, but during the last five calendar years under this government they have averaged a decline of 0.3 per cent a year. I am talking about volumes.

I notice that the minister, in response to a piece that I had done in the Age last Wednesday, accused me of choosing selectively from history in making these comparisons and then went on, in the same breath, simply to talk about the last five months performance of his own government. Talk about selectivity, Minister! The real question that you need to respond to, it seems to me, is: why has Australia failed to take advantage of the current resources boom and why can’t we get our trade balance into surplus?

If we take an even closer look, disaggregating it by price and volume, we find some further interesting conclusions. It is not just manufacturing and services that have suffered; it is also the resources sector. I quote CommSec economist Craig James, who had this to say last week:

Australia is in danger of squandering the benefits of one of the biggest commodity booms ever seen. China and India can’t get enough of our iron ore, coal and metals, but Australia’s production and infrastructure aren’t able to keep up. Frankly, it must be regarded as a national embarrassment that Australia is still recording trade deficits of about $1 billion each month in a period of stellar global economic growth and soaring demand for mining and energy resources.

Mr Truss —Fifty ships lined up at the ports.

Mr CREAN —Where is the failure of this government in terms of the infrastructure and the skill base, Minister? You have been in charge for over 10 years and you want to blame someone else. Why do you not accept responsibility and recognise what is capable of being done if you have a comprehensive strategy for dealing with it?

It is important to distinguish between the growth in the price of exports and the growth in the volume of exports. That is value versus volume. The value of resource exports has grown by 9.2 per cent over the past five years. That is because of the resources boom. But the ABS measure of export volumes—the growth in value is 9.2 per cent but this is the growth in volumes, which strips out the impact of prices—shows that the volume of resource exports has grown by just 1.1 per cent per annum. I note that in his piece in the Age last Thursday the minister made no mention of the growth in volumes of exports—and why would you, with such an appalling achievement in the biggest and longest resources boom that we have experienced in a long time?

Despite the resources boom, the volume of our resource exports has failed to fire. Our failure to respond adequately to the resources boom by increasing the volume in exports is due in part to that infrastructure bottleneck and the failure of the government to take appropriate action to deal with it. It is due to the failure of the government to deal effectively with skill shortages and its failure to keep the momentum going in research and development in this country. Under its policies we have seen research and development grow at half the rate of that of our competitors. That is why this country is currently wasting its opportunities.

There is no guarantee that the boom in resources will continue forever. Every other resources boom in Australia’s history has come to an abrupt end. The simple economics of a boom in resource prices are that every resource-rich country is attempting to increase its output. While Australia has so far been unsuccessful—and I have just highlighted that problem—other countries have not. You only have to look at the huge growth in China’s volume, also that of India. There are already signs that resource prices have peaked. Access Economics, the IMF and ABARE have all indicated that the prices for Australia’s resource exports are likely to fall.

While we hope that Australia does not experience the kinds of commodities busts it has seen in the past, we have to remain aware of numerous forecasts that commodity prices will not maintain the heights we saw at the beginning of this year. The fact is we have been lucky to experience the boom in resource prices over the past three years. The boom in prices has cushioned the impact of poor export performances in manufacturing, services and resources. But Australia has to be more than just the lucky country; we need to be a productive country, a country that does not rely on resource exports alone but has a broad export base that includes manufactures and services. Australia simply must produce more goods and services that the world wants to buy. Australia’s manufacturing and services industries must have a future; they must become competitive and productive again. That will underpin, if we achieve it, sustained export growth, as was experienced in the eighties and the early nineties.

Consider this, Mr Deputy Speaker: between 1990 and 1998, Australia’s productivity level, benchmarked against the United States, climbed from 78 per cent to 85 per cent, but by 2005 it had slumped back to 79 per cent. Those productivity gains that we drove have now been dissipated. Productivity has effectively flatlined in the past two years. The most recent national accounts, released in December, showed that productivity actually fell 1½ per cent in the December quarter. So getting productivity growth back on track is the key to making Australia competitive again and putting our trade accounts back in the black.

Australia’s trade policies are making the situation worse rather than better. The government’s preoccupation with free trade agreements was because they were supposed to build trade. Labor supports the notion of free trade agreements but at the end of the chain and on the basis of strengthening the multilateral round—the WTO—through regional arrangements and then using the free trade agreements to build again.

That is what we did to get a successful outcome in the Uruguay Round. Labor took the issue to APEC, secured the Bogor Declaration and then sought to build on that through free trade agreements. The problem with this government is that it has reversed the order. It has really made the lead come from the free trade agreements. We have seen the consequences of those free trade agreements. All of the bilateral free trade agreements the government has signed on behalf of Australia over the past three years have seen our trade balance with those countries worsen.

It is now two years since Australia’s bilateral free trade agreements with Thailand and the United States came into effect. Over those two years, Australia’s exports to the United States have averaged an annual growth of just three per cent, while imports have averaged nine per cent. As a result of the first two years of the Australia-United States Free Trade Agreement, Australia’s merchandise trade deficit with the US increased by 30 per cent, from $11 billion to $14 billion.

Australia’s exports to the US have grown just $500 million over the two full years of the operation of this free trade agreement. It is a long way short of the $3 billion per annum that this government was asserting would be the benefit to the nation. Through a study the government commissioned, it argued that we would also get large gains from increased investment flows between the two countries; however, the figures show that US investment in Australia has fallen since the agreement came into effect. In 2005, US investment in Australia fell by $32 billion.

A number of key sectors in the economy were left out of that agreement. Sugar is the classic example. There was a dud deal in respect of the yarn forward proposal and also the agreement to allow the US to extend their copyright. There was no consistency in what the government sought from that trade agreement. I do not doubt that some very good work was put into looking at what we should have achieved but, in the end, the government wanted a political trophy rather than a strategic outcome that secured the basis of our trade with the United States.

In respect of the services sector, there was no mutual recognition of Australian financial market qualifications. US qualified licence brokers are automatically recognised by Australia and are able to trade in Australia. However, Australian brokers must go through an onerous process with the US Securities and Exchange Commission to be allowed to operate in the United States. What sort of reciprocity is that? The government hails the agreement as its great step forward, but the agreements have worsened the trade perspective between the two countries.

Bilateral trade deals are a very poor second cousin to multilateral or regional agreements. Bilateral agreements can lead to trade diversion rather than trade creation—that is, we merely end up trading with the bilateral free trade partner because they offer us preferential tariffs, when the cheaper and more efficient product could be sourced from a third country which cannot compete with those preferential tariffs. It is also not possible to negotiate the removal of domestic industry-wide subsidies or export subsidies in bilateral agreements. That is why we have to ensure that we get the outcome out of Doha.

Bilateral agreements also divert attention and resources for multilateral and regional negotiations. Australia is essentially participating in a trade arms race in the region, with each country rushing into bilateral agreements lest they be undercut by the other. No wonder David Spencer, our ambassador to APEC, stated last month that countries in the regions do not have the resources to devote to multilateral agreements while there are a burgeoning number of bilateral agreements. We must pursue as a guiding force a trade policy that gives our exporters access to all markets—not just to individual markets.

At the same time as reducing protection on imports, we have to support programs that encourage exports. Exports are our future, but naturally they have not been Australia’s culture beyond the commodities groups. We believe in multilateral agreements first, regional free trade agreements second and bilateral agreements third. We also believe that there is another side to free trade, and that is having integrated trade industry and trade promotion policies. We do not believe in negotiating the opening of markets only to leave our exporters to hang in the breeze. Instead, we believe in supporting industry to take advantage of greater access to opportunities through import and export programs. EFIC is one of them. There is also the Export Market Development Grants Scheme and two other programs that existed when we were in office: the International Trade Enhancement Scheme, which I introduced in 1990, when I was Minister for Science and Technology, and the Innovative Agricultural Marketing Program, which I was responsible for when I was Minister for Primary Industries and Energy.

These programs generated support for projects which had the potential to generate export earnings. They financed export market entry and expansion and the development of significant new markets. They were implemented as a result of the Hughes review, which the Hawke government commissioned. Our economy, which had for so long been protected and insular, was recognising the real opportunities resulting from globalisation, but we needed assistance to move in that direction. ITES financed up to 50 per cent of project expenditure, up to $2.25 million. An evaluation in 1994 of that program found that it was a significant factor in encouraging firms to expand their exports. Every ITES dollar spent up to that date had produced $18 in net exports in return, yet both of these programs—ITES and the Innovative Agricultural Marketing Program, which was more modest but terribly important in getting our food industry into those markets—were abolished by the government when it came to office. I believe that these programs need to be considered again. We need to understand that these programs were important drivers of export growth. As part of Labor’s comprehensive approach, it will reassess those programs, including the underspend this government has overseen in the Export Market Development Grants Scheme.

In terms of where we go from here, a golden opportunity presents itself to this government this year, as we are hosting APEC. This gives us an enormous opportunity in terms of input to the agenda as well as the type of meetings we have. About a year and a half ago I foreshadowed what I saw as Australia’s role in APEC this year in a report I presented to the parliament as part of a study trip I undertook. A couple of recommendations that were made were, firstly, that we need to look at how APEC can drive a successful outcome from the Doha Round in the same way as the Bogor Declaration complemented the Uruguay Round. I do not believe this will be a wasted effort because, if Doha falls over, APEC becomes the next-best multilateral option for this country. It has countries in it with which we can talk. We should be using APEC to drive Doha and, in the event that it falls over, to be the fallback.

On the back of that, we also need to pay a lot of attention to strengthening the guidelines that were established at the Santiago meeting to give consistency to free trade agreements and to make them consistent with the multilateral framework. The second important thing that I think we need to do as a matter of urgency is to see it as not just trade liberalisation but capital flow enhancement. We need to learn the lessons of the Asian economic crisis, argue for better governance provisions and better openness for capital flows. For this reason, I believe the economic ministers have to play a stronger role in APEC. I would like to see Australia insisting on the economic ministers, not just the foreign and trade ministers, playing an important part in the lead-up to important APEC meetings. This is a golden opportunity. It should not be passed up. The government’s woeful trade performance is a sorry indictment on their record. We believe that it can be done better and when we win office we will do those things. (Time expired)