Export Council of Australia & Shipping Australia Seminar: Being Competitive is a MUST
24th August, 2012
Ken Fitzpatrick, Chairman of Shipping Australia, Llew Russell CEO of Shipping Australia, Dianne Tipping, Chairman Export Council of Australia, Ian Murray, Executive Director, Export Council of Australia, ladies and gentleman.Thank you for the opportunity to address your seminar today on building competitiveness in Australia.
For a country that is a net exporter of goods - especially bulk commodities - maintaining our competitive edge, at each link in the supply chain, is a must.
Over the last two years Australia's international competitiveness ranking on the World Bank's 'Doing Business Index' has plummeted 10 places, from fifth in the world to fifteenth, coming in behind New Zealand, Sweden and Ireland.
Over the same period our economic performance has fallen from seventh to 23rd.
Add to this, a recent report by the Business Council of Australia (BCA) that found resources projects are 40% more costly in Australia than in the United State of America and you quickly realise were are increasingly falling behind the economic eight-ball.
The same report found that building hospitals in Australia costs 62% more than the US, schools 26% more and airports a staggering 90% more.
Businesses and investors are telling me and my Coalition colleagues that the cost of doing business in Australia is anywhere between 20 to 40% higher than our major competitors.
The BCA report found that productivity on Australian resource projects is 30-35% lower than in the United States.
In fact, multifactor productivity in Australia has fallen by 4.2% since July 2007.
Doing business in Australia is getting more complicated and more expensive, but less productive.
The maze of green, blue, orange, black and red tape delays projects for years. Is it any wonder international board rooms are looking elsewhere?
I find it impossible to believe this week's one day BHP cancellation or deferral of more than $50 billion worth of projects in three states is not influenced in part by these factors.
Marius Kloppers said as such to British press overnight. Hi is quoted as saying carbon and mining taxes have helped to render the nation's coal industry unworthy of new investments at this time... they would not be profitable.
It is the responsibility of the Government to get the regulatory settings right to ensure that we are internationally competitive and in doing so, create an environment where businesses can grow and prosper.
However, the current Labor Government has done the exact opposite.
Constant rule changes, new taxes, almost insurmountable project approval processes and workplace lawlessness are seriously damaging Australia's sovereign risk in the board rooms of the world - and it will take decades of good performance to restore our reputation.
Australian farmers export over 60% of everything they produce - almost always by ship. In terms of productivity growth, the farm sector had led the way, with multifactor growth of 2.8% per year over the 30 years to the mid-2000s.
Resistance to new technology like GM, barriers to registration of the latest chemicals, uncertainly about access to water in our major food bowl, outrageous green demands on farm practices are self-inflicted dampeners on our productivity.
Today, those productivity gains are petering out. For farmers the equation is simple, put the productivity-based research in and reap the reward. Rip it out and fall behind the world.
I mention farming because demand for food and fibre is on a steep increase.
Prosperous and fast-growing nations experiencing urban encroachment due to massive population increases are seeing their arable lands and resources rapidly shrinking - especially through south east Asia, where traditional rice-based diets are shifting towards protein, wheat and even dairy preferences.
They are importing more and will be more reliant on imports in the future. Australia, literally on their doorstep, should be prospering... ramping up production and productivity.
But other countries seem to place a much higher premium on Australia's status as a premier food producer than most Australians. They are keen to buy our land and agribusiness.
Too many Australians see agriculture as part of our glorious past, not our exciting future.
Under Labor, the Department of Agriculture, Forestry and Fisheries' operating budget has been slashed from $3.8 billion to just $1.8 billion, while our agricultural research effort now trails many developing countries who are out-spending and out-smarting us.
Off the back of all this, Australia's once proud farm productivity growth is tapering off. We risk being left behind.
It's a bizarre policy response given the United Nations says world food production must increase by 70% over the next 40 years just to keep pace with population growth, which is tipped to see the globe home to over nine billion people by 2050.
It's mindboggling to think that this required growth in production amounts to more food than has been produced over the course of human history. And there is less farmland and less water than ever before.
At the very time we should be ramping up farm production and investing in something every human being on earth wants - food - we, as an agricultural exporter, are cutting funding and allowing our natural advantages to erode.
For almost two months now, Australian businesses and households have been subject to the world's biggest carbon tax.
Australia's carbon price is the highest in the world - by a very big margin - much more than twice as high as anywhere else.
If you look specifically at our top ten trading partners, Australia's scheme is well in excess of those that have been implemented elsewhere.
At $9 (Australian) per tonne, the scheme in Europe is well under half of Australia's $23 per tonne. The price in New Zealand is less than one-tenth of the price in Australia (just under $2 Australian).
None are as comprehensive and economy wide as Australia.
If - and that's a big if - China does anything at all, it will implement a limited price of about $1.50 Australian per tonne and, even then, only in some provinces.
The US has abandoned the cap and trade concept, so has Canada and Japan. Korea looks unlikely to implement any scheme without Japan's support.
Our remaining three top ten trading partners... Malaysia, Thailand and Singapore... have not implemented anything like Australia's carbon tax.
The government's climate change guru Professor Tim Flannery said this week that 800 million people now live in countries that have a carbon price. But of these, 500 million live in Europe where the cost of the scheme is only $1 per person per year. It will only take 5 months for Australia to collect as much revenue from our carbon tax as Europe has since their scheme began five years ago.
The carbon tax is clearly a major impost on Australian businesses and severely hinders our international competitiveness.
Just to share a few examples with you:
Department of Climate Change figures show that electricity generators will face a carbon tax bill of $3.9 billion in the first year alone.
Anglo-American Australia, our second biggest coal exporter, says the carbon tax reduces the net present value of its assets by 30%.
Our 14 largest abattoirs will have to pay a carbon tax bill of $60 million - and many are already uncompetitive.
In the shipping industry, the domestic shipping industry will see costs increase by about $4 million in 2012-13 because of a decrease in fuel tax credits. It is ironic that as the Government congratulates itself for implementing shipping reform measures it says will revitalise Australia's fleet, then it implements an extra cost on domestic shipping.
All of these costs associated with the carbon tax will hurt Australian industries but will not apply to our overseas competitors.
Mounting red tape is a major cost for Australian businesses - in terms of time and money, and certainly affects our international competitiveness.
Since Labor was elected in 2007, the Rudd-Gillard governments have introduced over 16,000 new regulations, while repealing less than 100.
So much for Labor's election commitment to abolish one regulation for each new one imposed.
One topical example is the government's shipping reform package, which, while containing a number of potentially attractive taxation incentives others can only envy and accelerated depreciation arrangements, increases red tape on vessels, especially foreign-flagged vessels trading in Australia.
As you know, the new three-tiered licencing arrangements that came into effect from 1 July 2012 abolished the old licence and permit system.
During the parliamentary committee processes many shipping companies raised concerns about increasing red tape under the new requirements.
Caltex put it succinctly when it said in its submission to the Committee:
"The shipping reform package... will increase red tape at a time when the Commonwealth and state governments, together with business, are seeking ways to reduce it. The Bill contains clear examples of unnecessary and unproductive regulatory requirements and therefore should be subjected to close scrutiny to remove all regulation not essential to the objects of the Act and the broader national objective of improving business productivity through greater efficiency."
The application of Temporary Licences to foreign flagged vessels wanting to engage in coastal trade will wrap industry in more red tape. The requirements to obtain a Temporary Licence are overly prescriptive and unnecessarily cumbersome.
Under the new scheme you need a crystal ball or a widgey board. A clairvoyant would be handy.
Under the new arrangements, a Temporary Licence covering periods of up to 12 months will only be issued for voyages where required information - including expected loading dates, loading and discharge ports and cargo type and volumes - is pre-known.
Shipping Australia said of this requirement:
"It is impossible to forecast the movement of such cargoes over a 12 month period in terms of expected loading dates, kinds of volume of cargo, type of vessel and the ports of loading and unloading of the cargo."
Additionally, applications for a Temporary Licence must have a minimum of five voyages.
Not two, as required to come within the confines of the Government's Fair Work Act, or 10 as strongly objected to by industry in the exposure draft, but five.
I have asked the Minister repeatedly why this arbitrary limit has been set and he has failed time and time again to provide me with a satisfactory answer.
The same arguments as to why a 10 voyage minimum limit was unacceptable are equally applicable to the five voyage limit.
Not only does it raise the prospect of applicants creating fictitious or bogus voyages to qualify for a Temporary Licence, but it creates an unnecessary barrier in our supply chain.
Furthermore, to apply for a variation to add voyages to an existing Temporary Licence, you need to add a minimum of five voyages.
Again, the justification for this threshold has never been explained, let alone satisfactorily. It just doesn't make sense.
If, for example, a company thinks it will have five voyages in a 12 month period and is granted a Temporary Licence on that basis, but then subsequently finds that it will, in fact, have seven voyages, it is unable to apply for a variation to add the extra two journeys.
I moved amendments to the legislation to remove this five voyage minimum but this was rejected by the Government.
On return to government the first thing I will be looking at is this unnecessary requirement and the need to cut red tape for the shipping industry.
There can be no doubt that Australia's shipping industry must play a more important role in our freight network. With the domestic freight task set to double over the next 20 years, and treble along the eastern seaboard, our shipping industry needs to do more.
We already have the fourth largest shipping task in the world.
Sea transport carries over 99% of international cargo by weight and about 75% by value.
Domestically ships carry around one quarter of our freight.
Unless the quantity of domestic freight carried on ships can be increased substantially, our roads and rail systems will choke and our economy will be slowed.
Shipping has the capacity to move large quantities of cargo across vast distances, take trucks off the road and relieve pressure on our rail network.
Both foreign flagged and Australian flagged vessels will need to play an important role in meeting our domestic and international freight task and increasing red tape for these businesses does nothing more than increase costs for the end customers of the goods they transport and the businesses that transport their goods by sea.
In doing so, that hamstrings our international competitiveness.
I consistently receive feedback from industry across the country that workplace relations is another area where Australia's competitiveness is lagging behind our international competitors.
This is unsurprising with major companies like Qantas, Patricks, BHP and Toll unable to successfully negotiate with their workforce.
Everyone would agree that strike action is not good for the economy or productivity, and workers don't like losing pay for days that they could be working.
The Prime Minister promised us that we wouldn't return to the bad old days of strikes and stoppages under Fair Work, but she got that one wrong too.
It is well known that the previous Coalition Government sought to drastically improve productivity at our ports, most famously in the 1990s during the waterfront dispute.
Successive independent reports concluded that stevedoring was a major impediment to Australia's international competitiveness so the Coalition took swift and decisive action to support industry that resulted in crane rates rising from 16.9 per hour in 1996 to 27.7 in June 2005.
However, a report to Ports Australia released in June this year found that the productivity gains achieved between 1998 and 2003 have largely dropped off.
This is backed up by the ACCC's advice from November 2011, which said that:
"...the benefits of labour market reforms are likely to have been exhausted several years ago."
The report to Ports Australia found that wages at Australian ports have been increasing ahead of gains in productivity.
The difference between stevedoring rates at Australian ports, when compared to the US and New Zealand, was marked.
The US and New Zealand are both developed economies with similar working conditions and safety standards to Australia, yet Australian stevedoring wages are significantly higher, without any associated productivity dividend.
Additionally, in 2009, analysis by the Bureau of Infrastructure, Transport and Regional Economics found that the vessel turnaround time is 12% longer in Australia when compared to overseas ports.
Our ports are our gateway to world markets and it is essential that they are productive, efficient and internationally competitive.
As a net exporter of goods, Australia's economic wellbeing and social security depend on staying a step ahead of the game internationally.
Being able to compete on the world stage has been hard won, over generations, and must not be frittered away by a government that too often just does not see the full consequences of its actions.
So much of the success of the shipping industry permeates other key sectors in this country... mining, agriculture and manufacturing immediately spring to mind.
I hope what you can take away from today's address is that both I and the Coalition are friends of the Australian shipping industry.
We know how important you are. And we will do all in our power to keep your sector not only afloat but steaming ahead.
Before I go I would just like to wish CEO of Shipping Australia Llew Russell a bon voyage. He's retiring after 10 years at the helm of the organisation.
For my part I have enjoyed the engagement of Shipping Australia, both as Minister and in Opposition. I wish Llew well in retirement and Shipping Australia all the best in charting a new course into the future.
Thank you.
[ENDS]
