Slow average real growth of 2% pa long-term, though accepted by government authorities pre-virus, is not acceptable. The aim should be at least 3.5%pa. It is achievable despite possible recession.
First, it must be recognised that there may be another virus pandemic in the next 10 years. China has had three virus crises so far this century. The second apparently did not leave China. The coronavirus is the worst to date. China is a remarkably technically sophisticated country, but its food culture is primitive and dangerous. There is a possibility of a further pandemic, if the situation does not change. It is a so deeply ingrained culture that it will be difficult to rectify completely with any certainty of no future regression in a population of over a billion. It behoves Australia to take precautions.
The standout country in successfully managing the present coronavirus pandemic is Taiwan. It is understood that it had a well-established ‘big data’ system which enable quick identification of all recent travellers to China since the coronavirus became evident. They were immediately tested for the virus. Those people testing positive were treated in hospital and those people testing negative were put in isolation for a period. Everyone exposed to China was treated before there was much chance of passing on the infection. Australia needs to develop a similar big data system to save lives and save economic chaos. Taiwan and Australia could become major manufacturers and sources of medical equipment and protective wear for the world in the next pandemic. Before then, they could be world consultants on installing such big data systems.
There are a number of factors and projects that together make for “Higher for Longer”: end the purpose of subdued business investment; redevelopment of Australian manufacturing with the aid of Japan; grow dominant global niche companies; PNG hydroelectricity; interstate HSR and distribution of population increase in new regional cities; and development of a collaborative east coast mega-region.
The virus has drastically curtailed corporate profitability. Companies are cutting and deferring their previously high dividend payouts. They are ending share buy-backs. The interest rate has been cut to the bone. These factors cannot stimulate higher share prices and executive share incentives any longer. The changes end the reason for withholding business investment to fund more cash payouts. A recession will not encourage more business investment. Corporate caution will hold it back until economic conditions are better. Then they will gradually kick in to raise growth further.
Japan is experiencing population decline. Companies fear shortage of skilled factory workers. The situation tightens each year as more older factory workers retire, and fewer young ones become available. Australia is experiencing much the opposite situation as its population grows rapidly. There is an opportunity to arrange agreements with Japanese manufacturers for their experts to train Australian workers in their technology and renowned quality control to manufacture parts for Japanese products, like the wings made here for Boeing aircraft produced in the US. For example, Australia could manufacture parts for Japanese HSR trainsets. Australia could revitalise its manufacturing industry and reduce its excessive reliance on one major trading partner and also become more self-reliant.
Australia should focus on and encourage expansion of its dominant global niche manufacturers like CSL. There are many such Australian companies that could grow in size. They are in products with small specialised markets where customers are willing to pay high prices, not in high volume/low cost product markets where Australia cannot compete because of its high wages and small scale.
Australia needs to achieve near zero emissions soon. PNG has high mountains and a 400-inch annual rainfall. It is ideal for hydroelectricity generation. Australian companies are planning to export renewable electricity by High Voltage Direct Current (HVDC) cables 38,000km to Singapore. Australia can import reliable, emission-free electricity from PNG, Indonesia and New Zealand by HVDC and replace its coal- and gas-fired power generation in say 10 years. This would provide secure baseload electricity to complement volatile, cheap, renewable energy. Australia would become one of the lowest cost electricity countries in the world again and increase its manufacturing industry, particularly in energy intensive products.
Melbourne and Sydney growing to 8-10m would increase traffic congestion and also water pipe, sewage pipe and electric wire congestion at the added exponential cost for their extra 3-5m settlers. The high liveability experienced at present would fade away. The cost of demolishing singe family housing of most of the present 5m populations would be an added unnecessary burden. Air quality would deteriorate as traffic congestion grows. Autonomous electric vehicles are still a dream that may not be realised while population growth and congestion of the cities grow inexorably.
HSR is the key to relieving the major cities of excessive population growth by regional settlement of any size of population increase in this century and for Australia joining the most highly productive mega-regions of the world with an east coast mega-region. There is plenty of space, the best technology and the opportunity for prolonged high economic growth beyond most countries. The relationship between the regions and the major cities connected by HSR would be rebalanced in a more just and sustainable way which would eliminate tension and discord. (Please see” Settlement Strategy” on web site below.)
HSR should be constructed between Melbourne, Sydney and Brisbane. It would enable settlement of people in new regional cities of 2-3m on the HSR line instead of the extra 5m in Melbourne, 5m in Sydney, 2.5m in Brisbane and 1m in Canberra over the next 5 decades, a total of 13.5m. HSR would deliver commuters from the new cities into major city CBDs in 60 minutes or less, quicker than air or road (even quicker than commuting from outer suburbs). HSR would connect the corridor mega-region.
The HSR Project would add about $200b or $20b pa for the 10 years of construction to total government spending in the recession and assist recovery. The project would include constructing HSR; dedicated Fast Freight Rail (FFR); and building 400,000 new dwellings above the tracks in inner-city suburbs of the three major cities all at the same time. Sale of the dwellings would recover the full cost of $200b before operation of the railways began. Fares and freight rates would be halved because the capital cost would not have to be recovered from operating revenue as with traditional rail projects. There would be huge productivity gains from passenger and freight rail from ending the interstate air and road transport economic distortions. Airlines and interstate trucking firms would have 10years notice of HSR starting.
The HSR Project should be government owned infrastructure, but it would raise government debt too much. It would expose government to the risk of very big budget and deadline overruns. With the virus, and with recession and depression in the offing, it is probably too late to raise the finance internationally as funds dry up. The Project could be a private consortium project financed by Australian super funds supported by a Government financial guarantee. This would be a footnote contingent liability, not a direct charge to the balance sheet. The HSR Project is robust, viable and low risk. The return is very high. Overall, government surpluses would be large and often to pay off a huge public debt overhang quicker. Faster growth can do this. Slower growth can’t do it.
The Japanese HSR system is head and shoulders above others. Japan should be the sole supplier with a 50-year agreement. This would fit mutual agreements for Japanese cooperation in Australia manufacturing parts for HSR and other products in a long-term relationship and closer security ties.
The danger of separate state HSR schemes is that they add to isolation of Melbourne, Sydney and Brisbane and to state competition which tends to suppress business competition. Government should instead continue long-term cooperation and collaboration as is occurring during the virus pandemic. This is an essential element of a successful mega-region which would raise Australian growth, jobs and prosperity for decades into the future. (Please see “An Australian mega-region” on web site below.)
Clearly, spending only to combat the virus short-term is not enough. It must be extended into the medium and long-term to ensure ongoing greater prosperity. The planning must be done now concurrently, not disjointedly by leaving it for later. Here is the framework for a plan already in place.