Crisis contagion and Australia

The cash handouts were huge: $22 billion is more than twice the government’s annual expenditure required to educate more than 250,000 students at all our universities; or 30 times the government’s funding of the CSIRO from which emanates the bulk of our scientific research. In the past 12 years both the universities and the CSIRO have been starved of funds.

There is general consensus among economists that the world economic downturn is likely to last a few years. This is an excellent opportunity to help restructure the economy to improve the long-neglected public facilities and services critical to society’s welfare, the quality of life and increasing productivity, including:

Universities, scientific research, public schools (apart from a small allocation only primary schools feature in the current stimulus package), TAFE colleges, pre-school education, community child care, public hospitals, low-cost rental housing including campus housing for students often forced to work long hours to meet excessive market rents, urban public transport, high speed inter-city rail to reduce greenhouse emissions through reducing road and air passenger and freight traffic, repair of the Murray-Darling basin, development of solar and wind power, completion of principal inter-urban highways.

To make significant inroads into this list will require enlightened planning, a massive increase in retraining programs for the unemployed and a more substantial and better targeted stimulus package.

The government has provided assistance to many firms with little quid pro quo. This risks exposing taxpayers to entrepreneurial exploitation rather than assisting the firm’s Australian survival. Several conditions could be applied:

• first, there should be a government nominee on the Board;
• second, no increase in executive salaries beyond the CPI for, say, three years; and
• third, any significant reduction in the firm’s operation within, say, three years to meet with the approval of a government industry board established by the Department of Industry otherwise a proportion of the funds to be refunded.

Pacific Brands is a case in point.

Recent funding to General Motors - Australia simply required a more efficient motor vehicle rather than retooling for the most efficient hybrid.

One of the principal problems confronting Australian industry is the CEOs’ short-termism. Management encourages this through the payment of share options and obscenely large salaries and bonuses. If a CEO receives a large increase in the share price resulting from share options in say two or three years he may be little concerned with long-term improvements in the firms’ products and development. The same might apply to multi-million dollar salaries and bonuses. An accumulated income of, for example, $30 million in three years may be the reward for a large increase in profits which has resulted from sacking thousands of workers and grinding down the salaries of others even if this hobbles the firm’s future. The executive can then leave and live a luxury life-style.

The government has confined its criticism to jawboning. But the tax laws could be changed to prevent salaries in excess of, for example, ten times average weekly earnings from being regarded as company expenses before imposing company profits tax. In this way excessive salaries and bonuses would have to be paid out of company profits; and a higher marginal tax rate could be imposed on these incomes. Capital gains tax could also be applied to share options.

There is a great deal a courageous and imaginative government can do both to protect society from the global economic decline and contribute greatly to overcoming many of the nation’s serious deficiencies. Australia’s future rests importantly on the Australian Government’s policies.