Home Blogs I couldn’t give a damn whether Abbott is a misogynistic, churchy freak....

I couldn’t give a damn whether Abbott is a misogynistic, churchy freak. But if we lose the NBN, I’m moving to Iceland.

9

Five minutes of overheard conversation in any Australian watering hole this week will tell you that Tony Abbott is a misogynistic mad monk and that Julia Gillard is a political assassin controlled by faceless apparatchiki of the union movement.

But are these the factors that will steer Australia in a direction that will create an economically secure and culturally harmonious nation for decades to come?

It hardly seems likely.

We know that innovation is important for economic prosperity but how important is it? And what are our opposing parties doing to assist Australia become more than a mine and farm for the world?

Australia as a business (a mining business)

With this post, I hope to get readers thinking.

In particular, I hope to get you, dear Anthillians, thinking about ways that our political parties can support innovation, namely in pursuit of a secure economy, and prepare us for the day when (not if) we lose our greatest cash-cow.

I think you know where I’m heading. I’m talking about Australia after mining.

There I’ve said it. The end of mining is inevitable. We just don’t know how soon.

Going for broke

Australia is a mining nation. And we should feel proud.

We lead the world at the management of mining and we excel at the development of technologies used for mining. We should be thankful for mining and its historical impact on the Australian economy. We should, indeed, sing the praises of the industry that kept the wolves from our door during the recent global economic crisis.

Well done Australia!

The problem, of course, is that we risk becoming over reliant on one industry.

The following is an IBISWorld chart articulating Australia’s top export industries.

Industry Industry Revenue Value of Exports 5 Year Export Growth
2009-10 2014-15 2009-10 2014-15 2005-10 2010-15
Agriculture $68.5 $74.4 $18.1 $21.4 1.7% 3.4%
Mining/Resources $283.7 $322.8 $128.0 $172.0 2.6% 6.1%
Manufacturing $246.9 $270.4 $29.0 $33.0 1.8% 2.6%
Education $77.2 $92.9 $8.1 $11.1 3.8% 6.7%
Tourism $79.2 $85.8 $23.9 $23.4 1.6% 4.2%
Other $356.5 $478.8 $30.8 $59.3 6.1% 14%
GDP $1,112.0 $1325.0 $237.9 $326.2 3.6% 6.5%

What this tells us is that mining constitutes Australia’s largest export industry, generating $283.7 billion of revenue for 2009/2010 — of which $128 billion was from exports.

Another way of looking at this is that Mining/Resources contribute over half of export revenue.

Occasionally, I look at the Australian economy as I do my own company. When one source of my trade (i.e. one ‘customer’ or ‘product line’) exceeds a certain percentage of all my trade (say over 25 percent), I start to worry. This is because it if I lose that one source, I’m in deep doo-doo.

The advantage I have, should such a devastating development occur, is that I can downsize.

It sounds rough but I have that option – I can cut back on overheads and cut my staff levels by the fall in trade.

But what happens when a country experiences such a fall in revenues? You can’t sack a population, can you?

Let’s briefly look at coal

China’s domestic coal market is so great, I am told, that this economic powerhouse imports only about 10 percent of what it consumes.

If China moves from importing 10 percent of its needs to having a five percent surplus to export (and hence the ability to compete with our products on the export market), prices for Australian products will inevitably fall. In fact, this export market will be lost to us virtually overnight.

Or what if someone develops a cheaper coal alternative (or steel alternative, for that matter)?

This might seem outrageous but these sorts of massive disruptive shifts happen, and frequently.

Consider the ice-barons, who controlled the shipping, distribution and trade of ice at the beginning of the 20th century. These captains of industry had built their trade over generations.

The wealthy and powerful had been transporting ice since the time of the Pharaohs.

Then one smart innovator invented the refrigerator and this industry collapsed almost overnight. This probably would have seemed inconceivable at the time. Yet, we already know from history that mining is a precarious industry to build an economy upon. (Just ask the people of Wales.)

Earlier, I described the loss of our greatest cash-cow as something that’s ‘inevitable’.

A bold claim?

Labor’s failure on R&D

Last week, I received a media release from the Office of Senator Kim Carr, Minister for Innovation, Industry, Science and Research, designed to bolster Labor’s innovation credentials by talking down the Coalition’s opposition of its R&D Tax Credit.

Quite frankly, it angered me.

This is not because I have a preference for the Liberal or National Party (my views on the Liberal Party’s innovation policies are outlined below) or any particular dislike for Labor but because the reforms proposed can hardly be trumpeted as an achievement.

The proposed amendments to the current R&D Tax Concession legislation will deliver a 45 percent refundable tax credit to small firms (group turnover less than $20 million per annum) and a 40 percent credit to companies with a group turnover more than $20 million per annum.

This is the good news.

These are the specifics that supporters of the policy are likely to tell you (with pleasure).

However, these increases in the refund rate come with many additional restrictions that will limit the number of innovators eligible for a tax refund. And, unfortunately, these restrictions are almost impossible to communicate in a sound-bite (so they remain a mystery to many).

For example, the broadened list of excluded activities are likely to hit ICT innovation particularly hard, and any form of innovation is almost impossible without some form of ICT R&D.

In a sound bite, the positives of the R&D Credit is that it will offer greater financial benefits to those that qualify. The negatives are that fewer companies will be able to claim and fewer activities will be eligible, meaning fewer innovative projects will get tax support.

Suffice to say, I have covered the weaknesses in a previous article.

But that’s not what really angered me.

The Labor Government could have passed the R&D Credit before calling the election. It had the opportunity but didn’t. The legislation was passed by the House of Representative and was forgotten during the leadership spill.

Innovators (and their tax advisers) are now upset by the uncertainty this has caused and this creates another cause for alarm.

The authors of the Global Competitive Index for 2009 (which ranks Australia 22nd) recently observed that a strong positive relationship exists between R&D tax programs, GPD and the performance of countries on its index.

But interestingly, the authors also made the more telling statement:

“…the size of the credit seems to have little impact — primarily because innovation is such a business necessity that companies rarely change their innovation activities on the basis of the availability of tax credits.”

According to respondents involved in the development of this Index, inconsistency is what most influences an organisation’s decision to invest in R&D and the extent of its R&D investment. This is because a company cannot budget and minimise risk if it does now know the extent to which it is likely to be eligible for a tax concession.

More important than size, therefore, is dependability.

It’s fair to say that when it comes to Labor’s handling of the R&D Tax Concession, the Australian business community is seriously over it.

Yet, the Liberal Party now wants to be part of the problem.

Today, I received another media release from Minister Carr’s office criticising the Coalition for revising its stance. Yes, today, we witnessed another backflip.

In what the release describes as a “cop out”, the Coalition has decided to retain the existing R&D Tax Concession for now, with the concession that it may need to make improvements.

It seems that for whichever party you vote for, the restricted and confusing concession is here to stay. And neither party is willing to adopt a clear position on which types of R&D should be given tax support and which shouldn’t.

Can we rely on neither party on this important issue?

Liberal’s short-sightedness on the NBN

At the same time, the Coalition’s proposed reinvention of the National Broadband Network (NBN) simply has me depressed.

Last night, on the ABC’s Lateline, Tony Jones while interviewing Stephen Conroy, Minister for Broadband, Communications and the Digital Economy, repeatedly asked the Minister to justify why Labor’s proposed $43 billion NBN plan will cost Australians, per head, more than what’s being spent by governments on broadband in the US, in Europe and in Britain.

The question is based on the premise that it’s a dangerous thing not to follow these other economies. In fact, it assumes that we might be better off pursuing a broadband target that is below what is available elsewhere.

What the hell!?

Since when does anyone — a human, a business, an economy — ever excel by benchmarking itself below the competition?

Like many people who already work and live in a ‘digital industry’, it’s hard to emphasise what a significant positive impact the roll-out of a NBN will mean for enterprise in Australia. It is a game-changer and couldn’t come at a better time. (Please read on.)

Its goal is to provide an Open Access Network providing download speeds of 100 Megabits per second to 93 percent of Australian homes and businesses. It will also require the creation of 47,000 new jobs over the next eight years and will support 25,000 jobs every year until completed

The Coalition is offering a $6.3 billion alternative to provide what the Coalition’s Tony Smith described last night as a “decent” low-end speed of just 12 megabits per second. (Describing a speed as ‘decent’ could be likened to describing a blind-date as ‘nice’. It’s hardly an endorsement.) And, under the Coalition’s plan, 70 percent of the funds will not be allocated to infrastructure spending until 2014.

The two-part argument proposed by the Coalition for scuttling Labor’s plans (other than to simply scuttle Labor’s plans) is that technology will only get cheaper and that there is a risk that the program will be mismanaged and the cost will blow out.

These two criticisms seem incongruous.

Yes, Moore’s Law has already proven consistent in most cases associated with internet.

So far, Conroy’s eight year plan has progressed on schedule and within budget. If technology improves, these are gains that stand to assist with the program’s roll-out.

As a highly valued mentor of mine once said, if you aim for the stars there’s a greater chance that you’ll reach the dunny roof. Mediocre goals produce mediocre outcomes.

Further, did I mention that the NBN roll-out will require the creation of 47,000 new jobs over the next eight years and will support 25,000 jobs every year until completed? (Yes, I did and it’s worth saying again.) These are jobs that will educate and drive Australia… beyond mining.

So, why would I move to Iceland?

In the not-too-distant past, Icelend went bankrupt.

It’s hard to imagine how this could happen to a country but it happens and Iceland has been the latest economy to be dragged through the process.

Michael Lewis is probably the best and most readable chronicler of Iceland’s current financial state. He blames a mono-culture. For 1,000 years, Iceland had one industry, fishing. The industry developed into one where toughness and risk-taking were the only way to succeed.

When fishing made Iceland wealthy and secure, many Icelanders moved away from the unpleasant work on the boats to a more sophisticated and glitzier line of work, investment banking. And we all know how that went.

Today, only 18 months later (depending on when you document its bankruptcy as occurring), Iceland is a hotbed of innovation. It is rebuilding its economy as a new media haven and tourism hotspot. Watch the video.

Yet, it took disaster for its national leaders to dump the focus testing and ask the truly important questions — to become innovative and actually lead.

So, what will create an economically secure and culturally harmonious nation for decades to come? That’s the question that will be guiding my vote this Saturday and Anthill’s editorial agenda over the longer term, whichever party is the victor.

Now cue cart-wheeling citizens of Iceland and dance!

Get unlimited access to our FREE business tools…

Need to raise capital? Want to become a more persuasive presenter? Want to master social media? Is it time to overhaul your website? Unlock the library to get free access to free cheat sheets and business tools. Click here for free business tools.