So is the COVID-19 drama over, or will this go on for some time?

[Smurf1976]

OK I got no idea here, but if we sell a Australian natural resource in Australia to another Australian company to produce something, Is a royalty still paid to the govt?
If it were why would we do that, couldn't we get rid of that tax (and while we are at it a few others) to help rebuild some manufacturing like some steel production?
We can get the tax back selling exports and some from wages. A working person pays a wage tax and not take a support benefit. A double wammy.

As a broad concept it's not hugely far removed from the idea of government supplying utilities at cost, no profit, and seeing the benefit as developing business and putting people into work rather than gaining any direct profit from the power / water / gas / railways / roads etc as such.

That model is the one which was key to establishing large scale manufacturing in Australia in the first place and its abandonment has played at least some role in the decline.

 

[InsvestoBoy]

As a broad concept it's not hugely far removed from the idea of government supplying utilities at cost, no profit, and seeing the benefit as developing business and putting people into work rather than gaining any direct profit from the power / water / gas / railways / roads etc as such.

That model is the one which was key to establishing large scale manufacturing in Australia in the first place and its abandonment has played at least some role in the decline.

To my personal view, the abandonment of such strategy was essentially a massive stripmining style crime perpetuated by Government and various oligopolists.

I'd say we should bring it back, but on this forum that is as good as claiming yourself a member of the Stalin Appreciation Club.

 

[matty77]

I have no issue if the Government runs necessary infrastructure and services, as long as they are investing to keep it modern and world competitive, don't burn or waste money or rip off its customers and run it at zero profit. But alas we know no government could do this..

 

[qldfrog]

US study confirms moisture and temperature kills the virus:
The warmer and more humid it is, the lower the transmission
Which is NOT good news for Australia in the coming months..and may derail many plans.

 

[Dona Ferentes]

US study confirms moisture and temperature kills the virus:
The warmer and more humid it is, the lower the transmission
Which is NOT good news for Australia in the coming months...

I don't like this.
....and may cause many resets. (To an uncomprehending population)

 

[Smurf1976]

I have no issue if the Government runs necessary infrastructure and services, as long as they are investing to keep it modern and world competitive, don't burn or waste money or rip off its customers and run it at zero profit.

It's off the subject of this thread but I'll simply say that it's the structure of such things which is crucial far more than who the actual owners are.

Scale is the key, lose that and you're stuffed.

 

[sptrawler]

To my personal view, the abandonment of such strategy was essentially a massive stripmining style crime perpetuated by Government and various oligopolists.

I'd say we should bring it back, but on this forum that is as good as claiming yourself a member of the Stalin Appreciation Club.

Several of us over the years on the forum, have derided the signing of the Lima agreement in the 1970's and bemoan the fact that governments abandoned the belief they were there as a training ground for our youth.
It was a conscious decision by Government, to stop using their facilities i.e power stations, water authorities, railway departments, to train apprentices, cadet draftsmen, engineers etc.
The Government deemed it wasn't the taxpayers responsibility, to pay for all the training and then the private sector to poach them when they were through training.
Well that has to go down as another monumental F%$k up, the problem is as with the education system, no one wants to admit that it needs to go back.
The wheel was round when we started, now it is a weird shape, but come hell or high water they don't want to go back to round.
Weird world.

 

[Value Collector]

OK I got no idea here, but if we sell a Australian natural resource in Australia to another Australian company to produce something, Is a royalty still paid to the govt?
If it were why would we do that, couldn't we get rid of that tax (and while we are at it a few others) to help rebuild some manufacturing like some steel production?
We can get the tax back selling exports and some from wages. A working person pays a wage tax and not take a support benefit. A double wammy.

The royalty is a pretty small part of the cost of the product, it’s like 6% and it’s fair way of compensating the Australian people across the board for their natural resources being consumed.

Sure if you live in a town that where a steel mill got built, you might benefit from the government giving away Australia’s resources for free, but the benefits would drop dramatically as you moved away from that steel mill.

There is also the problem that Australia has a limited supply of investment capital and Labour available, artificially diverting this Labour and capital into industries that require ongoing subsidy to survive is taking that Labour and capital away from other industries where it may be better employed.

 

[Value Collector]

It's off the subject of this thread but I'll simply say that it's the structure of such things which is crucial far more than who the actual owners are.

Scale is the key, lose that and you're stuffed.

yep, look at Berkshire Hathaway energy, privately owned for profit and in many locations hasn’t risen rates for 10+ years, and supplies cheaper electricity and gas than the state owned businesses just across the river.

 

[Smurf1976]

Sure if you live in a town that where a steel mill got built, you might benefit from the government giving away Australia’s resources for free, but the benefits would drop dramatically as you moved away from that steel mill.

However limited the benefits of the mill are, they're an order of magnitude greater than the benefits of the mine.

It varies between minerals but take $5 - $20 worth of ore and turn it into $100 worth of metal is the basic concept.

To the extent there's no benefit in doing so, there's even less benefit in mining it in the first place since that depletes the resource for a very low gain. At least the mill employs and brings in $$$ export revenue far more than a mine does.

 

[sptrawler]

.

There is also the problem that Australia has a limited supply of investment capital and Labour available, artificially diverting this Labour and capital into industries that require ongoing subsidy to survive is taking that Labour and capital away from other industries where it may be better employed.

We also can only support a limited amount of baristas and uber drivers.
When Australian mines were first exploited in a major way in the 1960's, a condition for the pricing of their royalties was the establishment of towns and value added industries, this has been eroded away and everyone is sleepwalking into the third world IMO
For example from my memory, BHP were given concessions on iron ore royalties in W.A, on the understanding they would build a blast furnace and steel rolling mill at Kwinana, also a steel furnace was to be built by about 1980.
Well from memory the steel furnace requirement was waived and within a year the furnace and 1500 jobs were gone.
Now we are raping the NW of W.A and the Eastern States are riding the wave, it will be a sad day when the wave crashes IMO.

 

[Smurf1976]

yep, look at Berkshire Hathaway energy, privately owned for profit and in many locations hasn’t risen rates for 10+ years, and supplies cheaper electricity and gas than the state owned businesses just across the river.

Competition does drive efficiency, no question there, but so does scale.

It's a concept that tends to be poorly understood by both sides of the debate. Those with an economics background invariably gravitate toward the "competitive tension" argument and those with an engineering or other technical background generally go straight to the "scale of economy" argument.

Both are correct as such but in any given situation one will be more significant than the other. Rationally it makes sense to pick which is best for any given industry but in Australia we do have a cultural thing which is reluctant to ever embrace the monopoly concept even where it makes sense.

A proper review of all that sort of thing would resolve the long outstanding concerns and improve Australia's competitiveness as part of the way forward post Covid-19. Given the circumstances, I don't think we can afford to ignore any opportunities at all really.

 

[sptrawler]

yep, look at Berkshire Hathaway energy, privately owned for profit and in many locations hasn’t risen rates for 10+ years, and supplies cheaper electricity and gas than the state owned businesses just across the river.

Yes and we very nearly bought into a renewable energy project at huge cost, that Berkshire Hathaway were burnt badly on, so just name dropping isn't in itself a recipe for success.
https://www.bloomberg.com/news/arti...plant-was-obsolete-before-it-ever-went-online
The S.A government was sold on this technology and a thesis on how Australia could be fully renewable by 2020, was built on this technology and held up to ridicule mainstream power generation.
I'm not saying the process doesn't have merit, but to base the major part of your argument on its ability to replace fossil fuel, is somewhat presumptuous.
Also to compare the U.S to Australia with regard power generation is comparing apples with oranges, the U.S is a big Country with a huge differences to Australia.
Actually IMO many of Australia's problems have arisen from management buying off the shelf U.S products, to justify their own KPI pay rises, when in actual fact it has resulted in a worse outcome for the business and in some case Australia in general.
Competency standards is an example IMO.

 

[Smurf1976]

Yes and we very nearly bought into a renewable energy project at huge cost, that Berkshire Hathaway were burnt badly on, so just name dropping isn't in itself a recipe for success.

Agreed although the context of my comment is far broader than power or indeed any one industry.

I'm seeing that the recent Australian economic model of immigration, tourism, bulk minerals and education exports really does seem to be coming into serious question now, even the current government is making utterances to that effect, so the question is where do we go next?

If we're going to do any sort of large scale manufacturing, either old tech (eg steel) or high tech, then it's a given that we're going to need efficient and cost competitive transport, energy, water, communications etc and a the ability to appropriately skill the workforce.

So I'm really thinking two steps ahead here. Not just "what do we do next?" but "what needs to happen to enable that?".

 

[sptrawler]

It really is a back to the future IMO.
We had everything in place, it was dismantled, it needs to be rebuilt and Im not just talking about physical infrastructure.
It is about rebuilding quality education rather than quantity, it is about demanding mining companies put skin in the game, rather than just talking employment while at the same time trying to minimise employment and maximise material extraction at minimal cost.
Anyway hopefully people wake up.

 

[Value Collector]

However limited the benefits of the mill are, they're an order of magnitude greater than the benefits of the mine.

It varies between minerals but take $5 - $20 worth of ore and turn it into $100 worth of metal is the basic concept.

To the extent there's no benefit in doing so, there's even less benefit in mining it in the first place since that depletes the resource for a very low gain. At least the mill employs and brings in $$$ export revenue far more than a mine does.

I think your math is a bit off there, you are confusing a few things.

Iron Ore can be mined for $20 and sold for $80+ that is a fairly healthy profit margin (larger than any steel mill) from this the Australian government gets -

6% of the $80+ Revenue as royalty.
30% of the mining company’s profits
Tax on the workers share of the $20 cost.

The steel mills profit margin is much smaller it pays $80+ for the ore, plus Coal + Dolomite + other stuff and sells the final steel product for a small mark up, or sometimes a loss.

Now, the suggestion was maybe if the government gave up their 6% royalty, the local steel Mill would gain a cost advantage and the industry would thrive, that maybe true or it may not be true, but would the 6% loss of revenue be offset by extra income generated by the steel mill?

I don’t think it would, the effects would be marginal at best, and you would be taking capital and Labour away from industries that perhaps have much larger profit margins, or provide even more jobs and value added products.

 

[Value Collector]

Yes and we very nearly bought into a renewable energy project at huge cost, that Berkshire Hathaway were burnt badly on, so just name dropping isn't in itself a recipe for success.
https://www.bloomberg.com/news/arti...plant-was-obsolete-before-it-ever-went-online
The S.A government was sold on this technology and a thesis on how Australia could be fully renewable by 2020, was built on this technology and held up to ridicule mainstream power generation.
I'm not saying the process doesn't have merit, but to base the major part of your argument on its ability to replace fossil fuel, is somewhat presumptuous.
Also to compare the U.S to Australia with regard power generation is comparing apples with oranges, the U.S is a big Country with a huge differences to Australia.
Actually IMO many of Australia's problems have arisen from management buying off the shelf U.S products, to justify their own KPI pay rises, when in actual fact it has resulted in a worse outcome for the business and in some case Australia in general.
Competency standards is an example IMO.

Berkshire Hathaway bought Nevada energy after that solar plant was built.

But if you want to see a well run energy business, do some reading on Berkshire Hathaway energy, and listen to some interviews with its CEO Greg Able.

 

[Value Collector]

We also can only support a limited amount of baristas and uber drivers.
When Australian mines were first exploited in a major way in the 1960's, a condition for the pricing of their royalties was the establishment of towns and value added industries, this has been eroded away and everyone is sleepwalking into the third world IMO
For example from my memory, BHP were given concessions on iron ore royalties in W.A, on the understanding they would build a blast furnace and steel rolling mill at Kwinana, also a steel furnace was to be built by about 1980.
Well from memory the steel furnace requirement was waived and within a year the furnace and 1500 jobs were gone.
Now we are raping the NW of W.A and the Eastern States are riding the wave, it will be a sad day when the wave crashes IMO.

We produce a lot of value added products China wants, Just look at your FB feed and you will see a million people screaming bloody murder at the site of Chinese buyers stripping the shelves of baby formula, vitamins, and other stuff.

Beyond resources (which produce billions in wages, royalties, Dividends and taxes), we have heaps of opportunities for expanding exports of high margin value added products.

As I said though these industries all consume Capital and Labour, which are both in short supply in Australia.

And a loud bunch of Australians seem to Hate the Idea of

1, Selling products to China because “They are buying all our stuff the bastards”

2, foreign investment to expand Australian production because “that means they will take all our profits”

3, investing their own money “investing in businesses is risky”

 

[Smurf1976]

The steel mills profit margin is much smaller it pays $80+ for the ore, plus Coal + Dolomite + other stuff and sells the final steel product for a small mark up, or sometimes a loss.

Ultimately if you're selling a $200 product versus an equal volume of a $10 product, and it's about that ratio for some metals such as aluminium (varies a bit with prices obviously), then that money is coming into the country from overseas. Whether it's going to workers, contractors, suppliers, shareholders, government (taxes) or whoever, ultimately it's bringing far more wealth into the community. Someone is benefiting.

The way I'm looking at it in the context of the thread is that the "business as usual" economic model has run aground and it's going to really struggle going forward. Tourism, education, iron ore, coal - none of those are really likely to go to new highs anytime soon.

So the next plan is ???

I'm not saying it has to be making steel or anything else specific but as a concept we're going to have to change that seems virtually certain. So my thinking is where does the future lie? And how do we invest in it both at an individual level and as a society?

Even though I have knowledge relating to such things, I don't have any particular agenda that the way forward needs to involve electric arc furnaces, potlines and transmission lines everywhere. I mean that might be part of it, or it might not, but I do think the future is going to be different to the recent past which has basically been little more than an extension of the 1980's until very recently. The COVID-19 crisis has shown the vulnerabilities of that approach pretty clearly and other issues such as climate change also threaten it so change seems inevitable.

 

[qldfrog]

Agreed although the context of my comment is far broader than power or indeed any one industry.

I'm seeing that the recent Australian economic model of immigration, tourism, bulk minerals and education exports really does seem to be coming into serious question now, even the current government is making utterances to that effect, so the question is where do we go next?

If we're going to do any sort of large scale manufacturing, either old tech (eg steel) or high tech, then it's a given that we're going to need efficient and cost competitive transport, energy, water, communications etc and a the ability to appropriately skill the workforce.

So I'm really thinking two steps ahead here. Not just "what do we do next?" but "what needs to happen to enable that?".

And do not forget an efficient taxation and regulatory system
While gov can do big items you mention, only small companies can be nimble enough to act fast and leverage these into niches of excellence.but that last part can only happen in a freer tax/regulation model
Most if not all IT government projects are abject failure for a reason: bid winners are regulation expert, not domain ones.
It is all good to spray money around.. and my company will benefit, but it means the payback.taxes will disproportionately hit the successful at the restart.
What is the future of a farm where you cull your best breeders?
https://www.google.com/url?sa=t&sou...KEAQ&usg=AOvVaw1dn7TNLvXw0Kr6N48iDLhJ&ampcf=1