I am a Sydney lawyer and
rural industry advocate with a small cattle producing property in the Southern
Highlands of New South Wales who has been advising farmers and rural industry
organisations for over 30 years.
I welcome the opportunity to
make a submission on the Reserve Bank Amendment (Australian Reconstruction
Development Board) Bill (the ARDB) and in particular wish to address the
development finance arm of the proposed ARDB.
I will leave submissions to
the Committee in respect to the urgent need for rural and regional financial
reconstruction arising out of the financial storm of circumstances and
structural issues besetting rural and regional Australia outlined below to
others who are better equipped to address those issues than me.
In 2010 my law firm prepared
a submission entitled ‘Beef’s New Direction Strategic Plan 2010’ for the United
Beef Group who held a forum at Paradise Lagoons, Rockhampton, in August 2010,
attended by over 500 of the largest beef producers in Australia.
One of the themes of the
Paradise Lagoons United Beef Group forum was the economic imperative for
Australia to develop a policy for national food security. Importantly, the
forum was addressed by the author of The
Coming Famine, former CSIRO media advisor Julian Cribb, who advised that
the global demand for food will more than double over the coming half century
as the world’s population increases by another 4.7 billion people.
The ‘Beef’s New Direction
Strategic Plan 2010’ called upon the Commonwealth Government to establish a
Rural and Regional Development Bank along the lines of the former Commonwealth
Development Bank to provide development finance for new and existing Australian
businesses to meet the economic decline of Australia’s manufacturing and rural
industries. The Development Bank would also enable Australian farmers to take
advantage of the Asian Food Bowl opportunities forecast by Julian Cribb and
other economists and produce the food necessary to support an increasing
Australian and global population.
The Beef’s New Direction
Strategic Plan suggested that the proposed development bank would provide loans
to persons and business enterprises engaged in primary and secondary industry,
where the loans would result in an increase in productivity and would not
otherwise be available on suitable and reasonable terms.
The Beef’s New Direction
Strategic Plan also contemplated that the proposed Development Bank would be
government guaranteed and therefore AAA rated which would allow it to borrow at
least half a percent below the major banks
AA rating borrow rate. Further, the Strategic Plan propounded that the development bank would be
essentially a non-profit bank which would also allow it to reduce interest
rates.
The Beef’s New Direction
Strategic Plan pointed out that:
·
Australia’s
government agricultural policies over the last 30 years have generally (but not
always) been based upon economic rationalism, but the same economic rationalist
policies had not been applied by the governments of Australia’s overseas
competitors,
·
SG, who runs 2001
Study on the Impact of Government on Industry Competitiveness (“ the Heilbron
Report”), which had been commissioned by Meat and Livestock Australia, found
that Australian livestock and meat producers have higher government influenced
costs and charges overall than their key international competitors and receive
less assistance from government.
·
the Heilbron
Report found that Australian mixed sheep/beef producers paid about 1/3 of their
livestock revenue (excluding will) in government influenced costs and charges,
whilst the average New Zealand mixed sheep/beef farm paid around 1/6 and US
farmers paid around 1/8 of their livestock revenue in government influenced
costs and charges, and
·
the differentials
between government influenced costs and charges in Australia and Australia’s
overseas competitors had worsened as a consequence of continuing government
policy since the Heilbron Report was published, and
·
the European,
North American and South American farmers were all heavily subsidised by their
governments whilst Australian farmers receive very little by way of subsidies
with lots of costs, such as AQIS inspection charges, that are met by our
overseas competitors governments, being met by industry in Australia, and
·
as a consequence
of Australia’s resources boom Australia’s post-GFC interest rates were some of
the highest in the world and far higher than almost all of Australia’s major
export competitors, and
·
post GFC major
bank lending for rural industries in particular had dried up, with only about
3.15% of major bank lending at that time being lent to rule industries (source
John McNamee is paper Proposal to Establish an Australian Development Bank also
published at the August 2010 at the Paradise Lagoons United Beef Group forum),
and
·
unlike in
Australia, where the Commonwealth
Development Bank was closed in 1995, by way of example Chinese farmers had
access to low-interest development bank finance through, amongst other sources,
the China Development Bank, and
·
in 2010, the
Brazilian government through its Development Bank (BNDES), provided US $54
billion to its farmers in low interest rate loans.
By way of further example,
businesses in countries and regions such as:
- South Africa (the Development Bank of Southern Africa and the Land
and Agricultural Development Bank of South Africa (currently advertising
for South Africans to finance their farms at prime +.5%)),
- the Eastern European Union countries (the European Bank for
Reconstruction and Development),
- the Development Bank of Latin America,
- the Indian IDBI Bank Ltd (which was established in 1964 by an Act
of Parliament to provide credit and other food financial facilities for
the development of the then fledging Indian industry and which is now the
10th largest development bank in the world in terms of customer
reach with an aggregate balance sheet of Rs. 2908.3 7 billion),
all have access to long-term patient
development and innovation finance at low and/or competitive interest rates.
As a consequence of
Australia’s uncompetitively high government influenced costs and charges, high interest
rates and limited access to long term patient finance, Australia’s
manufacturing and rural industries cannot access funding for expansion and
innovation. Exacerbating these problems, foreign State owned and foreign
companies are able to utilise government subsidised low interest loans and low interest
development bank finance to buy Australian rural and manufacturing businesses
at depressed prices.
To compound the uncompetitive
access to development finance problem facing Australian businesses outlined
above, these Australian businesses then have to compete on Australian soil with
these foreign owned entities who have access to low interest development
finance and, according to the Australian Tax Office, are often engaged in transfer
pricing profits offshore whilst Australian owned businesses are left carrying
an unfair and uncompetitive Australian taxation burden.
I commend the Reserve Bank
Amendment (Australian Reconstruction and Development Board) Bill 2013 to the
Senate Economics Legislation Committee and the Parliament of the Commonwealth
of Australia generally and in particular urge the Committee to recognise the
need for an Australian Development Bank to provide long term patient
development finance at internationally competitive interest rates. Ultimately,
this should enable Australia to take advantage of the Asian Food Bowl and
manufacturing opportunities opening up
for Australia in what has been described
by many as the Asian Economic Century.
The source documents for the
information provided in this submission can be furnished on request or can be
viewed in the document section of www.huntblog.com.au
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