Carbon pricing will add to manufacturing sector’s high dollar misery: Gottliebsen

Bluescope chairman Graham Kraehe has set out what almost every Australian business person fears – that political and public service incompetence in Canberra means we will not enjoy the full benefits of the greatest boom Australia has ever seen. And when it’s over – and no boom lasts forever – we will be left with a massive quarry, having hollowed out vast areas of the country.

We all know that the proposed carbon tax is going to be an absolute shambles because there is little or no industry consultation and policy is being dreamed up by political forces and departments that have no knowledge of how industry works. It’s the insulation mess on a grand scale.

But if that was all that was happening the sheer size of the looming boom – and it is massive – might swamp our incompetence. But Kraehe reminds us that the boom itself has lifted the Australian dollar from 80 to 100 US cents over two years and that’s putting a whole series of Australian employing industries including agriculture, food manufacturing, tourism, education, aluminium, cement, and, of course, steel, under pressure. Then we lump on top of that pressure a carbon tax that will force a number of those industries to shift their production offshore. It will have no effect whatsoever on world carbon and merely transfer production.

How silly is that? When a country does something really stupid the sharemarket adjusts the values. Since the election our resource shares have boomed but if we take them out the Australian market has been one of the worst performing in the western world. We have a boom of unprecedented proportions and the sharemarket is telling us big segments of the population are not going to enjoy it.

Although Kraehe explains why, I fear that he may end up by being part of the problem. The Government will shower BlueScope with compensation to shut him up. Others who speak up will get similar rewards. Silence is bought. Remember this is a political game.

But what happens is that the Canberra handouts keep the plant operating but investment is stopped. And once a manufacturing operation stops investing its plant is doomed. Port Kembla will undergo a slow death. Better to announce its closure now and transfer the production offshore.

Strip out the rhetoric and what Canberra wants. It would be better to close our aluminium, cement and other plants than let them suffer slow deaths. Canberra can then announce how we have cut carbon emissions. Again, that’s exactly what Canberra wants and Julia Gillard should tell it as it is.

As I have written before, we can have a carbon tax but it must not be imposed on exports and must apply to imports. That’s logical and it’s not hard to do, particularly if we link it to the GST mechanism. But that would require consultation and we can’t have that.

This article first appeared on Business Spectator.