It would cost you 20 cents more per T-shirt to pay an Indian worker a living wage



File 20171207 31528 1pvaxud.jpg?ixlib=rb 1.1
A farmer harvests cotton in Maharashtra, India.
Shutterstock

Murray Ross Hall, The University of Queensland and Thomas Wiedmann, UNSW

If we really care about protecting the people who make the things we wear and use, we need to raise wages for workers in supply chains to above the poverty line. Our research shows that this only requires a 20 cent increase in the Australian retail price for a T-shirt made in India.

This small increase can lift wages by up to 225% in India, closing the living wage gap for the most vulnerable workers in the supply chain, such as cotton farmers. The living wage gap is the difference between a living wage and current wages.


Read more: Explainer: what exactly is a living wage?


The living wage is the income required for a decent standard of living for a worker and their family. It lifts the worker above the poverty line and is defined by the costs to meet basic needs such as food and shelter. It also limits the number of working hours per week required to meet these needs.

A living wage has long been advocated as a way to support vulnerable and exploited workers. About 42% of all workers globally are in insecure jobs and have no social protections, 29% remain in moderate to extreme poverty and about 25 million people are in slavery.

Many of the goods we now buy are part of global supply chains. Since the 1980s the production of labour-intensive products such as textiles and footwear has shifted to countries with low-cost labour.

Cost-cutting often impacts those with the weakest bargaining position, such as cotton farmers – cotton prices have been on a downward trend over the past decade. Without realising it, our demand for low prices can cause vulnerable workers in other countries to work for less than a living wage.


https://datawrapper.dwcdn.net/UuMlS/9/


Our research calculated the living wage gaps in India, broken down by region, gender, skill and type of employment. For instance, female workers on cotton farms in Gujarat earn 207% below the living wage. Casual female workers in Haryana have a living wage gap of about 34%.

It would take on average a 15 cent price increase on T-shirts in Australia to close the living wage gap for cotton workers in India. Adding another five cents would close the living wage gap for Indian textile workers, and also account for the increase in agent fees, which are a percentage of the production costs.

The living wage gap may be larger or smaller on particular farms or factories, but a 20 cent increase on average would be sufficient to lift all Indian workers in the garment supply chain out of poverty.


Read more: Why the fashion industry keeps failing to fix labour exploitation


The small cost to address poverty and climate change for producing a T-shirt in India. Murray Hall.

How we can raise the living wage

The cost to close the living wage gap in developing countries is small because wages for workers in these countries make up only a fraction of the retail price charged in countries like Australia.

Our work shows it costs about A$5.30 to produce a T-shirt in a country like India and ship it to Australia. The remaining costs embedded in a A$25 T-shirt come from warehousing, distribution and retail costs within Australia itself.

As a result, a 20 cent increase represents a less than 1% increase in the Australian retail price. It would cost only another 40 cents to cover the cost of greenhouse gas abatement. This means an ethically made T-shirt would only cost 2.5% more than current prices.


https://datawrapper.dwcdn.net/dSGy3/1/


A roadblock to implementing living wages is simply knowing the source of materials. Only about 7% of fashion companies in Australia know where all of their cotton comes from. Unless an Australian retailer specifies the source of cotton, the decision is made by the overseas textile contractor, often based on price.

Another challenge is that we need an accepted method for calculating and auditing the payment of living wages in the supply chain. The retailer needs to know how much the cotton farmer should be paid and have a system to check it has been done.

Over the past four years consumer pressure has pushed fashion companies to understand their supply chains and to consider paying living wages, but there is still a long way to go.


Read more: What businesses can do to stamp out slavery in their supply chains


In 2012 a group of the world’s largest ethical trade organisations formed the Global Living Wage Coalition.

This organisation has developed a manual for measuring the living wage and requiring? living wages to be paid to their producers. The producers are audited along the supply chain and in return can advertise their compliance with ethical standards. Shoppers will soon be able to look for a label – similar to the Fairtrade symbol – to know that living wages have been paid throughout the supply chain.

The ConversationThe famous economist John Maynard Keynes argued that consumers are not entitled to a discount at the expense of the basic needs of workers. In fact, we only need to pay a small amount more to provide a living wage and make a big difference to the world’s poorest workers.

Murray Ross Hall, PhD Candidate, School of Earth and Environmental Science, The University of Queensland and Thomas Wiedmann, Associate Professor, UNSW

This article was originally published on The Conversation. Read the original article.

Advertisements

Three new reports add clarity to Australia’s space sector, a ‘crowded and valuable high ground’



File 20171124 21795 e8qo5p.jpg?ixlib=rb 1.1
Three new reports examine Australia’s existing space capabilities, set them in the light of international developments, and identify growth areas and models for Australia to pursue.
136319147@N08/flickr , CC BY

Anthony Wicht, University of Sydney

Australia seems on the brink of embracing space in a coordinated manner, but how should we do it?

This week, the Australian government released three reports to help chart the future of Australia’s space industry. Their conclusions will feed into the review of Australia’s space industry underway by former CSIRO head Dr Megan Clark.

The reports examine Australia’s existing space capabilities, set them in the light of international developments, and identify growth areas and models for Australia to pursue. The promise is there:

  • Australia has scattered globally competitive capabilities in areas from space weather to deep-space communication but “by far the strongest areas” are applications of satellite data on Earth to industries like agriculture, communications and mining

  • Australian research in other sectors like 3D printing and VR is being translated to space with potentially high payoffs

  • global trends, including the demand for more space traffic management, play to our emerging strengths

  • the prize for success is real – the UK currently has an A$8 billion space export industry, and anticipates further growth.

While it is not the first time the government has commissioned this type of research, the updates are welcome given the fast pace of space innovation. Taken together they paint a picture of potential for the future of Australian space and a firm foundation for a space agency.


Read more: Five steps Australia can take to build an effective space agency


The rules of the game

The Global Space Industry Dynamics report from Bryce Space and Technology, a US-based space specialist consulting firm, sets out the “rules of the game” in the US$344 billion (A$450 billion) space sector.

The global space economy at a glance. Figures are from 2016, and shown in US$.
Marcella Cheng for The Conversation, adapted from Global Space Industry Dynamics Research Paper by Bryce Space and Technology, CC BY-NC-ND

It highlights that:

  • three quarters of global revenues are made commercially, despite the prevailing perception that space is a government concern
  • most commercial revenue is made from space-enabled services and applications (like satellite TV or GPS receivers) rather than the construction and launch of space hardware itself
  • commercial launch and satellite manufacturing industries are still small in relative terms, at about US$20.5 billion (A$27 billion) of revenues, but show strong growth, particularly for smaller satellites and launch vehicles.

The report also looks at the emerging trends that a smart space industry in Australia will try and run ahead of. Space is becoming cheaper, more attractive to investors and increasingly important in our data-rich economy. These trends have not gone unnoticed by global competitors, though, and the report describes space as an increasingly “crowded and valuable high ground”.

What is particularly useful about the report is its sharp focus on the three numbers that determine commercial attractiveness:

  1. market size
  2. growth
  3. profitability.

The magic comes through matching these attractive sectors against areas where Australia can compete strongly because of existing capability or geographic advantage.

The report suggests growth opportunities across traditional and emerging space sectors. In traditional sectors, it calls out satellite services, particularly commercial satellite radio and broadband, and ground infrastructure as prime opportunities. In emerging sectors, earth observation data analytics, space traffic management, and small satellite manufacturing are all tipped as potentially profitable growth areas where Australia could compete.

The report adds the speculative area of space mining as an additional sector worth considering given Australia’s existing terrestrial capability.


Read more: Space mining is closer than you think, and the prospects are great


It is encouraging that Australian organisations have anticipated the growth areas, from UNSW’s off-earth mining research, to Geoscience Australia’s integrated satellite data to Mt Stromlo’s debris tracking capability.

Australian capabilities

Australian capabilities are the focus of a second report, by ACIL Allen consulting, Australian Space Industry Capability. The review highlights a smattering of world class Australian capabilities, particularly in the application of space data to activities on Earth like agriculture, transport and financial services.

There are also emerging Australian capabilities in small satellites and potentially disruptive technologies with space applications, like 3D printing, AI and quantum computing. The report notes that basic research is strong, but challenges remain in “industrialising and commercialising the resulting products”.

Australian universities made cubesats for an international research project.

The concern about commercialisation prompts questions about the policies that will help Australian companies succeed.

Should we embrace recent trends and rely wholly on market mechanisms and venture capital Darwinism, or buy into traditional international space projects?

Do we send our brightest overseas for a few years’ training, or spin up a full suite of research and development programs domestically?

Are there regulations that need to change to level the playing field for Australian space exports?

Learning from the world

Part of the answer is to be found in the third report, Global Space Strategies and Best Practices, which looks at global approaches to funding, capability development, and governance arrangements. The case studies illustrate a range of styles.

The UK’s pragmatic approach developed a £5 billion (A$8 billion) export industry by focusing primarily on competitive commercial applications, including a satellite Australia recently bought a time-share on.


Read more: Collecting satellite data Australia wants: a new direction for Earth observation


A longer-term play is Luxembourg’s use of tax breaks and legal changes to attract space mining ventures. Before laughing, remember that Luxembourg has space clout: satellite giants SES and Intelsat are headquartered there thanks to similar forward thinking in the 1980s. Those two companies pulled in about A$3 billion of profit between them last year.

Norway and Canada show a middle ground, combining international partnerships with clear focus areas that benefit research and the economy. Norway has taken advantage of its geography to build satellite ground stations for polar-orbiting satellites, in an interesting parallel with Australia’s longstanding ground capabilities. Canada used its relationship with the United States to build the robotic “Canadarm” for the Space Shuttle and International Space Station, developing a space robotics capability for the country.

Canadarm played an important role in Canada-USA relations.

The only caution is that confining the possible role models to the space sector is unnecessarily limiting. Commercialisation in technology fields is a broader policy question, and there is much to learn from recent innovations including CSIRO’s venture fund and the broader Cooperative Research Centre (CRC) program.

As well as the three reports, the government recently released 140 public submissions to the panel.

The ConversationThere is no shortage of advice for Dr Clark and the expert reference group; appropriate given it seems an industry of remarkable potential rests in their hands.

Anthony Wicht, Alliance 21 Fellow (Space) at the United States Studies Centre, University of Sydney

This article was originally published on The Conversation. Read the original article.

Why the big four asked for a parliamentary inquiry into banking


George Rennie, University of Melbourne

The major Australian banks are following familiar public relations tactics in requesting a parliamentary commission of inquiry into banking and financial services.

When the public mood is against an industry, it will try to win the public over, while getting the politicians to ignore the public mood. If that fails, the industry gradually concedes ground until attention goes elsewhere.

For this reason, the banks went from being steadfastly against a commission, to offering the option of self-regulation, to proposing a new “banking tribunal”, to eventually conceding, after the battle had already been lost, to a parliamentary inquiry.

The big problem for the banks, and a big part of the reason that their previous lobbying failed, is that their popularity with the Australian public is very low. This allowed, or pressured, politicians to call for the commission, and presents significant problems for the banks going forward, especially if they wish to avoid tougher regulation.


Read more: Royal commissions: how do they work?


The banks capitulated only once it became “all but inevitable” that an inquiry of some sort would be held.

Due to the recent citizenship saga, it was looking likely that a coalition of crossbench, Labor, Greens and some Nationals MPs would pass a bill for a commission of inquiry into the banks and other financial institutions.

Labor had already promised to set up a royal commission into the banking and financial services industry if it won the next election.

Concede ground only when it’s already lost

A royal commission will almost certainly bring many months of bad press for the banks.

As the industry has repeatedly made clear, it never wanted a royal commission. The banks claimed they had corrected the mistakes of the past and that a commission was “unwarranted”.

So the banking industry’s public and private lobbying efforts were geared towards convincing politicians to resist calls for the commission, while trying to boost public opinion by highlighting their corporate social responsibility.

This involved sacking executives over this scandal or that, removing certain ATM fees, and cutting bonuses and director pay.

The banks have also launched advertising campaigns, such as one highlighting that many Australians own bank shares through their superannuation.

Concurrently, the banks hoped that threatening to launch a “mining tax”-style ad campaign might scare politicians away from calling for a commission.

These campaigns have become a common threat since the success of the 2010 mining tax campaign opened corporate Australia’s eyes to the potential effectiveness of advocacy ads.


Read more: Banking royal commission will expose the real cost of bad behaviour


Tactics similar to those the banks are employing now have been used to varying degrees of success in the United States by the tobacco industry and the gun, finance and healthcare lobbies.

In 1998 the American tobacco industry agreed to make payments of over US$200 billion to dozens of states. But this happened only after decades of public education and campaigning against smoking.

Similarly, the American healthcare lobby successfully fought off several attempts to reform healthcare. Obamacare managed to pass in 2010 only after the industry got to substantively write it.

The public relations game

Appearing to co-operate and atone is the best way to try to influence the terms of an inquiry. It also helps to mitigate the worst of any bad press to come. This reflects a wider, pragmatic strategy of lobbying and public relations employed by the banks and other industries.

The focus for the banks will now shift towards damage control, along with heavy promotion of the banks “doing the right thing” by Australia.

To that end, expect to see even more banners proclaiming a bank’s sponsorship of the local footy team, and ads promoting the good work done in your local community.

The ConversationThese, along with an insistence that the commission is a witch hunt, that its findings are “old news”, that the banks have already taken steps to deal with the issue, will underpin the industry’s public relations battle while the royal commission takes place.

George Rennie, Lecturer in American Politics and Lobbying Strategies, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Banking royal commission will expose the real cost of bad behaviour


Jenni Henderson, The Conversation

Australia’s federal government has announced a royal commission into the financial services sector, following a letter from the big four bank heads supporting the move.

The commission will run for 12 months, delivering a final report in February 2019, at an estimated cost of A$75 million. It will explore not only banking but also the wealth management, superannuation and insurance industries.

Prime Minister Malcolm Turnbull had previously denied the need for a royal commission but said in announcing the move that political uncertainty had forced the decision.

“Uncertainty…over the potential for such an inquiry is starting to undermine confidence in our financial system. And as a result, the national economy. And that is precisely what we have always been determined to avoid,” he said.

The commission should be allowed to go on for longer, for closer to three years, because the 12-month period is the bare minimum, says Andrew Schmulow, a senior lecturer in the faculty of law at University of Western Australia.

“If the commission doesn’t find other skeletons in the closet, I will eat my hat,” he adds.

Schmulow believes there will be more revelations to come from the commission and that the banks will have to answer for covering up these as well.

“You can’t have this many scandals on this kind of scale without a corporate culture that is rotten to the core,” he said.

The royal commission won’t award compensation but will have the powers to compel the banks and other institutions to present documents and witnesses.

Earlier in the year, in an attempt to fend off a royal commission, the government announced a raft of new measures in the 2017 Federal Budget to address concerns surrounding the finance industry.

Timeline of Australian bank scandals

https://cdn.knightlab.com/libs/timeline3/latest/embed/index.html?source=16t5cJvvQqZqnJPl1M9C1t8fNOveF64OxTxKoPDZHJLc&font=Default&lang=en&initial_zoom=2&height=650

Timing of the announcement

Malcolm Turnbull defended the delay in calling the royal commission due to these measures.

“There would’ve been legitimate calls to delay any new measures until the findings of the inquiry were handed down. And that is one of the reasons why we have not established a banking inquiry to date,” he said.

Opposition leader Bill Shorten said the timing of the commission called into question the government’s credibility and said that Australians had every right to be cynical.

“It says everything about Turnbull’s values and priorities that he only agreed to Labor’s Royal Commission when the banks told him he had to. He ignored the pleas of families and small businesses, he rejected the words of whistle-blowers. But when the big banks wrote him a letter, he folded the same day.”

Turnbull’s move comes after the possibility of a Nationals bill on the same issue. Andrew Schmulow, said it was “stage managed”, designed to regain control on the terms of reference and the length of the commission.

“Turnbull either losses control or keeps a modicum of control. It’s one or the other,” Schmulow said.

Costs of a banking royal commission versus bad behaviour

The bank heads, in their letter to the government, described the deliberations on the commission as “costly and distracting”. But the real cost is to the economy and is a direct result of the bank behaviour, Schmulow said.

The funding costs of the banks are based on a risk profile which is underwritten by taxpayers through an implicit bank guarantee, which will only be affected if the government itself suffers a credit downgrade, Schmulow said.

Mum and dad investors are often brought up as having a vested interest in the banks’ strength through their superannuation. But Schmulow says a small portion of super is invested in the banks but it’s also invested in other things in the economy as well. He says investors’ savings are more likely to be hurt by the impact of the behaviour of the banks in other areas of the economy.

“They are already making so much profit off every individual and company that borrows money we have the most profitable banking sector in the world, you only get that by gouging,” Schmulow says.

Banks have traditionally prioritised shareholders and investors have had a superb return on equity said Elizabeth Sheedy, associate professor of financial risk management at Macquarie University.

But she said the community seemed to be wanting the balance to shift more in favour of the customer rather than returns and this raised fundamental questions about bank governance.

“Should remuneration be based on the metrics of concern to shareholders (profits, return on equity) or metrics of concern to customers (lack of complaints, value for money)? These fundamental questions are not going to be resolved in the ordinary course of business and a far-reaching inquiry seems to be a way that they can be thoroughly aired and debated,” Sheedy said.

“It seems that the community is prepared to pay that price in order to create a better deal for customers,” she added.

The commission won’t examine regulators like the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA) who have recently been given more power to hold the banks to account.

The regulators have been criticised in the past for their inaction on scandals in the banking and financial sectors. But Andy Schmulow said the royal commission would show up their inaction and raise serious questions about who was watching the watchdogs.

Eliza Wu, associate professor in finance at the University of Sydney says the banking sector’s exposure to the real estate market and the lack of regulatory oversight of the fintech and peer-to-peer lending sectors, were a worry.

The Conversation“The heavily disrupted world of banking and finance is evolving very quickly and the regulators and often industry operators themselves, exist under an unforgiving regime of catch-up,” she said.

Jenni Henderson, Section Editor: Business + Economy, The Conversation

This article was originally published on The Conversation. Read the original article.

Broad mandate for financial services royal commission takes the heat off banks


Kevin Davis, Australian Centre for Financial Studies

It does seem anomalous that the major banks have now become supporters of the royal commission into financial services, given they have been the principal targets. But the alternatives are probably less palatable, particularly if the banks think that all past major issues of misconduct and immoral behaviour have already been brought to light. And the broadening of the terms of reference beyond banking may dilute the focus on the banks themselves.

The banks argue that ongoing speculation and uncertainty are creating unnecessary costs and distractions for them, and that is most likely the case. Even if the major banks were to spend A$100 million in dealing with the royal commission that is less than 0.3% of the annual profits of the majors – so it has little impact on shareholder returns.

And with annual interest expenses in the order of A$65 billion, a cost of A$100 million or so could be quickly offset by improvements in bank borrowing costs from resolution of uncertainty. Whether the government spending a similar sum of taxpayer money on a royal commission is worthwhile is another matter.

Terms of reference too broad

The draft terms of reference of the royal commission ask it to focus primarily on three issues involving financial service entities. One is the essentially legal issue of identifying past cases of misconduct in violation of regulations and laws, as well as what might be termed “misbehaviour” (legal but immoral or unethical or unfair activities).

One apparent omission in the draft terms of reference relates to credit – and lending has been a major problem area in the past. While bank lending is covered, the definition of financial services entities to be considered does not appear to include those (such as mortgage brokers and some lenders) who only require an Australian Credit Licence and not an Australian Financial Services Licence (AFSL). Likewise, some financial services entities are exempt from the AFSL requirement and that may prove problematic if the draft terms of reference are not amended.

The boards and senior management of the banks (and other entities) no doubt hope there are no hidden skeletons in the closets which may be uncovered to shock them, and that revisiting the known past problems will be a case of yesterday’s news.

Although the term “misbehaviour” strays into grey areas of defining consistency with “community standards and expectations”, identifying past misconduct is a task suitable for a royal commission. But it shouldn’t be needed. ASIC and other regulators have adequate powers (if not adequate resources) to identify and prosecute misconduct. The adequacy of those powers is also a topic for the commission.

The second major task of the royal commission is to identify whether misconduct and misbehaviour can be attributed to poor culture and governance practices. This is particularly problematic.

What evidence is to be used to show, beyond reasonable doubt, that there is a causal relationship from the amorphous, non-quantifiable, concepts of culture and governance to specific instances of, or general proclivity towards, misconduct? There’s also undoubtedly many positive behaviours and outcomes occurring within these institutions they could point to, which may imply that, on balance, the arrangements are not bad.

So, the third question the commission then faces, is what changes might be made to reduce these problems. Here, the danger is that it involves a step into the unknown – what would be the likely outcomes under any proposed changes.

In its task of making recommendations, the commission faces a number of other difficulties. There is a raft of regulatory changes in progress following on from the 2014 Financial Services Inquiry and other government policy initiatives.

Also relevant is the financial technology or “fintech” revolution creating new business models, products and services, and methods of customer interaction with financial services entities. These create potential for new types of misconduct and misbehaviour. How relevant lessons the royal commission draws from history will be for this new world is unclear.

The ConversationThe banks will no doubt be pleased that the scope of the royal commission encompasses most of the financial services sector rather than focusing primarily upon them. In particular, the reference to superannuation fund trustees and use of member funds would seem to bring the controversial issue of fund governance right to the fore and will partly distract attention from the banks.

Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies

This article was originally published on The Conversation. Read the original article.

Grattan on Friday: Nationals force reluctant Turnbull to dress in Shorten’s banking clothes


Michelle Grattan, University of Canberra

Only a few months ago Bill Shorten would have thought that if he won the election he’d be delivering same-sex marriage and a royal commission into the banks early in his government.

Now Malcolm Turnbull is bringing us both – in each case, his hand forced by a (different) group of rebel backbenchers.

The marriage bill, which will go through the House of Representatives next week, has some disgruntled conservatives arcing up after the Senate rejected their amendments, but Turnbull will mark it down as one of the achievements of his prime ministership.

It’s another matter with the banking royal commission. Seldom is a government’s impotence and frustration as much on display as it was when Turnbull finally capitulated and announced on Thursday that the government would establish the inquiry it has so long resisted and denounced.

For quite a time political hardheads had been arguing the government should accept the inevitable and “own” an inquiry. Well, now it does – and what a reluctant owner it is, miserable and bitter.

Turnbull and Treasurer Scott Morrison lamented that setting up the royal commission, which covers superannuation and insurance providers as well as banking, was “regrettable but necessary”, driven by the political circumstances in which they found themselves.

In the end, there wasn’t a choice.

The bad result for the Liberal National Party in Saturday’s Queensland election strengthened the hand and determination of the rebel federal Nationals, intent on pushing Barry O’Sullivan’s private senator’s bill for parliament to set up a commission of inquiry.

Two lower house Nationals, George Christensen and Llew O’Brien, were willing to cross the floor to give the bill the numbers there. In the background Nationals leader Barnaby Joyce, on the New England campaign trail, was not resisting the flow. Joyce judged that if the issue reached the Nationals’ partyroom, the commission would get support.

The Nationals also knew an inquiry had strong public backing, a point underlined by an Essential poll this week showing 64% wanted a royal commission. That included 62% of Coalition voters.

The banks themselves came to accept that opposition had become too costly. In their Thursday letter to the government (flagged late Wednesday) advocating “a properly constituted inquiry”, the chairmen and chief executives of the four major banks said it was “in the national interest for the political uncertainty to end.

“It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people,” they wrote.

As Australian Bankers’ Association chief executive Anna Bligh, a former Queensland Labor premier, put it bluntly, it was too a big a risk to have a inquiry where the terms of reference and choice of commissioner were in “the hands of minor parties and fringe elements of the parliament”.

On Tuesday and Wednesday, O’Sullivan, Turnbull and senior ministers sparred over the issue. O’Sullivan, a tough ex-cop from Queensland, says the government didn’t try to get him to drop his bill. Rather, it was attempting to “manage time”. He knew it was working on something, though he didn’t know what.

The ministers wanted to find out when his bill would be ready for the Senate. Some say O’Sullivan put it on pause. He denies this, saying his negotiations with the Greens and others and the preparation and printing processes pushed it back to early Thursday, which helped the government.

Cabinet met first thing that morning – Turnbull’s announcement was at a 9am news conference. The bill had done its job without having to make an actual appearance in parliament.

The government’s perennial arguments – until Thursday – against a royal commission have included that it would undermine international investor confidence in Australia’s banks and that an inevitably prolonged inquiry would have delayed the reforms the government has introduced or proposed.

The first proposition will be tested now that the inquiry is to proceed. It is doubtful, however, that overseas investors are as easily frightened as the government has been suggesting. They’re surely sophisticated enough to understand the fundamentals of our banking system, and those are sound.

The government has maintained its measures are adequate to address the issues but O’Sullivan and other proponents of an inquiry insisted they would not deal with the dimension of “culture”. The banks’ “profit before people” attitude, as Nationals senator John Williams puts it.

A circuit-breaker is needed to restore public confidence in banks. But the material to emerge during the inquiry may lower that confidence further before there is any sign of its restoration.

The royal commission will be led by a former or serving judicial figure and will be asked to deliver a final report by February 1, 2019, with an interim report before that. The terms of reference will be tight: “it’s not going to be an inquiry into capitalism”, Turnbull said.

The Nationals’ brutal power play may deepen tensions between Liberals and the junior Coalition partner. Not that the Nationals care that much.

Christensen didn’t hesitate to rub salt into Turnbull’s open wound. “I just don’t understand why it took a number of National Party backbenchers to drag the prime minister kicking and screaming to this decision,” he said, in a cutting but pertinent observation.

O’Sullivan was more diplomatic, speaking of Turnbull “making his own journey”. A journey, it might be said, under armed escort.

Meanwhile, the Nationals were relishing shades of the 1937 royal commission into the banking system. As a Senate report of a few years ago recounted:
“At the 1935 election the Country Party (and the Labor Party) had promised an inquiry and when the conservative government led by Joseph Lyons was forced to form a coalition with the Country Party, he agreed to establish an inquiry”.

If it had responded much earlier to the pressure for an inquiry the government could have hoped to reap credit for appreciating the depth of public complaints and concerns.

As it is, with its grudging decision through gritted teeth, it doesn’t seem to be looking for plaudits.

But the political reality is that by establishing the royal commission it has neutralised one of Shorten’s issues.

The ConversationFor all that, it could be a Shorten government that deals with the commission’s ultimate recommendations. By the time the final report rolls round, an election will be imminent, assuming the royal commission runs on time and the government runs full term.

https://www.podbean.com/media/player/hdjfk-7dce11?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

The Queensland election outcome is a death knell for Adani’s coal mine


John Hewson, Crawford School of Public Policy, Australian National University

The coal mine proposed for Queensland’s Galilee Basin by Indian mining giant Adani has been a moveable feast, with many stories about its scale, purpose, financing, job prospects, and commerciality. The prospect of a return of the Palaszczuk government in Queensland is effectively the death knell for the project.

Labor has so pledged to block a concessional, taxpayer-funded loan, while embracing a significantly expanded program to develop regional solar thermal power in the state.

It seems the proposal has been reduced in scale, with the original A$21 billion plan reined back to just its initial stage, costing about A$5 billion. Its purpose has changed from exporting coal to India’s Adani Power, to now possibly shipping coal to Bangladesh and Pakistan. Its job prospects are confusing with early estimates well in excess of 10,000, down more recently to fewer than 1,500, after Adani admitted that the mine’s operations will be heavily automated.

The project’s financing has been under a continuous cloud given the scale of the debts of the Adani Group, and the reluctance of global banks in a world transitioning to low-emission technologies. All of this is complicated by the potential for concessional finance from the Northern Australia Infrastructure Fund (NAIF) and Chinese money. As a high-cost, low-grade coal project, its commerciality has bounced around, given variations in “offtake prices” and expectations on coal futures prices.


Read more: Why big projects like the Adani coal mine won’t transform regional Queensland


The latest version is that the project has been scaled down from some 60 metric tonnes per year (mtpa) to about 25mtpa, requiring an extra investment of some A$2 billion for the mine development, and A$3.3 billion for the rail link to the export terminal at Abbot Point, but avoiding the need to expand Abbot Point. Adani Enterprises is already financially strapped, with net debt exceeding market capitalisation, and the Adani family needing to refinance Abbot Point. The Adani family has already spent some A$3.5 billion on acquiring the deposit and developing their Australian project to date.

So with virtually no capacity to inject additional equity, the focus is on whether even this scaled-down proposal can be financed by additional debt? This is why a government-sponsored concessional loan of up to A$1 billion from the NAIF to build the rail link has been seen as crucial to the project moving forward. It could be accepted by potential financiers as low-cost, high-risk “quasi equity”. It would also effectively hand Adani a monopoly position in standard gauge rail, in turn creating monopoly conditions at Abbot Point.

A more recent constraint on sentiment towards to the project has come from the Indian government’s rapidly changing attitudes to future power generation, accelerating the transition from coal-fired power to renewables. Recent statements by RK Singh, India’s Minister of Power and New and Renewable Energy have confirmed that India can exceed its target of 275 gigawatts of renewable energy by 2027, a massive shift from its historic reliance on coal.

This accelerates the likely end to coal imports by India, which has seen the Adani project seek alternative markets in Bangladesh and Pakistan.

Indeed, there is now documentary evidence of an electricity offtake agreement with the Bangladeshi government’s power board, setting a contractual “cost plus plus” supply of low-quality imported coal delivered at prices that are likely to approach 50% above the current coal spot price. But even at the current futures price of about US$80 per tonne, the Carmichael mine could be cashflow-positive.

Funding the Carmichael mine

Can the Adani group hope to raise the necessary additional debt? This is a two-pronged challenge – the family needs to refinance Abbot Point requiring some A$1.5 billion over the next 12 months, and the A$5 billion-plus project itself.

It looks like the family had to enlist the services of second-tier investment bank Jeffries to initiate a bond refinancing for Abbot Point – to be rated just above junk bond status. However, Jefferies reportedly pulled out within a week, its reasoning unstated.

With some 20 to 30 global banks, including Australia’s big four, having ruled out financing the mine, and Indian banks strapped for capacity, the focus has shifted to Chinese group CMEC as a potential financier, against likely Bangladesh or Pakistani alternatives. However, even with such offtake agreements the project’s longer–term viability is questionable.


Read more: The future of Australian coal: an unbankable deposit


Obviously the Chinese Communist Party, and other Chinese authorities, will need to think carefully about the potential consequences of getting involved now that the project lacks direct financial support from state and federal governments in Australia. This is especially so when the issue of Chinese influence and involvement in Australia generally, and in our politics specifically, is becoming controversial.

I also suspect that the federal Labor opposition may now adopt a position against the Adani project, in light of Queensland’s state election result.

The bottom line for financing is an assessment of the longer-term risks with Adani Enterprises, the family, and the project. Both the company and the family are already heavily exposed financially, and the project is a high-cost, high-risk one.

Bearing in mind the Paris climate agreement, the rapidly falling costs of reliable renewables, and India’s shifting energy strategy, the development of any new coal mine is certainly a very big call.

I suspect that the Adani project is already a stranded asset, and definitely not worthy of either Australian taxpayer support or Chinese investment.

Interactive: what the Adani coal mine means for Queensland

The Conversationhttps://cdn.theconversation.com/infographics/134/1cbeb15f9237d4fbc13472fb72fa7981bc16961f/site/index.html

John Hewson, Professor and Chair, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

Turnbull talks with rebel National on banks


Michelle Grattan, University of Canberra

Malcolm Turnbull and senator Barry O’Sullivan have discussed the rebel National’s private senator’s bill for a commission of inquiry into the banks and other financial institutions.

As the stand-off continues over an inquiry, Turnbull on Tuesday publicly reaffirmed that “we are not going to establish a royal commission”.

But behind the scenes Turnbull appears to be seeking some resolution of the impasse, which could lead to his hand being forced.

It is believed he is due to have a further discussion with O’Sullivan after the bill is printed.

O’Sullivan refused to confirm Tuesday’s meeting.

The bill is now considered to have the numbers to pass not just in the Senate but in the House of Representatives as well. Two lower house Nationals, George Christensen and Llew O’Brien, are supporters, although O’Brien has cast his backing in terms of being “quite likely” to vote for it.

Nationals leader Barnaby Joyce, who is fighting a byelection in New England to get back into parliament, has indicated he is very willing to have the bank inquiry issue considered by the Nationals’ partyroom, and has signalled he is relaxed about the outcome. The O’Sullivan bill will be discussed there on Monday.

If the Nationals as a party moved to support an inquiry, Turnbull would be deeply embarrassed.

O’Sullivan was inundated with suggestions for fine-tuning after circulating his draft bill, and it has taken some time for these to be dealt with and a final version to be sent to the parliamentary draftsman.

Turnbull, campaigning in Bennelong for the byelection in that seat, said the government had been concentrating on “positive steps, real reforms right now”.

“We have put more money into the regulators to give them stronger teeth and more effective powers. And of course we are setting up the one-stop shop, the Australian Financial Complaints Authority, which will mean that people will have one place to go to for help and assistance with complaints and concerns with their financial service providers.

“We are constantly working to ensure that the cultural change in the banks occurs and we are getting strong support for that,” he said.

“Our focus is on results. It is on action. That is why we have not supported a royal commission.”

Turnbull argues that a royal commission would take a very long time and delay getting results.

But O’Sullivan has maintained that what is fundamental is achieving cultural change and this won’t happen without a bright light being shone on the way banks and other institution have operated.

The commission proposed in the O’Sullivan bill is one that would be set up by parliament and report back to parliament. A royal commission is set up by the executive and reports to the executive.

The ConversationEssential Media, in a poll published on Tuesday, reported 64% supported holding a royal commission into banking and the financial services industry and 12% opposed. Support among Labor voters was 72% – among Coalition voters it was 62%.

https://www.podbean.com/media/player/nqtdd-7bf599?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Turnbull backed against the wall by rebel Nationals on bank inquiry


Michelle Grattan, University of Canberra

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison appear to have become hostages to rebel Nationals determined at all costs to secure a commission of inquiry into the banks.

On Monday a second federal National, Llew O’Brien, from Queensland flagged he is likely to cross the floor in the House of Representatives to support the private member’s bill sponsored by Queensland Nationals senator Barry O’Sullivan to set up a commission of inquiry that would investigate a broad range of financial institutions.

O’Brien, who has inserted an extra term of reference to protect people with mental health issues from discrimination, said “I like what I see” in the proposed bill. But he added that he would respect his party’s process. The bill is due to go to the Nationals’ partyroom on Monday.

The bill, which has the numbers to get through the Senate, is supported in the lower house by Queensland MP George Christensen, who after Saturday’s Queensland election apologised to One Nation voters for “we in the LNP” letting them down.

Backed by Christensen and O’Brien, together with Labor and crossbenchers, the bill would have the required 76 votes to enable its consideration by the lower house – although when it can get to be debated there is not clear.

In a discussion last week – later leaked – cabinet considered whether the government should adopt a pragmatic position and give in to calls for a royal commission. But Turnbull and Morrison have refused to do so.

Now the cabinet looks like it will have to decide whether to own the process of an inquiry or have it forced on it.

If Monday’s Nationals’ party meeting endorsed the bill, that would escalate the situation dangerously for the government, unless it had softened its opposition to an inquiry. It would amount to the minor Coalition partner formally rejecting a government position.

Cabinet would have to back down, or find some other way through.

As the crisis over the banking probe deepens for the government, there is currently no-one with the authority or availability within the Nationals to manage the situation.

Barnaby Joyce remains leader but he’s absorbed in Saturday’s New England byelection, which is his path back into parliament. Senator Nigel Scullion is parliamentary leader but has little clout to curb the determined rebels.

With the commission push gaining momentum there is also less desire from some senior Nationals to fight it. Joyce is said to be relaxed about having a banking inquiry, which would be popular among voters and could be chalked up as a win for the Nationals.

The election loss in Queensland has strengthened the federal Nationals’ determination to pursue brand differentiation.

O’Sullivan has repeatedly referenced the example of Liberal Dean Smith’s use of a private member’s bill to pursue the cause of same-sex marriage, arguing he is following Smith’s pathway.

But there are still divided opinions within the parliamentary party about the bank probe. Resources Minister Matt Canavan, a member of cabinet, on Monday reaffirmed his opposition to a royal commission.

Joyce is likely to attend Monday’s party meeting although he will not be formally back in parliament by then.

Nationals are not clear whether they will elect their new deputy on Monday to replace Fiona Nash, who was ruled ineligible by the High Court because she had been a dual British citizen when she nominated. There is some speculation that this might be delayed to give aspirants time to lobby.

If there is no deputy leader chosen on Monday, it would mean that the minor party would be literally leaderless on the government frontbench in the House of Representatives. Infrastructure Minister Darren Chester would be the most senior National sitting behind Turnbull in Question Time.

Christensen on Monday launched a website with a petition seeking signatures for a banking inquiry.

“Misconduct is not in the ‘past’,” he says on the site. “It is not being fixed by the industry to a standard acceptable to the community. Although positive steps are being made by government reforms, gaps still exist.

“Enough is enough … unless the government acts to establish a royal commission, I will be acting before the end of this year to vote for a commission of inquiry into the banks.” The site also invites people “bitten by the banks” to “tell your story”.

The ConversationA commission of inquiry differs from a royal commission in being set up by and reporting to parliament, rather than being established by and reporting to the executive.

https://www.podbean.com/media/player/nqtdd-7bf599?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.