Victoria is entering the first stages of an industry capital strike which if not addressed will slash the state’s plant investment and long-term enterprise viability.
In short, Victorian business is concluding but they have a government that has no idea how to run the state or fix its deep problems. Plant investment therefore goes elsewhere and their Victorian operations will gradually decay.
The good news for Victoria (and Australia) is that the Victorian problem can be fixed and the beleaguered government is taking step one by slashing expenditure. Finally the credit ratings agencies have woken up to the debt consequences of Victoria’s bad management. Unless the government takes wealth-building steps, the current looming government cost cuts will need to be repeated many times as the state spirals down.
Fortunately the Victorian mess is not being duplicated around the nation and bankers tell me they are experiencing strong financing demand for new equipment to improve productivity and expand.
Some of the demand is from Victoria but the majority is from other states because the cost of doing business in Victoria is too high. Victorian-style excess business taxing inevitably creates a vicious downward spiral.
Over the weekend I was yarning with large Melbourne-based equipment engineers who confirm the bankers’ experience of strong national investment. But the engineers’ largest customers are in Victoria and they have stopped investing.
Sometimes it takes a particular event to bring about a capital strike. In Victoria the looming closure of the Qenos polyethylene and polymers plant obviously impacts the supply chain. But it has also suddenly crystallised plant investment order cancellations among those who are unaffected. They shake their heads in dismay that their state government would allow this to happen to appease extreme greens. The Botany closure did not have the same impact on NSW.
The prosperity of Queensland is partly based on coal and gas. NSW on coal. They can manage it. Victoria has large gas reservesand because they are onshore, next to a pipeline and treatment plant and don’t require fracking, they are the lowest cost in the nation. And because the by-product from the deep wells is clean water, it can be used to foster carbon-absorbing agriculture. Developing the gas will cause protests so the government took extraordinary steps to conceal it. While the Victorian government says the gas is unusable, that was not the view of Esso and BlueScope in the application to develop the gas in 2014. All agreed that around six wells were required to prove permability.
The Victorian government spent $42m on a committee to determine if there was onshore gas in Victoria but a condition of receiving the money was that the committee not look in the areas next to the national pipeline grid where the gas reserves had been proven. Dutifully the committee took the money and declared “no onshore gas” in Victoria.
Qenos needs a reliable low-cost feedstock and most ALP politicians now know that Victoria has the gas for that feedstock (six permeability test wells must be drilled) but taking expensive gas from Queensland does not generate the same protests and Queensland can be blamed from exporting its gas rather than piping it to gas-rich Victoria.
Victorians have to choose between much greater reductions in health, education and road repairs or choosing to create wealth by developing gas and carbon dioxide-reducing agriculture.
The next step is a gas-fired power plant in the Latrobe Valley to replace brown coal. This will slash emissions and add to renewables and agriculture, to achieve the targeted carbon dioxide emission reductions. New technology nuclear may follow. It’s not hard. Many Victorian ALP politicians in all factions have a community welfare conscience. The majority know what needs to be done but it is politically easier to slash health, education and roads and blame Canberra.
With a diverse energy policy, step two of Victoria’s recovery can then be accelerated. The Victorian government knows there are billions in local and overseas non-mining capital ready to tap Victoria’s advantages. The capital projects covers both residential property and other areas and would transform the state. The avenues of expenditure involve political risk and the Victorian government is paralysed in the face of greens protests plus community horror at the first stage of the spending cutbacks required by the rating agencies.
The ALP’s Steve Bracks was one of Australia’s best premiers but he stepped down for family reasons. He should be called in to show the Victorian government how to harvest the frozen projects still on the table.
Step three is to stand up to the CFMEU demands that Victoria keeps spending on infrastructure where employee pay rates are enormous. And so health education and roads must continue to be slashed to fund the $100bn-to-$200bn “train to nowhere” project in Melbourne’s eastern suburbs. It must be stopped.
Finally, the Victorian government needs to embrace the NSW protest rules to stop wasting police time arresting young offenders who then are immediately bailed and offend again and again. No state can afford the demoralising impact of such nonsense which is daily confirmation of the mismanagement that drives the looming capital strike.
The last time Victoria experienced a similar a mess was in the late 1980s and early 1990s again under an ALP government. Steve Crabb was a minister during that time. He had been one of the brightest rising executives in the mutual life movement. The later demise of that movement might not been as severe had Crabb remained in the industry.
I dined with Steve after the ALP was booted out of office. He was almost in tears asking where they went wrong. At that time much of Victoria’s problems were part of a national downturn. This time it is a Victorian-made problem.
Again, there are “Steve Crabbs” among ALP politicians in all factions who would prefer taking the right steps and face protests rather than to continue to cut back health and education. They are in power until November 2026 which is a long time.
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