Tuesday, 31 July 2012

Last week, on the same day, there were two news stories touching on a key economic issue.

One was about Qantas teaming with Emirates, an airline owned by the UAE Government. The story pushed up Qantas shares by nearly 10 per cent.

You don't have to be an economist to understand that working collaboratively with a company, albeit a state-owned enterprise, can be good news for jobs and economic performance.

The other story was triggered by comments from Tony Abbott in China that it would be rarely in Australia's interest "to allow a foreign government ... to control an Australian business".

The comments were arguably a little ambiguous and shadow treasurer Joe Hockey sensibly clarified the situation when he said (in the AFR, July 27, 2012):

I do not see any need for changes to the national interest test nor do I see any need for dramatic changes to foreign investment rules.

He then added:

We need foreign investment, we welcome foreign investment. If we are going to get growth in our economy, foreign investment is going to help us, not hinder us.

Unfortunately, the matter is not at an end.

The problem is that, although he is a good man in many ways, Barnaby Joyce has a bias towards protectionism and he does not like foreign investment.

These positions are not viable for the Australian economy, but no one has told Joyce that his positioning is not acceptable. Instead, he has been running a populist campaign on his twin hobby horses.

Abbott likes Joyce but wants to keep in with Nationals leader Warren Truss. Truss gives Abbott little trouble, but Truss is threatened by Joyce's popularity and has been looking for a way to keep Joyce at bay by conceding him some policy ground.

It was obvious to me last week that Truss was speaking in the knowledge that he had a wink and nod from Abbott. My experience of Warren Truss is that he would not normally go public expressing a view unless he thought it was going to be adopted.

It looked to me that his remarks were emboldened by his understanding of "progress" of an internal paper not yet released. Some in the Coalition want a different approach to appointments to the FIRB, a new national interest test and in some cases a requirement to list on the ASX.

Abbott said on the weekend (AFR, p3, July 30, 2012) that he will soon release a paper, "that will include some good improvements". He thinks he can have his cake and eat it too; he says, "We have a good foreign investment review regime".

So why change the system? The current system is basically a Treasury operation. The government sets the rules and oversees implementation. It should not be changed.

Abbott wants the FIRB to reflect "the range of businesses in this country". Why? FIRB should represent the government of the day, not rent seekers or people who have no idea about economic management.

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