Sir Thomas McIlwraith Lecture 2018 – text

Introduction

It is a great honour for me to be asked to give this Sir Thomas McIlwraith oration.

Born in Ayr, Scotland, in 1835, Sir Thomas was for many years the dominant figure in colonial politics in Queensland. He was Premier on three separate occasions from 1879-83, again in 1888 and yet again in 1893.

He has been referred to as the Queensland Caesar, as he thundered across Queensland’s political and business landscape in those earlier pioneering times.

I have named this presentation “Queensland – Where From?; Where At?; Where to?”

I will spend a little time on the Where From? to paint the picture of lifestyle and living conditions 50 – 90 years ago. They were quite different from today and needed resolute attention.

How we got out of those doldrums comes next – to the period in the late 80s when we had achieved the status of one of the best regional economies in the world.

I will then look at Queensland today, and finally, offer my views on what we should do now to ensure our future.

By the early 1960s, as far as our lifestyle, wealth and future prospects were concerned, we had really reached the pits. How did that happen? We have to go back to the 30s, 40s and 50s to see what life was like back then – and, what the outside influences were that drove us down to third world standard, just 50 or so years ago.

Up until 1940, my home in Eumundi was four-roomed plus a front verandah, where the kids slept. There was no electricity. We had kerosene lights and lanterns, wood stove, no refrigerator, no sewerage, tank water caught from the roof. There were no bitumen roads. Roads were little more than tracks – impassable if it rained.

We had three house cows that were let out each day into the long paddock (the road way). They provided milk, cream, home-made butter, and fertiliser for the garden where we grew all of our vegetables and fruit trees. We had our own chooks and really it was a subsistence existence.

The great depression of the 30s put men out of work and closed down the economy. Dad’s work time was reduced to three days a week.

I can still recall seeing young men out of work with their swags on their backs, walking the railway tracks and roads from town to town to qualify for food rations authorised by the local police; sleeping rough under railway bridges or wherever.

There was also an overriding threat and worry in the expected Japanese invasion which almost happened in the early 40s.

In the 40s, the domestic economic conditions stagnated as full attention was dedicated to the war efforts. Queensland particularly was a front-line state, which really caused decimation of whatever infrastructure we had, such as railways, roads, public amenities and such like.

The 50s were very little better than the 30s and 40s, as we went through 10 more years of austerity. The governments, fearful of runaway inflation which would have wrecked the economy completely, had clamped down on spending.

Really then, for over 30 years, 10 of depression, 10 of war and the aftermath, and then 10 of austerity, the whole community, the governments and citizens were imbued with a careful, careful, careful outlook. We must not spend…we must put away for a rainy day.

The 60s were our turning point, but we still endured what was in fact a third world existence. Our cities were not sewered, our suburban streets were gravel and dust, our roads were two lanes and gravel and would not get us to Townsville if it rained. Our railway was prehistoric and steam-driven.

We had small cottage industries such as stove foundries, a shoe manufacturer, wool scours and abattoirs, but no head offices, no large-scale manufacturing, no services industries of note.

In those days, you painted your own house, mowed your own lawn, grew your own veges in the back yard, repaired your own car etc. We relied almost entirely on our primary industries – no export coal industry, no aluminium, no tourism, and Brisbane stopped at Mt Gravatt and Chermside.

The Queensland Treasury was broke to the extent that one year in the 60s we had to ask the Commonwealth Government for a temporary loan to pay the public service wages.

Furthermore, we had no way of getting out of this desperate position. We could not benefit from rising tax revenue, because the economy was not producing additional taxable income. The Loan Council wouldn’t let us borrow our way out of the malaise. This was just 50 years ago….

How DID we get out of this mess?

Firstly, we needed a team of young, dedicated, energetic and enthusiastic university graduates to help in the task ahead. I recruited these youngsters to Treasury, skirting around archaic Public Service protocol that relied on the rigidity of precedent and seniority.

We then had to convince the government and the population generally, that with no money in the bank and no domestic capital that Treasury could borrow, we should introduce overseas capital, whether everyone liked it or not.

We had to convince the Queensland people that overseas capital would produce thousands of times more for the economy than it would take back in dividends.

We also had to show overseas investors, that our government was prepared to facilitate the establishment and development of major industry and infrastructure here in Queensland – not fund them (we had no money) but we had the resources they needed and we had the capacity and willingness to clear the way for their development.

For the coal industry, for example, the State initially drilled the Bowen Basin and established the enormity of the reserve. We then used the conditions we attached to the miners’ mineral lease to secure the development to the best advantage for Queensland and Queenslanders.

We also had to get the State budget into balance. This was achieved by strict control of expenditure and then by seeking out sources of revenue other than the taxation of Queensland citizens. The solution flowed from a rapid diversification of the economy that broadened the tax base.

We then modernised the mining royalties which had been set at the general rate of 5 cents a tonne, by adding the three letter word “per” between the 5 and the cents, making it 5 per cent of value if the mineral was used to value-add here in Queensland, and 10 per cent if it was simply quarried and exported.

I’m sure if Treasurers of today hunted back through history, they would be thanking me daily for this.

Concurrent with these general measures, all of our major projects, and the major economic development of Queensland, including the coal industry, the aluminium industry, and the overseas tourism industry, proceeded at NIL cost to the Queensland taxpayer and with no remaining debt.

Once these were in place, we not only had a balanced State budget, Queensland had a AAA credit rating that made borrowings in the world markets, easier and cheaper. The debt was only for projects that serviced their own debt obligations such as ports, railways, toll roads, electricity etc, and this debt was exceeded by our own cash reserves. We had what we called a negative net debt.

Also….all of the State’s ongoing obligations such as for public servants’ superannuation, were fully funded – a world-wide, unique record.

Example – Zurich

We sometimes had to bend the rules to get to the objective. More often it was creating new rules….thinking outside the square to solve the problem.

Some examples are….for the coal industry, we were strongly of the view that the best result for Queensland was that WE determined the way the industry developed and that WE positioned and owned the infrastructure. For mining companies to own and provide the transport infrastructure, for example, could very well have meant a web of rail lines to the mines, fewer mines for those that could not afford the infrastructure, restricted port access etc.

Example – Hay Point

So, the decision was taken that it was to be government-owned rail and ports.

The rail system would be new and offered 2 kilometre-long trains, each powered by six diesel electric engines, one crew upfront, bottom dump wagons with the trains being loaded and unloaded without stopping, the gauge would be three foot six so we could use the rolling stock state-wide.

The ports would be new and deep for up to 500,000 tonne ships which would enable us to compete in price in all the world markets. To Europe, for example, the shipping freight was $10 a tonne cheaper in 500,000 tonne ships than for the panamax vessels. To Japan, $3.50 cheaper.

The miners were happy with the concept, but argued the funding proposal.

They were told we needed some guarantee that once all this first class infrastructure was provided, they would use it to capacity, because it was only them and kangaroos out in the back blocks – and if their overseas customers didn’t send the ships for any reason, we needed security for our expected freight revenue.

Once again, they were okay with the concept of a security deposit, but when told the size of the deposit equaled the cost of the new rail line plus the cost of the rollingstock – discussion began in earnest.

We built the line and rollingstock funded by the security deposit provided by the miners which was returned to them over a period of 10 years at 8% interest per annum. These repayments came from a discrete addition to their rail freight.

For the aluminium industry – as you are aware, aluminium is simply bauxite and heaps of electricity, so, we had to get electricity to the company at world competitive prices before we could insist that they upgrade the bauxite here in Queensland – and we had to do that at no cost to the taxpayer or other electricity users. The competition they would be facing was from smelters in Invercargill (NZ), and Seattle (USA) which were happily enjoying cheap hydro power.

Value adding was substantially more beneficial to the economy than simply quarrying and exporting the bauxite. Rough figures show refining the bauxite to alumina, increased the economic benefit to the State by a multiple of four. Smelting the alumina to aluminium multiplies that by four again. That is, sixteen times more valuable to the economy than simply mining and exporting.

How then could we provide the electricity at a cheaper, more competitive price?

This was achieved by securing a special government loan allocation from the Loan Council to finance the building of the Gladstone power station. This loan could be raised at much cheaper interest and repayment conditions than private borrowings. So, the financing cost of providing the electricity was refined down.

We then had to get the coal into the new power station at the cheapest possible cost. As it happened, we were negotiating a new mineral lease for a coking coal mine at Blackwater. The coking coal had an over-burden of lesser quality steaming coal and we were able to negotiate the coking coal lease to provide the steaming coal to the State at NIL cost, other than for washing and transportation. The power price was now competitive.

There would not be an aluminium industry in Queensland now had this not been possible.

I will jump to the conclusion of ‘where from’ by simply mentioning a few more examples.

The tourism industry was still only functioning domestically – camping at the beach, caravanning etc. The industry was told that there were overseas tourists from Europe, Japan, USA and Asia waiting to come to Queensland, but we needed tourist terminals not just camping sites and high-rise buildings at the coast. They responded that they would provide all this once they came. It was a stand-off.

The solution was the introduction of casinos whose licenses required them (amongst other things) to provide golf courses, guided tours and other tourist terminal facilities which set the norm for all other tourist hotels.

The Cultural Centre in South Brisbane was built at no cost to the state budget or residual debt.

Expo 88, South Bank, the Gold Coast film industry, Lucinda Long Wharf, sugar terminals, the Gateway Bridges etc, are all examples of great public infrastructure provided at no cost to the taxpayer.

Where are we now?

I must be careful from here on as I am now 91 and haven’t seen recent figures and haven’t experienced recent circumstances since my retirement 5 years ago. The following observations originate from my armchair in my apartment in the retirement village, but I’ll do my best.

The recent State Budget papers confirm that we now have an 80 odd billion dollar debt. This compares with a $20 billion debt throughout the 80s and 90s. As I have mentioned, this earlier debt was for infrastructure such as ports, rail extensions, electricity, local authority capital works etc that serviced the debt. We also had cash assets that exceeded the debt. In other words, we had the debt covered twice over with NIL negative effect on the State budget.

We must really worry about this $80 billion debt.

For an $80 thousand million debt, the interest cost, even at today’s relatively low interest rate, would be fairly close to $2,500 million per annum. We should be trying desperately to cap and then reduce the size of this millstone.

If we attack and then try to eliminate the debt over say 20 years, the cost to the budget would be in the vicinity of $5.5 billion per annum.

That is $5,500 million dollars out of the budget each year before we start to consider funding for schools, hospitals, police, etc. $5,500 million is a lot of money. It would pay for our cross-river rail project in year 1 with 19 years to spare.

Unfortunately also, there seems to be no plan or program to pay off the debt. It is still growing. Sorry kids….sorry grand kids…

We have lost our AAA credit rating. A lot of our cash reserves, superannuation surpluses and such like have been tapped and the debt is still rising. Our budgets have been balanced by allocations from our cash reserves.

And, as far as the economy is concerned, we seem to be relying on the momentum from previous years’ efforts. Except for casinos and high-rise accommodation, there is nothing substantial and new, being added.

I am also concerned at the advice the government is receiving from its departments. For example…with Adani, with our gas exports and with bauxite exports from a new mine in the Gulf, are we getting as much as we should for Queensland and Queenslanders?

For Adani, we would have owned the railway line and its rollingstock and he would have paid for it. It seems now Adani owns the line and he asks us to front up with $1 billion towards its cost.

With our gas export industry, why didn’t we, in the negotiations for the mineral leases, have put aside a percentage of product at a very favourable price for our own use and benefit and release the rest for export?

So, where to from here?

Some of our efforts should be directed to the following tasks and these are not in any order of priority.

Firstly, I’d suggest that serious effort be directed toward reverting the Public Service to its previous role, functioning under what was known as the Westminster system – where the long serving professional public servant had no party political affiliation or leaning, and advised the government of the day, no matter what its party politics were.

These senior public service advisors had a lifetime experience and a long term of forward planning (not just 3 years or so as happens today). Based on their professional expertise, they recommended to the government, what in their view, was best for the State and the Queensland people.

It should be recognised that the Minister’s discipline is politics and they can support that process with as many political advisors as they think necessary.

The department heads and their advisors’ disciplines are economics, health, education, road building, dam building, – depending on the department they administer. Ministers need advice from these QUALIFIED professionals.

In my career, for example, I served 10 Premiers and 15 Treasurers with political philosophies ranging from Genghis Khan on the right, to Karl Marx on the left and none of them knew what my party political views were or if I had any.

Secondly, we should balance the budget without recourse to the previously provided cash reserves.

A state budget is not complex. It is very similar to the one at home. If you haven’t got the cash, you shouldn’t spend it – and you don’t borrow to pay for the groceries or other lifestyle day to day outgoings.

In other words, expenditure should be held to the revenues you generate and debt, as a general rule, should be restricted to capital items that can service their own debt obligations.

Thirdly,we must reduce the current debt level. When in previous times cash assets exceeded the debt, the debt servicing cost to the annual budget was NIL $ net. Let’s get back to that happy position again.

Fourthly…we should be seeking out projects which can fund their own annual costs without dependence on the Queensland taxpayer. I have mentioned examples from previous years, namely – the establishment of the coal industry, the aluminium industry, overseas tourism, the Cultural Centre etc.

Fifthly…and this, I suggest, might be firstly…

We should seek out at least one new major industry to provide a further prop under our ongoing state economy. We cannot rely for too long on the current basis of momentum from previously introduced industry.

What sort of new industry should we look for?

A couple of prospectives come to mind….

We could look seriously at the commercialising of the innovations and discoveries coming out of our universities and institutions. We have proven that we have the academic skills to produce these discoveries. However, the lack of local financial support and risk-taking finds the value added, the commercialisation, and the profits, are happening in Silicon Valley. This is where the real benefit to the economy – and to you and me – resides.

I don’t mean government funding, as this is a risk where the taxpayers have no skill available to them. They should not be exposed to that risk. The government’s role in this should be confined to encouraging and facilitating domestic investors, perhaps with tax concessions, mentoring or similar.

Secondly, we could look at a Snowy Mountains type authority to harvest and bring the more than abundant north Queensland water through the Great Divide. This would firstly irrigate hundreds of square miles of fertile black soil west of Charters Towers and then, as stage two, carry on to the Warrego River, the northern most arm of the Darling – the Murray Darling system benefits greatly and Adelaide gets a drink.

The scheme proposed is based in part on the old Bradfield Scheme of the 30s which failed mostly because of lack of funding. It should be a tremendous boost to our economy both during construction and in its operation.

State and Federal governments would be asked to guarantee the borrowings by the Authority. There would be NO costs to the government budgets unless, of course, the scheme failed and the guarantees were called upon.

In conclusion…what we need right now is a clean coal fired power station to maximise our natural strength. We have plenty of coal and coal-fired power generation produces one of the cheapest electricity.

We need Adani or some other project of similar size and with greater economic benefit remaining with Queensland.

And we need another Sir Thomas McIlwraith.

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