View from The Hill

View from The Hill

A give and take industry policy that eyes the blue collar vote

Modern Australia can have a great blue collar future”, Julia Gillard declared, launching her government’s policy on industry and innovation. The Prime Minister’s pitch is to firms and workers who are in the slower lanes of the multi-speed economy. It is an appeal to Labor’s traditional heartland, an attempt to win back and shore up the “battler” vote that is deserting to Tony Abbott, especially in Sydney’s west.

It also has more than a touch of the Obama approach – the president’s 2012 campaign success was partly based on appealing to blue collar workers.

Labor is selling its policy as the high road to improving Australia’s productivity; Gillard talked about blue collar jobs that were “highly skilled and highly paid”. It paints the Coalition, if elected, as set to tackle productivity via labour market changes that would hit workers’ pay and conditions.

There’s a Robin Hood element about the policy, which essentially shifts government funding from the big end of town (cutting R&D tax concessions for up to 20 of the largest corporates, with annual Australian turnover of $20 billion plus) to help to small and medium-sized businesses.

Among those expected to be hit will be mining companies BHP and Rio Tinto, an irony given the row over the low returns from the mining tax they were instrumental in designing. It is impossible to predict whether measures such as the $350 million to stimulate private investment in innovative Australian start up companies will be money well spent, or whether squeezing the top companies could have some counter-productive consequences.

With the government trying to put pressure on the opposition over funding issues, it has made sure it has more than covered the cost of the policy with savings over the forward estimates. About $745 million is to be spent in the next four and a half years (some of the rest stretches over 14 years), while $1 billion plus is cut from the R&D concession. So during the budget period, the policy actually saves money. We don’t yet have a year-by-year breakdown.

The union movement’s hand is evident in the policy, released on the eve of the Australian Workers’ Union’s national conference. In particular, unions have pressed for the government to assist Australian suppliers wanting a greater share of the work on large resource projects. This policy makes another gesture in that direction – there will be legislation requiring projects worth more than $500 million to implement plans to give local industry opportunities to win work on a commercial basis.

Fortunately, and sensibly, the policy steers clear of any mandating scheme. That, however, has brought a sharp attack from the Greens; their deputy leader Adam Bandt said that “big projects should be required to use local firms, not just talk to them."

Some aspects of the policy, including even the token measures for Australian suppliers, do have a mildly protectionist whiff, and there is a fondness for more bureaucracy, extending to requiring firms to set up new positions.

On the other hand, the proposed industry innovation precincts (up to 10), to better marry research and innovation with the commercial application, are worthwhile - although more than half the $500 million funding is previously announced money. Achieving enough commercial bang for the research buck has been a challenge for Australia and this is a fresh attempt to do that more effectively.

The precincts will create a "network of firms, research and higher education organisations”; half of them will concentrate on industries where Australia is already a world leader, to ensure it keeps its place; the others on “emerging opportunities with global potential”. One of the initial two will be a manufacturing precinct, located in Melbourne and Adelaide. The other will be a food precinct head-quartered in Melbourne; there is increasing recognition of the expanding opportunities for exporting food to the region.

Saul Eslake, chief economist with Bank of America Merrill Lynch Australia, sees the industry policy as the typical “curate’s egg”. He praises the measures aimed at improving the linkages between research and industry. But the attempt to push Australian companies into the mining investment projects might be too late, he says, with the mining investment boom passing its peak. And forcing companies to embed “Australian industry opportunity officers” in their global supply offices “sounds of dubious value”. As for changes to the anti-dumping regime, which the government says will “provide stronger protection for Australian industry against unfair competition from abroad”, Eslake says: “this seems designed to make it easier for companies to exclude competition at the expense of consumers”.

The industry policy will not live up to AWU chief Paul Howes’ hype of being a “game changer for Australia’s manufacturing sector”. Rather it is a modest set of initiatives which the government hopes will send the message that manufacturing’s problems are on its radar.

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