Labor has finally delivered the detail of its much-awaited vision for shaping Australian industry beyond the mining boom.
But will it deliver? In a two part series, UWA Professor Tim Mazzarol examines the detail of the policy. Today, what can be done to help Australian industry missing on out participating on major projects.
Last week’s Plan for Australian Jobs builds on some of the work undertaken last year by the Prime Minister’s Manufacturing Task Force and contains three core strategies of enhancing industry participation in major projects, boosting international competitiveness and growing the abilities of the nation’s small business sector.
The announcement was unfortunately crowded out by the media’s ongoing obsession with Kevin Rudd’s leadership ambitions and purported potential overthrow of yet another Labor Prime Minister.
Yet the plan seeks to address some very significant issues facing the future landscape of Australian industry, particularly our manufacturing sector and small firms.
The first of the core strategies is a set of measures designed to enhance Australian industry’s participation in major projects, such as the liquid natural gas (LNG) construction work taking place in Western Australia and the Northern Territory.
Sadly, much of the work in the construction phase of these projects has gone offshore. (Discussions I have had with key industry representatives suggest as much as 80% of Gorgon was sent outside Australia.) This is despite the presence of an Australian Industry Participation (AIP) National Framework, which has been in place since 2001.
An agreement between federal, state and territory governments, AIP seeks to build up the capacity of Australia’s local industry, help identify opportunities at an early stage, promote local industry capacity, and facilitate industry partnerships in such projects.
There are also related programs such as the Enhanced Project By-law Scheme (EPBS) that enables major project leaders to access tariff duty concessions on eligible goods for major projects if they can demonstrate commitment to AIP and “full, fair and reasonable” opportunities for local firms.
Established in 1997, SAMP assists Australian firms to secure contracts that might otherwise have gone offshore. Established in 1995, the ICN has offices nation-wide and also offices in New Zealand. It administers the SAMP and the online portal ICN Gateway.
There is also the Buy Australian at Home and Abroad initiative, worth $58.4 million with federal funding and commitments from major mining and energy firms.
These firms also publicly express commitments to AIP and employ AIP consultants to help facilitate a local supply chain network. So one might ask why is there still a problem with local firms getting a share of these projects.
The jobs plan would see the AIP scheme shift from an industry led initiative to a mandated one, requiring projects worth over $500 million to submit AIP Plans. Plus, owners of projects worth over $2 billion who apply under the EPBS for tariff concessions would need to have Australian government officials embedded in their global supply offices. There are also tougher anti-dumping provisions.
The apparent leakage of so much work offshore helps to explain what is behind the government’s initiatives. Yet what are likely to increase the level of local industry participation in major projects are less bureaucratic oversight of the project owners, and more support to get Australian firms, particularly SMEs, up to international best practice standards.
Reactions to the plan
As the reaction from some in the mining sector to the jobs plan already suggests, there will be resistance to greater enforcement and government interference.
Reactions fell broadly along ideological or party political lines. For example, Chris Berg from the politically conservative Institute of Public Affairs writing in the ABC’s Drum, dismissed the “Jobs Plan” as being little more than “an obvious sop to the protectionist wing of the union movement”.
This was echoed by Michael Roche from the Queensland Resources Council, who described it as “a plan from Soviet Russia” - due to the proposal that government officials would be embedded in the procurement offices of major resources firms.
Both the Australian Chamber of Commerce and Industry (ACCI) and the Minerals Councils of Australia expressed concern over the impact of the loss of R&D tax concessions for large firms.
In contrast, the Australian Manufacturing Workers’ Union described the jobs plan as “smart policy”, while the Industry Capability Network (ICN), which assists Australian firms in securing contracts in major projects, also expressed support.
Writing in The Conversation, Professor Roy Green from University of Technology Sydney, and co-author of the PM’s Manufacturing Task Force Report, broadly backed the plan, but did question the wisdom of cutting the R&D tax concessions to large firms, describing it as a “misplaced obsession with achieving a budget surplus at all costs”.
Now there are signs that the jobs plan might become a victim of party politics with the Greens indicating that they won’t support the R&D tax cuts unless the government fixes the flaws in the mineral resources rent tax (MRRT). The opposition is also likely to block these R&D tax cut measures, which would put the entire plan in jeopardy.
What is at stake?
As I have sought to explain in an earlier article, manufacturing matters to Australia. It also matters to most other countries, and there is no room for complacency or political bickering if our economy is to remain competitive over the long term.
However, as I have also previously noted, Australia’s manufacturing sector faces a number of barriers. First, there has been a decline in the level of capital investment in our manufacturing industries over the past 20 years. Second, there is a lack of skilled technical trades’ workers, and third, the majority (95%) of our manufacturers are SMEs. There is also a relative absence of inter-firm collaboration and networking.
This jobs plan is not without its flaws. The ability to secure more work for local firms is more than might be fixed by more bureaucratic intervention. However, these are the issues that need to be addressed in order to help preserve the nearly one million skilled jobs within the Australian manufacturing sector. Most of these jobs are to be found in Victoria, NSW and South Australia: all large population states that don’t have the same degree of mining and energy project activity enjoyed by Queensland and Western Australia.
Tomorrow: Planning for a Blue collar Australia: the role of venture capital and SMEs.