Thursday, April 8, 2021

Albo vs. Scomo vs. Australian Manufacturing


Last week, Labor Party leader Anthony Albanese promised $A15 billion dollars toward advanced manufacturing. Assuming, of course, that Labor wins the next election, who would be entitled to grants and loans? Medical science, low emission technologies, engineering and space. Car, train and ship manufacturers. Food and beverage processing and transport. Lithium battery manufacturers, rare earth miners and even resources and agricultural businesses.

Albanese's plan to reinvent Australian manufacturing is remarkably ambitious. And while Labor's $15 billion over 5 years may sound like a lot of money, let's put things in perspective: this year, China will spend more than $A500 billion on R&D alone.

On the other side, as announced in October, "Scott Morrison has selected six priority areas for support in a $A1.5 billion manufacturing plan: resources technology and critical minerals processing, food and beverage, medical products, recycling and clean energy, defence, and space." Ironically, Albo's $15 billion is 10 times more than Morrison's pitiful $1.5 billion. (And while we're talking money, Australian gambling 'industry' revenue last year was $55 billion!) 

For a small, Australian, advanced manufacturing start up business like ours, voting Labor may sound like a good strategy. Yet, I am still to be convinced that throwing money at manufacturers will make any significant difference. Advanced manufacturing is a tricky business. While substantial investment in equipment is a prerequisite, investment in skilled people is far more important. If the government is serious about restarting and revitalising Australian manufacturing, then their priority should be creating a healthy environment where each and every business has an equal opportunity to grow and succeed.

Here is my shortlist of suggestions that would make a difference quickly:

1. Slash corporate tax rates to zero for the first 10 years. With no tax burden, manufacturing businesses would reinvest every dollar back into their plants and equipment. For the same reason a parent cannot charge boarding to their 7 year old child, the government should not tax an advanced manufacturing start up.

2. Wage subsidies. Turning an apprentice into a highly-skilled machinist takes time and money. Why should a business bear the full cost of training, when it is the government who eventually benefits from this highly skilled worker? It is the business that employs, trains and pays employee's wages. It is the government that collects tax on wages. If the government's desire is to advance manufacturing and grow employment, then it is only logical that there should be a wage subsidy. Let's partner together— how about a 50 per cent wage subsidy for the first 5 years for each employee?

3. Government guarantees. One more time: we are happy to partner with the government. If our business wants to import a cutting-edge piece of equipment worth $A1 million, then how about splitting the investment equally? If I am to mortgage my house for $500K then the government should provide a guarantee on an interest free loan for the same amount. I mortgage my house, you mortgage yours. I trust you, you trust me. I work hard for Australia, Australia works hard for manufacturers. Win-win.

4. We make, you buy. If a pig farmer in a developing country can negotiate a Government’s buy back guarantee on pork bellies, then it is only reasonable that an advanced Australian manufacturer (who is prepared to risk it all!) should expect a preferential deal with their government. We are shocked by how casually and commonly Australian institutions do business with Chinese manufacturers. Lured by "cheap prices", they are happy to outsource the last screw and last PCB board. Australian businesses cannot compete with China. The government needs to make up its mind: either it starts supporting Australian made and pays the price, or it continues to buy from China. We can't have both national sufficiency and domestic production AND low prices. If the Japanese Prime Minister wears Seiko, why do Australian politicians wear Apple watches made in China?

And once again, emotions aside, the reality check: here is the actual amount of money that Morrison’s government granted to Advanced Manufacturing for states of Victoria and South Australia last year: 0.046 billion dollars.

Forty six million- the amount of money the Australian gambling industry collects in just 7 hours.

We are at the fork. As a country, we can either get serious about investing in domestic manufacturing, or we can remain a dirt-exporting colony. We have a choice to make: to train and employ Australians, or to export jobs to China; to work hard, plan carefully, prioritise and hope to succeed, or simply give up and invest in other industries that require less investment and unskilled labor. 

As always, only time will tell . . .

2021    China’s research and development spending:  $A 500 billion

2020    Australian gambling revenue:  $A 55 billion

2022?  Labor investment in Advanced manufacturing:  $A 15 billion

2020?  Liberal investment in Advanced manufacturing:  $A 1.5 billion

2020    Actual Liberal government  investment in Advanced manufacturing for Vic and SA:  $A 0.046 billion                         

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