Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Industry, Infrastructure and Industrial Relations) Share this | Hansard source

The 2006 budget and the appropriation bills that accompany it represent a massive missed opportunity. Despite the rivers of gold flowing into the hands of John Howard and Peter Costello, the government has failed to lay down a coherent long-term strategy to lock in Australia’s economic future prosperity. This is reflected by Labor’s second reading amendment in the following terms:

(1)

despite record high commodity prices and rising levels of taxation the Government has failed to secure Australia’s long term economic fundamentals and that it should be condemned for its failure to:

(a)

stem the widening current account deficit and trade deficits;

(b)

reverse the reduction in public education and training investment;

(c)

provide national leadership in infrastructure including high speed broadband for the whole country;

(d)

further reduce effective marginal tax rates to meet the intergenerational challenge of greater workforce participation;

(e)

provide accessible and affordable long-day childcare for working families;

(f)

fundamentally reform our health system to equip it for a future focused on prevention, early intervention and an ageing population;

(g)

expand and encourage research and development to move Australian industry and exports up the value-chain;

(h)

provide for the economic, social and environmental sustainability for our region, and

(i)

address falling levels of workplace productivity; and that

(2)

the Government’s extreme industrial relations laws will lower wages and conditions for many workers and do nothing to enhance productivity, participation or economic growth; and that ...

Given the agreed constraints on time I will restrict my remarks to those matters within my capacity as shadow minister for industry. I was particularly interested in the comments by former Liberal Party leader John Hewson in an opinion piece in the Australian Financial Review of 26 May when he said of the Howard-Costello government:

If leadership is about action, and not just position, if its very essence is the capacity to formulate, articulate and market a vision, develop a strategy to achieve it, and to turn that into reality, we are being left high and dry ... government today is dominated by short-termism. It’s reactive ... and it’s blatantly political and opportunistic.

In failing to systematically address key issues that go to the very heart of the kind of society and economy Australia will be in the future, this budget is symbolic of the Howard-Costello government’s long-term, longstanding complacency and neglect: the massive widening in our current account and trade deficits; the half-trillion dollars of foreign debt; neglect and underresourcing of skills, education and training; the ad hoc pork-barrel approach to our nationally significant economic infrastructure; and the totally inadequate and misguided approach to the promotion of innovation in Australian industries.

It is these issues that are imperative to Australia being an open, competitive, dynamic trading economy confident of its ongoing place in the world. It is precisely these issues that have largely been ignored in this year’s budget. Our future prosperity as a nation will not be guaranteed simply by having more raw materials or trying to have lower labour costs by slashing wages and conditions through extreme industrial relations changes. Australia’s future prosperity will only be guaranteed by being internationally competitive. To do so it is essential that the Howard-Costello government commit to taking the Australian economy to a new level of productivity growth. Crucial to this is building world-class infrastructure and encouraging businesses and individuals to be innovative and competitive in their respective fields.

It is no secret that, as a nation, over the past 15 years we have enjoyed some of our best economic times. This strong performance, however, has not been experienced throughout all parts of the Australian economy. China is now the key to delivering Australia’s historically high commodity prices and historically favourable terms of trade. It has also been a key factor in our declining manufacturing performance over the past decade, hand in hand with the complacency and neglect of the Howard-Costello government in this area.

While commodities are booming, it has been easy for the Howard-Costello government to put the challenges of Australian industry to one side. However, neither history nor logic suggests current commodity prices and terms of trade will last indefinitely. When commodity prices do return to historic average levels, our economy will rebalance. Despite comments by Treasury secretary Ken Henry in recent weeks to the Australian Business Economists—he said, ‘Some of this loss of manufacturing jobs is, no doubt, precisely what theory predicts would be the consequence of an increase in the terms-of-trade’—it would be both prudent and sensible to make sure that as a nation we are prepared for the challenges of the future. This requires a retention of adequate diversity in our economy.

Over the past 30 years manufacturing has been slowly declining as a proportion of GDP, from 19 per cent in 1975 to less than 12 per cent today. In fact, according to the December quarter national accounts and the more recent March quarter national accounts, parts of Australian manufacturing were in fact technically in recession. This poor performance continues to hurt our economy and see job losses. Since the election of the Howard-Costello government in 1996, we have seen more than 145,000 Australian manufacturing jobs lost, of which approximately 60,000 have occurred since the government’s re-election in 2004—that is the equivalent of nearly six per cent of all jobs in Australian manufacturing industries. There is little doubt that Australian manufacturing is bleeding and bleeding badly. If these trends were to continue, Australia would cease to have a manufacturing industry by 2025. Given this urgency, the industry innovation initiatives announced in the budget are, at best, a belated modest step which come off the back of 10 long years of Howard government complacency and neglect.

The measures to establish an early stage venture capital limited partnership attempt to introduce some differential treatment for early stage venture capital but, in doing so, propose some bizarre restrictions around how large a fund may be—$100 millionand when a fund must divest its assets, $250,000. Despite commitments by the Prime Minister at the last election that Australia would have ‘a world’s best practice investment vehicle for venture capital’, Australian venture capital represents only 0.1 per cent of our GDP. This is a third of the OECD average and stifles innovation by leading to an overreliance on equity markets to fund new ventures. Under the Howard-Costello government Australia has developed little venture capital and most of what does exist avoids technologically innovative investments.

In addition, the funding for the early stage venture capital limited partnership initiative in the budget is exceptionally modest, with an anticipated cost to revenue of only $5 million over the next three years—hardly the kind of money that is likely to have a substantive impact on the Australian venture capital industry and, in turn, on Australian innovation. Measures to ease the restrictions on the existing venture capital limited partnerships and a further round of funding for the Innovation Investment Fund deliver only in part what industry has long advocated. The true test of these will be whether the venture capital industry under the current arrangements can deliver innovation outcomes without government support in the future. The venture capital measures announced in the budget exist in a strategic vacuum, with the government refusing to release the formal industry review concluded last year.

Despite the coalition’s 1996 election manufacturing policy to ‘improve Australia’s international ranking in terms of expenditure on business R&D as a share of GDP’, R&D initiatives in the budget are underwhelming, at best, with the government simply promising $28 million over four years merely to support ‘the administration of the R&D tax concession’. This occurs when Australia’s business R&D remains at only half the average of OECD nations. Today business R&D as a proportion of GDP is a meagre 0.89 per cent. The OECD average as a percentage of GDP is 1.5 per cent. At 0.89 per cent of GDP, Australia ranks 15th in the R&D effort in the OECD, recording half the effort achieved by the United States, a third of that of Sweden and substantially less than that of both Germany and Belgium. To put this into acute perspective, multinational capitals companies such as Merck, Intel and Microsoft separately spend as much on R&D as the sum of all Australian businesses.

Today expenditure on R&D is no better than it was nearly 10 years ago, when the Howard-Costello government came to office. It should be much higher, it could have been higher and it needs to be higher. At a time when, for example, companies in China have been boosting expenditure on R&D at a rate of 21 per cent per annum, the government’s inaction in this area effectively amounts to gross public policy negligence.

Finally, budget measures announced to boost Invest Australia to attract and facilitate foreign direct investment to Australia are welcome and well targeted to the rapidly-emerging economies of India and the United Arab Emirates. The obvious question, however, is why the government has taken so long to try to establish a presence in these rapidly-growing and important markets, particularly India. As far as Invest Australia is concerned, the proof of the pudding will be in the eating, with success contingent on the attraction of truly productive foreign investment. Overall, the industry innovation measures contained in this budget reveal that the Howard-Costello government has no real strategy to deal with the key issues surrounding the international competitiveness of Australian industry.

Labor believes that it is in our national interest and our public interest to have a strong and vibrant industrial base, especially the parts that are of high value and high skills. The future of a viable and successful manufacturing industry providing jobs for Australians must be based on a foundation of skills, quality and innovation, not on an industrial relations approach aimed at reducing wages, conditions and entitlements, and removing job security. By adopting a national approach with an emphasis on innovation, on doing things better and on being smarter, and by relying on our superior technical and intellectual knowledge, Australian industry can build back its international competitiveness. Only in this way can we ensure a modern, dynamic and successful industrial future.

The period since 1996 represents a missed opportunity that has hurt Australia’s ability to remain internationally competitive. This budget repeats that missing of opportunity. In a modern, dynamic and outwardly-looking Australian economy, real productivity improvements can only come from a commitment to the adequacy of our infrastructure, a commitment to the education, skills and training of our workforce, and a commitment to our ability to support and foster innovation and the commercialisation of our ideas. Although the government makes noises about the need to improve productivity, it is trying to achieve this through an industrial relations approach that will reduce wages, particularly at the lower end of the scale. Australia needs a government that is committed to the national interest and long-term solutions, rather than political considerations, short-term fixes and the easy, lazy attempt of simply lowering wages. Australia needs a government that has a vision and is committed to building an economy geared towards long-term production, not just short-term consumption. Only a Labor government will effect the long-term planning that is required for these needs of our nation’s future.

Debate adjourned.

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