Tony Zappia (Makin, Australian Labor Party, Shadow Parliamentary Secretary for Manufacturing) Share this | Link to this | Hansard source

I move:

That this House:

(1) notes that:

(a) the Government spends around $40 billion each year on procuring goods and services;

(b) the Commonwealth Procurement Rules provide considerable flexibility to Government departments when making procurement decisions;

(c) considerable economic, social and environmental benefits arise from the Government buying Australian products and services; and

(d) domestic Government procurement encourages innovation and investment;

(2) expresses concern at the level of goods and services that are being sourced from overseas by the Government; and

(3) calls on the Government to apply a comprehensive value for money test which includes all national benefits which accrue when goods and services are procured locally.

Each year, the federal government spends in excess of $40 billion in the procurement of goods and services for the country. When you combine that with the procurement value of the other two levels of government, state and local government, the best figures would suggest that the figure would be somewhere between eight and 10 per cent of GDP. Even on a very broadbased figure, that amounts to over $100 billion a year spent by governments on procurement of goods and services. It is a very important economic lever, but one that seems to be largely ignored by governments of this country. Indeed, we do not know how much of those procurement dollars ends up overseas and we do not know how much of it goes to local suppliers. All too often I hear of local suppliers who lose out on bids or tenders that they put in, and the work has gone offshore to a company, which, in my view, the justification for is pretty weak. In addition to that, we have the added complexity that not only do we have a disjointed approach when it comes to government procurement around this country—in that federal, state and local government do not seem to work at all together—but also within each level of government the various departments also seem to do their own things. It seems they are driven, inevitably, by their own budget bottom lines, as opposed to what is in the national interest.

It is true that each of them would claim that they have procurement policies in place, but I have read some of those policies and it seems to me that they are written in a way which allows them to make the decision that they want. There is sufficient flexibility within them to give them the freedom to do what they want when it comes to procurement. One of the fundamental differences that I see between government procurement and private enterprise procurement—and quite often government departments try to emulate private enterprise practices when it comes to procurement—is that, unlike private enterprise, governments have a social responsibility. They also have a financial responsibility attached to that social responsibility. So trying to emulate private practice does not work when it comes to government responsibility.

Another excuse I often see—in fact, it is confronting us right now—is the excuse that free trade agreements limit the ability of governments to purchase products from where they want and how they want. We are seeing a firsthand example of that right now, with the Victorian government being challenged in its attempts to use Australian steel in some of the work that it wants to do in its state, it being claimed that the purchasing of Australian steel breaches free trade agreements. I would hope that the Victorian government proceeds with what they want to do and allows those who want to challenge them to do so in the courts. We also saw in South Australia—and I notice my colleague the member for Grey is here—Rossi Boots missed out on a contract to manufacture Defence boots, and the contract went to an Indonesian supplier. When I looked at the reasons for that and the implications of that decision I was left perplexed. Quite frankly, the jobs that could have been gained had Rossi Boots won that contract more than offset the few dollars that might have been saved by going offshore. Again, there was the same issue when it came to the BMW cars that are used by government ministers right now, where previously the contract went to GMH.

The problem is this: when we lose jobs here it is the same government that is spending the money that also loses, because there is a decline in taxation revenue, an increase in unemployment and other health and social costs, which inevitably have to be borne out by the government of the day. I know that other governments around the world are in fact doing differently. The USA has set a framework for how procurement is done in that country for a long time. The UK, Scotland and Europe are also applying what I call 'smart procurement policies', where they are putting their national interest ahead of anything else. We need to do the same. We need to apply a much more broad national interest test than that which I have seen applied in recent times by governments: a national interest test that includes the whole-of-life cost of a product, the cost to society of losing those jobs if the tender does not go to a local supplier, all costs that will otherwise be borne by government as a result of that and the flow-on benefits to local communities if we actually support local industries.

Lastly, by supporting local industries we also create certainty for them, which leads to research and development, innovation and modernisation of those industries, which continues to make them more competitive all the time, and it reduces our overseas net debt. It makes sense to have good, smart government procurement policy, and I urge the government to think about the way our policies are run in this country right now.

Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

Is the motion seconded?

Alannah Mactiernan (Perth, Australian Labor Party) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Matt Williams (Hindmarsh, Liberal Party) Share this | Link to this | Hansard source

I note the member for Makin spoke about the free trade agreements. Only just last Wednesday the Prime Minister and I attended the Adelaide produce markets out at Pooraka, in his electorate. The member for Makin well knows that the produce market signed an MOU with the Guangzhou produce markets and were very excited about the opportunity that would bring in terms of more trade, more export opportunities and more jobs for our country. As we heard the Australian Minister for Trade and Investment say yesterday in the House, this is replicated with wineries and seafood companies—the list goes on.

I have worked in the private sector and in state government. Also, I have put in tender applications for both the state government and for the federal government. Let me tell you, it is not that much fun putting these documents together. It is time-consuming and also costs money, naturally. That is why we are looking to free up regulation and reduce red tape where we can, because it is often a challenge for governments to get that balance right. That does not mean that we have to give up on reforms, like the previous Labor government did, because we are committed to making changes that will make the necessary obligations easier in terms of best practice.

Value for money is one of the things that has been mentioned in regard to procurement rules. The member for Makin just raised Rossi Boots. I was disappointed, like many of my colleagues—probably the member for Grey, as well—about the decision by the Department of Defence on that procurement contract. Governments—departments in particular—make poor decisions from time to time. The member for Makin probably reflects on SA Water buying milk from Victoria, when they should be buying milk from Fleurieu and some of the dairy producers in South Australia. I am sure the member for Makin will take that back to his South Australian Labor colleagues and tell them to get that right.

I congratulate Rossi Boots on how they have responded since that decision. They have got some great publicity. I know they were on the Today show yesterday morning. Recently, a friend said that he went out and purchased a pair of Rossi's after the good publicity they were receiving. I heard this story many times. It just shows you what good publicity can do. They have been on the front foot and they are chasing new export markets. So well done to Rossi on that and I will continue to support them. I have had many discussions with their management. They have got some good people involved, and a future for them.

I am surprised that the member for Makin did not mention the naval shipbuilding contract, because, not only was his previous Labor government asleep for six years on that but there was a great announcement last year about the Future Frigate Program. There will be thousands of jobs—2,500 jobs—for the offshore patrol vessels and the future frigates for Australia—a great decision for a continuous shipbuilding program.

Let me touch on the Commonwealth Procurement Rules. These are the facts. Over the last three years we have bought 93 per cent of services from Australian suppliers, totalling some $60.2 billion, and 60 per cent of goods from Australian suppliers. Talking about boots, I am wearing some R.M. Williams at the moment and I hope the member for Makin is wearing R.M. Williams or Rossis. Do I get any response from the member for Makin? No, obviously not.

Let's do what we should be doing; let's support the local industries. I know R.M. Williams have the contract for dress boots for our Armed Forces. It is worth a significant amount of money. In terms of the South Road procurement contract, something that I have fought hard for with the Torrens to Torrens, we have York Civil and local company Bardavcol working on that. These are massive contracts for them. These are a couple of examples of how we are supporting local industry and supporting good companies.

Getting back to defence, when you exclude defence contracts for large military items that are not going to be built in Australia, like the Joint Strike Fighter aircraft, the percentage of goods supplied by Australian suppliers increases. I know that with a Joint Strike Fighter some of the building is done by BAE Systems—the fitout of the plane in Australia. So there are these good procurement decisions being made, across the board, by the Australian government.

In closing, the submission of the Department of Finance to the Senate on the Commonwealth procurement procedures states:

The Commonwealth Government's procurement policy framework is non-discriminatory in nature.

It goes on to say:

Achieving value for money is the core principle of the CPRs and the cost of goods and services to be procured is not the sole determining factor in assessing value for money.

I am sure the minister will look at all instances where value for money is relevant and he will continue to support jobs on all fronts in South Australia.

Alannah Mactiernan (Perth, Australian Labor Party) Share this | Link to this | Hansard source

Australia is a trading nation and we are fierce advocates for tearing down trade barriers. Standard economic theory tells us that that is how we maximise the efficiencies of production. But I believe that this is a very simplistic position that underestimates the need to nurture core competencies to provide a feedstock for innovation and the emergence of new industries. If we look at the dilemma that Greece is in today, as a classic example, its entrance into the EU led to a total erosion of their manufacturing sector and it has become a highly vulnerable economy. My home state of Western Australia experienced this. It was not until the 1890s, with the gold rush period, that we started to develop a manufacturing sector. But Federation, which followed shortly thereafter, led to a massive dumping of eastern states' goods, which swamped and crippled our fledgling manufacturing industry.

So, government procurement, and particularly Defence procurement, is a critical mechanism for fostering a baseload of production. We are not talking about propping up inefficient industries, but about recognising that if we are going to give our relatively small population, which is located a long way from export markets, the ability to keep in the game, we need to leverage off government procurement. The government in WA that I was a part of introduced a similar provision in 2002.

It is a wrong move for us to become surrender monkeys in the cause of Australian manufacturing. I refer you to a report by McKinsey Global, in 2012, which stated:

Manufacturing makes outsized contributions to trade, research and development (R&D), and productivity …

Picking up this theme of how essential this is to drive new industries, it says:

The role of manufacturing in the economy changes over time.

  …   …   …

As economies mature—

as in Australia—

manufacturing becomes more important for other attributes, such as its ability to drive productivity growth, innovation and trade. Manufacturing also plays a critical role in tackling societal challenges, such as reducing energy and resource consumption and limiting greenhouse gas emissions.

So we need to work very hard in Australia to make sure that we do have, particularly, an advanced manufacturing sector.

In 2013-14, the Defence Materiel Organisation and the Department of Defence, received a combined total of almost $30 billion. When we do an analysis of that procurement data it says that whilst most of the government sources of services were local, the vast majority of goods, including heavy and advanced manufacturing items, came from overseas. In fact, around $3.6 billion was handed to overseas contractors for the manufacturing of Defence items. Of course, there is always going to be a component of this, but we need to embrace this much more seriously. In terms of our submarines, we need to make sure that we have them built locally and that we do that local procurement. In relation to the offshore patrol vessels, we must make sure that the best Australian manufacturer has the opportunity to produce these. We are very disappointed that the Prime Minister seems to have unilaterally ruled out Western Australia being the provider of those, notwithstanding our clear history in that area. This is not about making Australia into a sheltered workshop, but it is about recognising that we have to have an advanced manufacturing industry if we are going to drive innovation and productivity in the emerging 21st century industries in this country.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

In South Australia at the moment we are facing pretty difficult times. This motion was put up by the member for Makin, and my electorate of Grey, which has virtually all the resource projects in South Australia situated in it, is feeling quite the brunt of this at the moment. We have just had an announcement this week of further retrenchments at Roxby Downs, at the BHP operation there at Olympic Dam. We have had the recent announcement and approaching closure of the Alinta Port Augusta power stations, which has been brought about, it must be said, by government policies from both sides of politics. It is the inevitable outcome of preferencing in subsidising renewable energy. Many of us will applaud that outcome, but there is a very real cost on the ground. Arrium operation in Whyalla has already put off over 600 workers at Southern Iron, and they are undergoing a review at the moment.

There are quite a few storm clouds around at the moment, and we are dealing with some displacement and high unemployment levels, so it is right that we should focus on how we can maximise our input and the employment prospects and opportunity for our citizens. I do not think this debate is a particularly partisan one, and I do not really want to go down that path, but I could not let the member for Makin's comments about Rossi Boots go past. I concur with the member for Hindmarsh's view on it. My recollection of it was that, in fact, the Rossi Boots contract was all but let by the time we came to government. So the whole process had gone through during the previous government. The recommendations were made. Defence had dealt with it. Everything but the announcement had been done. It was far too late, in fact, for us to intervene in any way, and I was, like the member for Hindmarsh, very disappointed. I think the member for Makin was probably of the same view.

However, there are some positive things happening as well, and the member for Hindmarsh has already touched on the announcement made the week before last week on the frigates and the commitment to the naval shipbuilding industry that we will have a continuous build here in Australia. This will have a lot of ramifications for our workforce and for our skill levels going forward. In fact, recently I spent some time in France and in Germany. I went to Cherbourg in France and to Kiel in Germany to inspect their submarine building facilities and met with representatives of those companies both here in Australia and in their home countries. Here in Parliament House I also met very recently with Mitsubishi, the Japanese submarine builders. I have hopes of visiting their yards in Japan as well.

The point I want to make about the competitive evaluation process that the government has chosen is that all three of those manufacturers are of the mind that the best outcome will be either a significant or a complete build in Australia. This will maximise Australian content in a very real way. They understand that there is pressure on them to perform at that level. I have quoted a number of times that the Germans in particular have said they are prepared to build the submarines completely in Australia. They are prepared to do it on a fixed price and they are prepared to have an audit from the German navy. They are not controlled by the German government and they are not owned by the German government, but the German government has put this up as an option to guarantee that we get the same value for money as the German navy. I have said a number of times that this will be difficult to walk past, but I expect the other two bids to come in roughly similar and the competitive evaluation process will bring those options to the fore. I am very confident of that.

In closing, I would like to point out that the federal government is spending over $85 million on the Cultana expansion. From my point of view, when I talk about local procurement I am talking about local procurement off my patch. This is, as I pointed out before, the eye of the storm in the employment program in South Australia at the moment. I have had a number of meetings with Defence, I have spoken to the relevant parliamentary secretary and I have hosted forums in Whyalla and Port Augusta to try to maximise this outcome. I will keep banging on doors to make sure that we get the maximum for my constituents.

Lisa Chesters (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to strongly support the motion before the House, specifically in relation to (2) and (3), which say that this House:

expresses concern at the level of goods and services that are being sourced from overseas by the Government ...

and:

calls on the Government to apply a comprehensive value for money test which includes all national benefits which accrue when goods and services are procured locally.

I am also one of the regional MPs who knows how important it is that government procurement focuses on local goods and services. We have had a number of people speak about defence manufacturing. I would not be forgiven by my electorate if I did not put on the record in this debate how important it is that defence manufacturing dollars stay in this country. In Bendigo we currently produce the Bushmaster. That work is coming to an end and we are waiting on this government to sign the next contract that we hope to manufacture there: the Hawkei contract. Like the Bushmaster, the Hawkei contract will secure not only the defence manufacturing jobs at that facility, Thales, but also the supply chain. There are 120 small to medium businesses in Victoria, predominantly in regional Victoria, that will feed into the supply chain of the Hawkei. These are government dollars that the government is sitting on and not committing to.

Let's focus on what the government has announced in defence manufacturing and procurement in the last couple of weeks. They have made commitments towards projects that are almost a decade down the track. The funding for these projects for the big spend of defence procurement, which is the bulk production, is not even in the forward estimates yet. So we will probably have another election before we even get to the actual build of these projects. For example, the government is talking about LAND 400, which is at best estimates a decade away from being able to go into full production. Meanwhile, we are waiting for the government to make a commitment to Hawkei, to secure those jobs in regional Victoria and in my electorate. There is another area that I want to see the government commit to. If they want to be the government for infrastructure, then they should take a leaf out of the Victorian Labor government's book, do what they are doing and secure within those infrastructure contracts a commitment to local procurement of goods. Let's see a commitment to Australian steel, let's see a commitment to Australian concrete and let's see a commitment to Australian products being used in our big infrastructure builds. We can do that because we are the client. What people in Australia want to see is this government commit to spending Australian taxpayers' money in creating Australian jobs and supporting Australian industry.

Another area of concern, particularly in regional Victoria and particularly in my electorate, is the jobs—the jobs that we can lock in by supporting local industry and local business through good, smart spending of Australian dollars through strong procurement policy. I am concerned about what the free trade agreements—the China free trade agreement—could mean to our defence manufacturing dollars and our procurement manufacturing dollars. It concerns me that a Chinese-based state enterprise could bid for an Australian infrastructure project—that is big Australian dollars—and bring in the entire workforce, through the proposed China free trade agreement, to do that work. This is not scaremongering. This is the reality. Australians do not want to see that happen. If we are building a freeway, if we are building a port or if we are building rail infrastructure, we want to see the jobs associated with that project go to Australians first. That is the kind of smart procurement policy which is about the nation test and what is in the best interests of the nation.

In the few moments I have left, I would like to talk about services. The government is also one of the biggest purchasers of services in this country. I am talking about cleaning and security services, not just here in Parliament House but throughout the Australian government. This government has already demonstrated that it has little regard for people working in those industries by scrapping the Clean Start guidelines and by lowering the wages and conditions of hundreds of people working and cleaning its buildings. If this government were serious about procurement and securing jobs, it would be investing more and not outsourcing. It would not be outsourcing as we are seeing currently.

Matt Williams (Hindmarsh, Liberal Party) Share this | Link to this | Hansard source

I seek leave to address the Chamber again.

Leave granted.

The member for Bendigo would realise there is another massive defence contract called LAND 400 that the Australian government is to award. She talks about the delay in projects. Let's have a look at some facts: Future Frigates brought forward and offshore patrol vessels brought forward. I understand that Williamstown—the member for Gellibrand just came in, and he might be writing another book about this, after the success of the government's continuous build shipbuilding project. There will be opportunities for Victoria and there will be opportunities for other states around Australia—the member for Gellibrand knows this—and if his previous government had made a decision—

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

Mr Deputy Speaker, I was just wondering whether the member knew that 125 people have just been laid off at the Williamstown shipyards this morning. That is a point of order of some form.

Pat Conroy (Charlton, Australian Labor Party) Share this | Link to this | Hansard source

There is no point of order.

Matt Williams (Hindmarsh, Liberal Party) Share this | Link to this | Hansard source

The member for Gellibrand might have read an article recently in The Australianwhere the head of the Department of Defence made the point that a decision needed to be made in 2011 in relation to the current job losses being experienced at Williamstown and also at ASC in my state of South Australia, which is disappointing news. That was 2011. The member for Gellibrand well knows that the previous Labor government failed to make a decision and that has had serious repercussions. But back to the purpose of this motion. The Australian government, as I mentioned in my earlier address, procures goods and services in significant amounts, and it will continue to look at supporting Australian industries where it can and where there is a value-for-money result. I commend the work of the Australian government in its focus on the future of our country in terms of jobs, economic development and economic prosperity.

David Gillespie (Lyne, National Party) Share this | Link to this | Hansard source

The opportunity to speak about the member for Makin's motion raises so many important points for Australian industry, Australian government, Australian employment and Australian manufacturing in particular. The value for money principle should apply in all government purchases. At the moment Australian government bodies are purchasing up to $40 billion worth of goods every year. It needs to be taken into account the added costs of production in Australia that are not imposed by inefficient business practices but by federal, state and local government regulation, red tape and industrial tape that binds the hands of private enterprise in manufacturing anything in this country. It is very difficult for private manufacturers when they tender for government contracts to be told they are marginally too expensive and the tenders are awarded to other non-resident businesses that can obviously produce things cheaper because they are not bound by the industrial tape, the red tape, the green tape, the local government tape, the state government tape and other taxes that we put on them like six per cent payroll tax in various states or the requirement for compulsory superannuation. This makes us a high-cost centre for many things. We have wonderful manufacturing businesses that still tender to government and miss out.

There is a refund that the federal government gets when it purchases goods from Australian manufacturing operations because it gets a return on PAYE tax, it gets a return on company tax profits and it avoids unemployment. Government contracts are huge contracts and deliver long-term stability to many manufacturing sectors of the economy. The concept of the federal Treasurer getting a rebate, the Minister for Employment or the Minister for Social Services not having to fund unemployment benefits or the minister for trade or any of the other ministries that assist government to retrain people—not paying if they are employing local bodies— (Time expired)

Debate adjourned.