John Madigan (Victoria, Democratic Labor Party) Share this | Link to this | Hansard source

I, and also on behalf of Senator Xenophon, move:

That the Senate calls on the Government to alter Commonwealth procurement policy in order to require all government departments to only use Australian made products where possible, and, in particular, paper products.

I am pleased to speak on this important topic today. It has been more than two years since I took my seat in this place. As a tradesman, a boilermaker and a blacksmith, it is fair to say that I look at things differently to most others here. I believe my background gives me empathy and common ground with our manufacturing sector—a sector which I believe has been ignored by this place for far too long.

It should be with a sense of pride that all parliamentarians and all Australians view this building. This is one place that should be showcasing the very best Australia has to offer. It would not even cross the minds of Australians that the national symbol on top of the Australian parliament in the nation's capital was made anywhere but in this country. However, the Department of Parliamentary Services, acting under Commonwealth procurement guidelines, cannot even guarantee our flag on top of this building would be made in Australia. It is not just unfortunate that our coat of arms is emblazoned on coffee cups, plates and glasses that are made in China, the UAE or elsewhere; it is a real slap in the face of our manufacturers in this country who have the skills and knowhow to make these items here.

As many of you may know, Senator Xenophon and I took steps to ensure that at least some Australian-made products were represented in the parliament. We took it upon ourselves to purchase a 120-place setting—750 pieces of Australian-made crockery to stock the Members' Guests Dining Room. Two Victorian manufacturers made the plates and delivered them to my office here at Parliament House, and there the boxes sat. It was only after intense media pressure that the Department of Parliamentary Services accepted our gift. Since the boxes of plates were moved from my office to the office of DPS, they have disappeared, I fear into a bureaucratic black hole—the rabbit warren of unaccountability. They have not been seen in the dining room to date, so where are they?

Australian government procurement goes far beyond cups, plates and bowls in the dining room. The Commonwealth is a huge consumer of products. Everything from tissues to office chairs and copy paper in offices through to uniforms, food and fighter jets for our defence personnel is an opportunity for Australian manufacturers to supply a need. Since taking my seat, I have had the opportunity to meet with a multitude of manufacturers across my home state of Victoria and across the country. I know Australian manufacturers are amongst the best in the world. They have to be to have survived in a country that has not supported them. I have met workers from everywhere: from Gold Acres in Ballarat to Flip Screen in Wagga Wagga, Rossi Boots in Adelaide, Baum Cycles in Geelong, Brobo Waldown in Dandenong, Parken Drills in Clayton in Victoria and Molnar Hoists in Adelaide. All these firms and their workers have one message for the government: they just want a fair go.

On 14 November 2013, Senator Xenophon and I referred a motion relating to Commonwealth procurement to the Finance and Public Administration References Committee for report. In my speech today, I would like to concentrate on a line from that motion: 'the economic, social and environmental benefits of utilising Australian goods and services.' Over the Christmas break almost 50 submissions were received. Many of the submissions highlighted the need for our government to consider not just the bottom-line dollar value but the real benefits of buying Australian made.

The submissions confirm what I have said all along. No imported manufactured goods can compare when you consider the economic, social and environmental benefits of buying Australian made. It is not rocket science. Australian manufacturers are the custodians of all that makes this country great. Australian manufacturers are an integral part of Australia. They contribute to their families and their friends who make up the Australian community, they care for the environment in which they live and they care about the economy which they support and which supports them.

I can talk in broad brush strokes about the benefits of supporting our country, but let me give you an example of one product, the people who make it and how buying from our manufacturers supports our country. That product is paper. In the Australian Forest Products Association submission to the inquiry, they gave us the statistics on paper. Annually, the Australian government purchases approximately 6½ thousand tonnes of copy paper, uses an estimated 50,000 to 60,000 tonnes of paper for external printing of publications, pamphlets, forms, brochures and envelopes and purchases around $100 million worth of tissue paper. Buying paper made in Australia means we are supporting not only companies that pay tax and employ Australians but also a product that complies with Australian standards. Supporting our own companies means that social, environmental and economic benefits stay in our country.

The Australian Forest Products Association made the case better than I could ever do in their submission to the Commonwealth procurement inquiry. They said:

… Australian Paper is the largest private employer in Victoria's Latrobe Valley, and contributes more than $750 million annually to Australia's GDP and supports over 5,900 flow-on full time jobs. The construction of Australia's only de-inked recycled paper plant at the Australian Paper Maryvale mill is also supporting 950 direct and indirect jobs during construction and around 250 new jobs ongoing, as well as contributing $160 million in value to the economy. This project will produce 50000 tonnes of recycled pulp each year, diverting up to 85000 tonnes of wastepaper that would otherwise end up in landfill.

That is socially, economically and environmentally responsible. With good news like that, you would think it would be hard to find anyone who does not value the industry for all the good work it does. However, you only have to look as far as our own government departments to see how short-sighted our government is being.

When AFPA consulted the Australian government procurement coordinator, they discovered that, of the 84 copy paper products sourced under the whole-of-government stationery and office supply arrangements, only 45 per cent of the products were sourced from Australia. Let me put that in different words: less than half of government paper products come from Australia. Forty-five per cent comes from Australia, 36 per cent comes from Europe and 19 per cent of our paper products come from Asia. If the company Australia Paper can so vitally support workers in the Latrobe Valley when they are competing with other Australian paper mills for less than half of the total federal government pie, imagine the social, economic and environmental benefits the country could be experiencing if 60, 80 or 100 per cent of government paper products were purchased in Australia.

During the public hearing held on 21 March Mr Ross Hampton, chief executive officer of AFPA, said:

Firstly, it is important to acknowledge the economic, social and environmental benefits of utilising Australian paper products. The Australian paper industry directly employs 15,000 people in both outer metropolitan and, importantly, regional areas and supports a further 22,000 indirect jobs. A sales turnover for the sector averages around $9.6 billion per year and the wood and paper products industry collectively represents about five per cent of the total manufacturing value added in this country.

The Australian government annually purchases up to 6½ thousand tonnes of copy paper, and by some estimates—this is important—a further 50,000 to 60,000 tonnes of paper is used for external printing and that sort of thing. Purchasing decisions therefore by the Australian government consequently have a direct impact on national, economic and social benefits.

Let me repeat that last line:

Purchasing decisions therefore by the Australian government consequently have a direct impact on national, economic and social benefits.

Our manufacturers and our industries recognise the positive flow-on effects of buying Australian made. These effects include greater employment, more tax paid to the government and better environmental outcomes. Australian manufacturers deserve a government that puts the interests of our country first. It is dangerous to view procurement through the narrow lens of value for money alone.

Our procurement policy needs to take into account the social, economic and environmental effects of buying in Australia from Australian companies that manufacture in Australia. If we save a few dollars bringing in paper from Asia and use that paper to print welfare cheques for people in the Latrobe Valley, how is that value for money? If we save a few dollars by importing the Australian flag for the top of this building while watching our own flag makers go out of business, how is this value for money? If we save a few dollars by importing crockery from China for Parliament House, putting our own crockery makers into the dole queue, how is that value for money? And if we save a few dollars by sourcing 250 drills from China—as was done recently for our defence forces—instead of buying them from one of our own drill manufacturers, how is this value for money? This last purchase, if Australian-made, would have ticked all the boxes socially and economically—to say nothing of the skills that would have been boosted and kept in Australia.

I will finish my speech today by reminding everyone in the chamber exactly why we are here. We politicians are elected to represent the people of this country. Politicians are elected to represent the interests of the people who elect them. We are not elected by the people of other countries, nor are we elected by foreign corporations. Thank you.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Agriculture) Share this | Link to this | Hansard source

I rise to make my contribution to the motion of Senator Madigan and Senator Xenophon in respect of procurement in Australia. Noting that time is short for this debate, I will keep my remarks to a time limit so that others do have the opportunity to contribute to the debate. It is an important debate and, at the outset, I acknowledge the passion that Senator Madigan and Senator Xenophon have for Australian manufacturing and Australian businesses. It is important.

We in this government also have a responsibility in respect of procurement to get value for money. Value for money does not necessarily mean the lowest price and there are a range of inputs in our procurement policy, which is available to the community on the Department of Finance website. It does consider a range of things. But every dollar we spend more on products that we do not need to spend on particular items or products is more money we have to raise from Australian taxpayers. We are not spending government money; this is taxpayers' money we are spending and taxpayers' money we are dealing with.

The best way a government can assist Australian industry and business is to ensure that the economic fundamentals are strong, that we do not overburden industry with unnecessary tax and unnecessary red tape, that we do make sure that they are competitive in what is a global market. Australia is a trading nation and, I must say, Australian industry and Australian business does not just rely on the Australian market. That is a really important point to consider. To trade out, we need to be prepared to trade back in. If we want to send product overseas and into those broader markets—and that should be our aim—then we need to be prepared to accept product coming back the other way. To be competitive in that global market and on that global stage, we need to ensure that the economic fundamentals in this country are right.

Doing things like reducing red and green tape, which this government is doing, is important. Doing things like removing the carbon tax is absolutely vital. If you look at the paper industry, where 30 per cent of the cost of a piece of paper is energy, the impact of the carbon tax on the paper manufacturing sector is quite significant. It is one of the sectors of the economy that was most significantly impacted. When you look at the performance of the previous government, which basically saw a complete decay of the paper industry in this country, you can see the impact of their policy. You can see the fact that, despite the rhetoric that was delivered, the impact of Labor Party policy over the last six years has been very, very detrimental to the paper industry in particular.

I know the concerns of the paper industry, because I have seen the demise of two paper manufacturing plants in my home state, one in Burnie and one in Devonport. And while that process was going on, the previous administration completely and utterly did it. When Australian Paper made the announcement in 2009 that they were going to review the operations of the two plants in Tasmania, the then minister and the local member decided that they would get the local mayors and industry in to talk to them.

The minister at the time would not come to Tasmania; industry had to go to him in Melbourne. So on 6 March the five local mayors met in Melbourne. On that day and following that meeting, the minister—Minister Carr in fact at the time—announced that there would be an Industry Strategy Group established with the minister stating that the final report would be completed in June of that year, and that the strategy group would run in parallel with the company review, which was intended to be completed by the end of June.

The unfortunate thing is that the review was not even completed by December of that year and the company had already made the decision to close. So the information that was supposed to come out of the government's process was not available to the company. It is a clear demonstration that the policies of the Labor Party during the last election, including procurement policy, have not assisted industry despite taxpayers' funds being invested in the plant that Senator Madigan talked about in Tasmania for the development of the recycling plant—which is due to open very soon. I am sure that the people at the Maryvale mill are looking forward to that advancement and the company are as well.

The ICT regulations put in place by the previous government almost specify that business out of procurement. It really is very, very difficult and unfortunate that the economy has been left in such a mess by the previous government. The paper industry in particular has suffered very badly. And what did make it worse was the combination of the Labor Party and the Greens—the Greens who have done everything they can to destroy the forest industry in Australia with continued protest, continued campaigns. The work of the Labor Party in conjunction with the Greens, particularly during the last three years, has been quite devastating for the forest industry. And given that the forest industry is the base that provides the resource for the paper industry in Australia, that is very, very difficult.

But it is important that we receive value for money for Australian taxpayers out of Australian government procurement. As I said earlier, we are a trading nation and we need to ensure that trade is facilitated. If business is going to survive in the global market, it needs to be able to compete and work in the global market. So getting the fundamentals right, removing unnecessary tax and regulation, is a very, very important part. As Bill Clinton said when he was seeking the presidency, 'It's the economy, stupid.' We need to ensure that our business and our industry are capable of competing in the global market. We are operating in a global economy now. We cannot step off—

Don Farrell (SA, Australian Labor Party, Shadow Minister for the Centenary of ANZAC) Share this | Link to this | Hansard source

Why did you let Holden collapse? Why did you let Toyota leave?

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Agriculture) Share this | Link to this | Hansard source

Senator, if you were listening to what I was just talking about, we need to be exporting, we need to be operating in a global economy and we need to be able to compete. I am happy to take your interjection, Senator Farrell, because what your government did not do was encourage industry to compete in the global market. They did not set a strategy where they looked out rather than looking in. And that is what we need to encourage our industry to do, because that is what is going to allow them to grow. If they want to just rely on the Australian market, that is going to limit their capacity. We need to be putting the economic fundamentals in place so that our businesses can compete in both the Australian and the international markets. And there are huge opportunities for us to do that.

If you look at the food industry and what has happened to it in recent years—and I know Senator Xenophon and Senator Madigan are vitally interested in that sector—there is the opportunity for it to look out of Australia. There is the opportunity for it to look out at the emerging markets in our region, where the quality of our product is recognised, the safety of our product is recognised and there is a market at a premium price for us as well. So we need to be working with our industries on a strategy that provides them with a competitive base in the Australian market, but which also provides them with a competitive base in the international market. That is the opportunity for these industries to grow. It is not by trying to confine themselves to the Australian market; it is not by the Australian government buying from just one place, because we also have trade obligations that we must meet.

We have done deals to say that we will be an open trading economy, but what that means is that we need to get the fundamentals right for our industries so that they can play and complete. And that goes right across the economy. Senator Madigan sat with me on the Senate select committee into the food processing sector. We looked right across that industry. The issues are all the same: we need the industrial relations settings right, we need the taxation settings right, we need the education settings right to provide skills for employed people and we need the innovation sector to be working as part of that process too.

Yes, government should, where it can, in accordance with its procurement guidelines and getting value for money for taxpayers, buy Australian product, but we need to ensure that it is done on fair and reasonable terms because that is what our industries and our businesses expect when they export overseas. So it is a two-way street. I understand the passion that both senators have in bringing this motion to the chamber, and I respect that passion for their local manufacturing industries and businesses. I know that senators across the chamber support their local businesses where they can. I always buy Australian paper for my office; it is a value decision I have made. It is important that we all continue to do that too. I will cut my comments short so that other senators can make a contribution to the debate.

Kate Lundy (ACT, Australian Labor Party) Share this | Link to this | Hansard source

The Labor Party has a strong and proud record of supporting Australian businesses, and this has extended to the supporting of Australian businesses, in particular small- to medium-enterprises, through procurement policy. This support has been reflected through the genuine initiatives that Labor governments have established to support Australian business. For example, in 2013 the Labor government acknowledged certain barriers faced by Australian suppliers and established the requirement for Australian industry participation plans. The AIP plans require bidders for major tenders exceeding $20 million to develop plans that set out how they will offer opportunities for capable Australian suppliers of goods and services. This approach sought to assist Australian industry to gain a foothold in major projects and tenders by encouraging industry to innovate, develop competitive capability and take advantage of investment opportunities.

The Australian industry participation plans also acknowledge that in many cases the supply chains involving very large corporations often were preset, and therefore served as a systemic barrier for Australian businesses seeking work in that particular sector. It was a very tangible response to an entrenched problem, and on the larger scale reflected a lot of the barriers that small businesses face in other areas of procurement.

The Australian industry participation plans in that regard are supported by the supplier advocates program. This was also established by the Labor government and was a direct response to the issue of systemic barriers facing small Australian companies seeking to compete in a very competitive procurement environment. Supplier advocates play a strategic role and provide leadership to improve the capability of Australian industry and suppliers to win project work—not just in government procurement contracts but also in large private sector contracts. Work of the supplier advocates could include coordinating opportunities for companies to showcase their capabilities and products to government, and promoting supply chain activity.

I am most familiar with the information and communications technology supplier advocate. For many years, particularly during the previous coalition government under Prime Minister Howard, there were a series of moves early in the period of that government—and, yes, we are talking some 16 to 18 years ago now—that undid the systems that were in place to promote SME involvement in ICT government contracts. Looking at the role of the IT Supplier Advocate now, the very fine work of Mr Don Easter, who has performed the role admirably, there have been a number of challenges to take on—in particular, mitigating the risk that is perceived to be associated with engaging an SME in the ICT space. Indeed, risk management and helping small businesses understand risk management in the context of tendering for government contracts has been a key part of his work.

Another area that presented a systemic blockage for companies was the level of professional indemnity insurance and public liability insurance. Some time ago it was evident that often these insurances not only were required far beyond the value of the contract but were not commensurate with the work being performed. Thanks to Don's work and the advocacy of the Australian Information Industries Association and others, these have been brought more into line so that the requirements for the appropriate levels of insurance, both professional indemnity and public liability, reflect the risk associated with the given contract.

Another area of systemic challenge, I suppose you would call it, for small businesses was in the scope and scale of the tender documentation. In many cases, particularly for new entrants to the government procurement market, the scope and scale of the tender documents again went well beyond the work required. The effect was that companies tendering for work had to have a far broader capability than was required to respond to a particular tender that may in some cases be quite narrow. This had the effect of ensuring that all the work was funnelled towards the companies that were already in that marketplace. Many Australian companies, particularly in the ICT sector, who were new and innovative, doing things in a very different way and challenging the standard practices perhaps with some very economic solutions, often found it very difficult to compete as their tenders were not able to be compared on the basis of apples with apples. Because they did not fulfil the scope and scale preconditions, they found themselves excluded from the process.

Many of these challenges require constant attention and many require the education of both the small businesses themselves but, equally, the departments and agencies seeking to procure innovative ICT solutions. I should add here that these issues are not peculiar to ICT. The characteristics and the nature of these challenges extend in one way or the other, or in one characteristic or another, to many of our small business sectors seeking to get that elusive government work.

Before I go on to other issues relating specifically to procurement I think it is worthwhile underscoring why procurement is so important to many Australian companies. Australian companies see a government contract as an export credential. Indeed, because the Australian government is seen as a high-standard procurer, that means that an Australian company having a contract with the Australian government is seen as an enormously important credential when that company is seeking work internationally. So for many years now I have talked about government contracts as being an export credential for many of our small businesses. Often the first question an ICT company is asked overseas is: do you have any of your own government's contracts? If the answer is yes then that establishes that company in a good position. But if the answer is no then the question that is always asked is: why isn't your own government trusting the goods and services that you are supplying? In this way the importance of fair and equitable access to the Australian government procurement market is elevated if we are serious about supporting our small businesses in being able to operate and participate in the international marketplace—but I digress.

The Labor government also acted in the interests of emerging business by making exemptions to mandatory requirements of the Commonwealth Procurement Guidelines to allow direct sourcing from small to medium enterprises that are either Indigenous owned or that primarily exist to provide the services to people with a disability. The Labor government announced during the election campaign that we would move to ensure all Commonwealth government fleets were 100 per cent Australian owned. This strong and proud record of supporting Australian businesses while in government plays out in the latest statistics provided by the Department of Finance for 2012-13, which show that over 82 per cent or $32 billion out of over $39 billion in Australian government contracts for goods and services were Australian sourced or delivered.

I would now like to speak about the Commonwealth procurement policy itself. The Australian government Procurement Framework operates on a non-discriminatory basis and, as we have already heard, has achieving value for money as the core rule. Indeed, all potential suppliers are supposed to be treated equitably and not discriminated against due to size, ownership or location. The procurement policy aims to strike a sensible balance between non-discriminatory procurement principles and strong support for Australian businesses to supply goods and services to government.

The issue of Australian made goods and services and government procurement is, as we have also heard from Senator Madigan, the subject of a reference currently being heard by the Senate Finance and Public Administration References Committee, which is due to report on 30 June 2014. I am very proud to chair that committee and I would like to reflect a little on a couple of the submissions that have been presented to that committee, as it is of relevance to the motion we have before us.

The paper industry is a significant industry and my colleagues have rightly included reference directly to it in the motion we are discussing today, given the significance to government procurement and that industry. As a brief aside, I note that, according to evidence presented to the Senate references inquiry, the Australian government annually purchases up to 6½ thousand tonnes, or $13 million worth of copy paper. Additionally, by some estimates, there is a further 50,000 to 60,000 tonnes, or $117 million worth, of paper used by government agencies in external printing and publications. The evidence also suggests that, by the best estimates, the Australian government uses approximately $100 million worth of tissue paper per annum.

It is from this lens of the paper industry where we perhaps see the clear interaction of government procurement policy per se with other elements of government policy. I would like to evoke two in particular: the ICT Sustainability Plan and the National Waste Policy. The procurement rules refer to issues of environmental sustainability and other non-financial considerations in relation to the concept of 'value for money'. The National Waste Policy, for example, aims to avoid the generation of waste; reduce the amount of waste for disposal; manage waste as a resource; and ensure that waste disposal, recovery and reuse is undertaken in an environmentally sound manner. The ICT Sustainability Plan, for example, mandates a minimum of 50 per cent recycled copy paper for Financial Management Act agencies on the basis of improved waste management outcomes. Australian Paper noted in their submission to the current inquiry:

Imported recycled paper which only delivers waste reduction outcomes for the country from which it originates cannot deliver the same benefits as locally made recycled paper.

And:

The local landfill benefits of Australian made recycled paper will deliver enhanced environmental benefits for Australia over imported recycled papers which also have a much larger transport footprint based on shipping from their country of origin.

On the basis of these complementary policies requiring procurement decisions to be framed around inherent environmental and other non-financial considerations, the committee heard from Australian Paper that, in their view, the policies and frameworks in place that could automatically promote the use of Australian made goods and services, particularly paper, in government agencies specifically could be achieved if the:

Commonwealth Government more broadly assess and enforce recognition of the economic, social and environmental values of all aspects of the Government's paper and printing services procurement decisions ...

The issue in their view was one of implementation. The Australian Forests Products Association further noted:

… there is a lack of robust risk assessment tools and due diligence for the adequate consideration of sustainability issues.

This point of lack of transparency in procurement was also acknowledged in evidence provided to the committee by the Australian National Audit Office. It is clear that guidelines are required to help guide all officials who are making procurement decisions and an enforcement role is needed to make sure the policies in place are applied appropriately. We heard evidence presented that there are limits to procurement in relation to international obligations from free-trade agreements, including in particular the Australia-United States Free Trade Agreement. These agreements include obligations for the government to open our procurement market to international suppliers and that international procurement markets are open to Australian suppliers. These obligations also limit the ability to preference local suppliers in procurement.

So we operate in a framework informed by international constraints. However, we do have a framework that still has resulted in significant support for Australian businesses in Commonwealth procurement. So we have a framework that we know functions well. The significance of the complaint being put forward by Australian Paper, in my mind at least, is in part that these associated policies—that is, the National Waste Policy and the ICT Sustainability Plan, are not complied with equal or appropriate weight in informing the decisions guided by the procurement rules. It is these issues which inform our ongoing consideration in our very important inquiry into Commonwealth procurement procedures.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the seemingly complex and vexed issue of the Australian government's procurement process and how it serves—or rather, does not serve—the Australian people. I say 'seemingly complex and vexed' because it shouldn't be that hard to do the right thing by Australian manufacturers and Australian jobs. This is why I have been so pleased to work with Senator Madigan on this inquiry. We have co-sponsored this motion and I pay tribute to Senator Madigan for the work that he has done in initiating this.

Senator Madigan and I helped to set up an inquiry into the process because we are concerned that the procurement processes do not serve the interests of the Australian people—surely the first and foremost task of any government. In my home state of South Australia the Hon. John Darley MLC, a member of the legislative council, re-elected with my full backing and endorsement at the recent South Australian election, has also worked on issues of procurement. Recently we worked on issues with respect to office supplies procurement, where the South Australian government, I think, made some fundamental mistakes that discriminated against local suppliers.

Some might recall our repeated attempts to have the Parliament House dining room supplied with fine Australian-made crockery. Senator Madigan and I even sourced an extensive set made here in Australia at our own expense. The crockery succeeded in making the news but unfortunately has yet to see the inside of the Members' Guests Dining Room. In fact, as Senator Madigan said, the status and whereabouts of the crockery set are unknown. The parliament took it but is not using it. What a waste.

The Senate Finance and Public Administration References Committee inquiry has heard a range of views so far, and I have been impressed by the level of engagement with the issue, especially from Australian industry and union representatives. Submissions have also been received from several Commonwealth departments, as well as academic lawyers concerned that Australia should not break its free trade agreements by 'discriminating' against foreign suppliers. I will say more on that later.

Commonwealth procurement policy intersects with our relations with free trade partners, our region and our status in the World Trade Organization, but it also has a massive impact on the Australian economy and almost all local industries. It is hard to find a sector of the local economy that is not impacted by Commonwealth procurement. Australian government procurement is estimated at $41 billion a year. It is 10 per cent of the Commonwealth budget and accounts for 2.5 per cent of the national economy. As one witness at the inquiry said, 'Australian government procurement is equivalent in turnover to Australia's entire hotel and restaurant sector.' So we are not talking about a sideshow here; for many sectors and industries in Australia it is the main show in town.

Yet Australia has a reputation internationally of taking a narrow view of its options in relation to procurement. A narrow and short-term view of so-called best value for money and a black-letter interpretation of our free trade obligations have come to dominate the thinking of this government and the previous government. Unfortunately, the word is spreading. A few years ago I had a conversation with Michael O'Connor, the national secretary of the CFMEU, in relation to issues of dumping, and he recounted to me a comment passed by a Scandinavian at a timber industry forum in Scandinavia a few years back. No sooner had Mr O'Connor introduced himself and said he was from Australia than the Scandinavian official laughed and said, 'You're from Australia? You are the free trade Taliban,' because Australia takes a fundamentalist, literalist and purist approach to free trade that no other country in the world does. We are being mugs. It marks us out as extremists, naive at best and at worst ideologues without the spark to know our best interests.

I believe it is the role of senators and political leaders in general to determine what our policy should be in the future. We cannot bury our heads in the sand and mutter the tired old slogans of the past. As has been written, the past is another country. We must be concerned about Australia's future and how Australia's manufacturers and producers can prosper while fitting into the world economy. There can be no place for ideology or fixed dogma on an issue that directly affects the livelihoods of so many. There is serious work to do both within the inquiry and outside it, informing a debate about how the Commonwealth can lead the way.

Senator Madigan has strong and, in my view, well-considered opinions on this, and I share them. His links to the people of Victoria's manufacturing base are strong. He was onto something last week in the inquiry which resonated with me very much when he picked up on the issue of Commonwealth procurement and the so-called ban on 'discrimination' against foreign suppliers. Senator Madigan said:

The government procurement policy says they are not allowed to discriminate against a foreign product in procurement. Other countries might use the term 'discernment' as to what they purchase. So in our case here in Australia the word 'discriminate' replaces 'being discerning' in how we practise procurement.

This surely is a call for a return to a wider application of national interest in procurement and a wider definition of value for money—one that takes into consideration the longer term and wider benefits as well as the true cost of engaging foreign suppliers.

In terms of value for money, let us put this in perspective. If we buy some drill bits from another country which might be 40 or 50 per cent cheaper but only last a tenth as long as Australian-made drill bits—and Senator Madigan, as a practising blacksmith, has a lot of experience in these sorts of issues, and I believe him—then where is the value for money? It is a superficial approach in terms of durability. We need to look very closely at what so-called value for money means in the context of Commonwealth procurement policies. We need to make sure that, if we are buying something that is seemingly cheaper, it does not mean that it will last for a fraction of the time of an Australian-made product.

A straight price comparison between an Australian product and one from overseas does not tell the full story—not by a long shot. The value to Australia of sourcing native goods starts with the initial purchase and then keeps on going. It includes security of employment, higher standards of manufacturing, confidence that minimum environmental, social and employment conditions have been met, and the multiplier effect of government money fanning out throughout the Australian economy. By comparison, $1 spent on a foreign-source product appears to leave the country immediately.

This is critical stuff. Why? Because in my home state of South Australia we have seen the demise of General Motors Holden, a great tragedy for our state. That will mean thousands of jobs are potentially on the line in the whole supply base—the automotive component manufacturers, who are really state of the art and cutting edge. If they are to have any chance of surviving in the longer term, we need to lead by example in Commonwealth procurement policy so that they can have a fighting chance of expanding their markets or developing new markets.

The inquiry heard that the standards by which overseas products were made—be they employment conditions, product standards or environmental safeguards—were generally not checked or even checkable by our government. The inquiry heard detailed evidence from paper manufacturers and their industry representatives, as well as paper consumers from government departments. We are not talking about a few reams of copy paper here. The Australian government uses about 600,000 tonnes of paper a year across more than 20 Commonwealth departments and agencies. Only two departments, Defence and Human Services, sourced Australian paper, we heard. Admittedly, due to the size of these departments, Australian paper makes up 57 per cent of the total, but the question has to be asked: why doesn't it make up 100 per cent of the total?

It appears from evidence to the inquiry that when purchasing paper made in Indonesia, Germany or Austria—which we do—there is no way of checking the supplier's pledge that it is made from 50 per cent recycled sources and does not use, for instance, rainforest timber. The Australian Tax Office purchases paper from Indonesia stamped '50 per cent recycled'. One would hope the label is true, because Indonesia is fast running out of its old growth rainforests. And that has something to do with orangutan habitats, palm oil and other related issues. I could go on about that, but I am already banned from Malaysia and I do not necessarily want to be banned from Indonesia anytime soon.

Australia's Forest Products Association is rightly frustrated. Its CEO, Ross Hampton, told the inquiry:

As far as our departments are asked to look, that is the point. They have a list and they click on a box that says that it is 50 per cent recycled, they tick it and they move on and then they are into lowest price.

He went on to say:

It goes to the heart of what we are talking about, because no-one does look further than the label at the moment. That is what happening. You get the label and it says '50 per cent recycled—tick'.

But who can blame the government for taking overseas labels at face value? It clearly could not afford to send investigators to all corners of the world to verify the claims made by foreign manufacturers in order to win supply contracts. Nor could it; that would be insane. So we are left with the so-called relative sanity of taking environmental and other labels at face value.

We heard at the inquiry just last Friday that you can just buy a rubber stamp for $10 and stamp the product as certified, or environmentally friendly or whatever standards it is supposed to meet. We, in another country, have no way of checking that. We need to insist on having almost an onus of proof on overseas suppliers that they are complying. There must be a more rigorous standard rather than us having to go and check whether they comply. We are told, though, that to do this could be discriminatory—and discrimination would breach Commonwealth procurement policy as well as our various free trade deals. To use Senator Madigan's words, we are not being discerning—and we need to be discerning. Applied across the width and breadth of our $4 billion procurement program, this view hobbles our national interest. We do not hear the rest of the world complaining much, do we? In short, we are being taken for mugs.

A similar point can be made about furniture manufacturing standards and the various environmental and employment standards met by local companies. In my home state of South Australia, Molnar Hoists, in Adelaide, ticks off on all the categories—safety; reliability; spare parts; social, economic and environmental factors; and a better resale value. So why do they have to compete on such an unlevel playing field? This issue has much in common with Australia's poor record on dumped imports. The much-vaunted 'level playing field' does not exist for many Australian manufacturers and producers, given the difficulty of lodging an action against dumping and the stance taken by the Commonwealth on matters of international trade. There have been improvements, and I acknowledge the work that was done by the former government in relation to that. They needed to go much further, but I am grateful for some of those changes. I urge the government to take the changes even further and give that support to small and medium sized manufacturers.

The case involving South Australian tissue paper producer Kimberly-Clark and dumped goods from China and Indonesia is telling. The case led me to introduce a private senator's bill—the Customs Amendment (Anti-dumping) Bill in 2010. In the case of Kimberly-Clark the government imposed dumping duties on Chinese and Indonesian tissue products in 2008 after investigations found that Chinese products were being sold at two to 25 per cent below the cost in its domestic market, while Indonesian toilet paper was found to have been dumped at 33 to 45 per cent below value. But this decision was overruled in 2009 following a review by the Trade Measures Branch of Australian Customs, which determined that there was 'no material injury' to Australian manufacturing as a result of these dumped imports. Many saw that as a bizarre decision that was not in the national interest, that was not fair, and that did not even stick to the letter or spirit of the WTO.

I believe that we need to reform our antidumping laws, which in turn will impact on our Commonwealth procurement policies. The Kimberly-Clark case highlights my ongoing concerns about an absence of fair treatment from the Commonwealth towards Australian manufacturers. Of course, I balance my call for a reframing of Commonwealth procurement with some caution. I support the Australian Industry Group's sensible submission to the inquiry that the Commonwealth must continue to adhere to established principles of best practice in procurement. But that must include a reasonable and robust consideration of what best value for money is.

I agree with Ai Group's view that best practice, far from being a buzz word for management boffins, can be a guide for a government seeking savings for its budget. It says:

No areas or agencies of government should be off limits to the application of best practice principles such as efficiency, effectiveness, transparency and equity in government expenditure.

But the key point on procurement is how wide to frame the value proposition for the nation. The Ai Group makes the point as good as anyone:

Government should take a long-term and holistic approach when applying these principles to individual costs and expenditure items. The emphasis should be on value for money over the whole life of a product or service and should take into account factors such as risk, reliability and future maintenance costs.

The Ai Group said the major barriers and distortions for local suppliers to the Commonwealth were:

An undue emphasis on upfront costs rather than whole-of-life costs in government procurement. This emphasis resulted in the purchase of lower quality goods and services and neglected the costs involved in maintenance and through-life support, which were key advantages that local suppliers were able to offer.

If this process gets us anywhere, I would like to see the Commonwealth assess and quantify the wider, long-term and indirect benefits to Australia of engaging local suppliers. The Ai Group puts it in these terms:

Government spending measures should be assessed holistically so that any spill-over benefits that are not easy to quantify are taken into account.

We should be quantifying these benefits so that we can target and achieve them through Commonwealth procurement. The Ai Group's concerns must be listened to. It represents 60,000 businesses in manufacturing, engineering, construction, automotive, food, transport and many other sectors. The businesses which it represents employ more than one million Australians. This is about the national interest of Australia and Australians.

The ALP's Australian Jobs Bill last year addressed procurement concerns, but I believe the thresholds were set too high. An August 2012 report from the Prime Minister's Taskforce on Manufacturing estimated that 950,000 people were employed in the manufacturing sector and that it contributes eight per cent of our gross domestic product directly. That does not include the significant amount that it contributes indirectly through flow-on effects to other businesses. The report also stated that over 100,000 jobs had disappeared from the manufacturing sector over the previous four years. That means that 100,000 families around the nation were affected by this plunge in employment in our manufacturing sector. We have to stop being mugs. Other countries are laughing at us for being such purists about free trade. We can go further by reframing Commonwealth procurement.

I will finish by highlighting a very important example of Commonwealth procurement that would be transformed by a better application of the national interest test—shipbuilding for the Department of Defence. Right now, the Commonwealth is weighing up what additional warships it will ask local industry to construct in coming years—if any. Defence has indicated it will need to acquire 80 ships for the Navy in coming years. The estimated cost of these is about $100 billion. The so-called 'valley of death' awaits many thousands of shipbuilding workers in Victoria, New South Wales and my home state of South Australia, as well as in other parts of the country. A witness to the inquiry, Dr Tom Skladzien, National Economic Adviser to the Australian Manufacturing Workers' Union, said:

It's better to have a defence industry and not need one, than need one and not have one.

Dr Skladzien articulated well a range of concerns about defence procurement and I would urge honourable senators to look at his remarks and his evidence.

It is a stark picture, but it is not a stretch to see the same peaks and troughs, the same boom-and-bust pattern, stretching across the economic and social fabric of the nation—driven by short-sighted procurement policy. The Commonwealth's procurement regime could reasonably be called a latter day, free-trade-inspired cargo cult. It is not serving Australians and more and more of us are waking up to it.

The United States and Europe woke up long ago. The United States is the greatest free trade country in history, yet can find a way to act in the best economic interests of its people. Just look at the tough and controversial negotiations it is having with Australia on the Trans-Pacific Partnership free trade agreement. It is fair to say that the US and Europe operate on a completely different level than Australia does in relation to local suppliers and industries. We must be less credulous of the rest of the world, who are clear eyed about their own national interests, yet remain aware of the benefits of free trade over time.

Commonwealth procurement should not be couched in terms of discrimination nor driven by a desire to be whiter than the driven snow on free trade. We cannot afford to be so naive. Rather, we should be framing decisions about Commonwealth procurement more realistically and more fully, recognising the true benefits of a sustained, competitive and responsive local supplier base. In the end, it is about us no longer being taken for mugs.

Bridget McKenzie (Victoria, National Party) Share this | Link to this | Hansard source

I only have a limited amount of time available to me, but I do recognise that government procurement is an attractive option as a solution to shoring up local manufacturers. I understand that. Australian manufacturers would love to have something like the Buy American Act, just as Australian farmers would like our own version of the American farm bill. But we know that the role of government is both to protect the taxpayer dollar and to support local business by decreasing regulation, encouraging competition and allowing capital to flow.

I do not want to pre-empt the Senate Finance and Public Administration References Committee inquiry that is currently underway, but one of the issues that was raised with the committee was the proposition of value for money and how we define it. Like trying to come to terms with the vague concept of national interest, it is difficult to define. But it does need to include a whole-of-life examination of the product being bought.

Senator Lundy, in her contribution, commented on the issue of how best to support SMEs and the role of direct sourcing policies in doing so. The inquiry heard evidence that the ANAO has issues with how some of our departments and agencies are using the direct sourcing policy and applying the notion of value for money. The ANAO's concern is that departments and agencies are not looking at their purchases in a holistic manner but going straight for the lowest cost supplier. I think the inquiry is going to flesh out that issue further.

It is an important inquiry in the context of a manufacturing sector which is facing serious challenges to its viability and sustainability, especially in a world that is becoming more and more protectionist. A recent British announcement about procurement is a case in point. They are going to be encouraging British schools to buy local products. I support local products and produce being sold in our schools and indeed our hospitals, but if that British announcement is any example, this is not just an issue that Australia is looking at but one being looked at by countries right around the world.

We are being forced to look at the processes and standards that we apply to goods produced on Australian soil—and those that we apply to goods that are imported. From the submissions to the inquiry, one of the strongest themes has been about making the tender process fairer for Australian companies. The submission from Australian Paper, located in beautiful Gippsland in my home state of Victoria, made a good point that the environmental laws under which Australian companies operate are onerous. I know that the member for Gippsland, Darren Chester, has tabled a petition with over 4,000 signatures to that effect in the other place. Exposing Australian businesses to international competition should be encouraged. It keeps us nimble and flexible. For the immediately foreseeable future, those are exactly the characteristics required to be successful. Australian companies can and do compete on price alone, but we should be doing everything we can to make that easier.

The submission from the Council of Textile and Fashion Industries made quite an impact on me. Local companies have to sign up with Ethical Clothing Australia before they can tender for a government contract. Their overseas competitors, however, do not. So our local companies are effectively being unfairly discriminated against as a result of our procurement processes and policy. Thanks to the coalition's repeal day yesterday, that unnecessary and unfair regulation has been removed. I will be writing to the parliamentary secretary, Josh Frydenberg, to congratulate him on that effort.

The Australian government is committed to supporting our local defence industry. In this regard, Defence expect to spend $5.4 billion on equipment acquisition and support in Australia this financial year. This equates to around 60 per cent of DMO's military equipment acquisition and support expenditure this year. I have a lot more to say about the international arena and what other countries are doing to support their local manufacturing industries and service industries, but I will save that for another time.