David Fawcett (SA, Liberal Party) Share this | Link to this | Hansard source

I rise to address the Senate Economics References Committee report, Future of Australia's naval shipbuilding industry. Although I was not a member of that committee, I have read through the submissions and have been involved in this for some time. As a senator for South Australia, who is deeply concerned and involved in our defence industry and our Defence Force, I have a great interest in this topic.

Part of the reason that shipbuilding is important is the capability it gives us in a number of areas around the innovation of design and our abilities to sustain ships in a cost-effective manner and repair and modify ships as appropriate. It is not all ships, just as it is not all pieces of defence equipment, but the important part is that to be a sovereign nation we need to understand the competence and capacity that we need in our engineering workforce—whether they be in industry or in uniform—and in the infrastructure and capacity of the industry to perform certain functions. The way we achieve that moving forward is to avoid the bookended projects we have had in the past and that we have seen in things like our air warfare destroyer and how that start-stop approach has killed off the investment in skills and infrastructure that we build for a given project. The project stops, it all dies and then we face cost and risk when we start to try and rebuild that capacity down the track. There is a clear case to have an ongoing plan.

One of the arguments that I believe is important to take on board is that the defence industry provides one of the fundamental inputs to our defence capability. Very welcome side products of having a defence industry here are jobs and investment in the economy, but we need to bear in mind the government's primary responsibility is the national security of Australia. The reason we should be concerned and should take an interest in the viability of the defence industry is that they are a fundamental input into defence capability. We need to understand what the elements are of the defence industry that need to be viable in order to keep our Defence Force viable. I have put forward a number of papers and discussions around the fact that the Capability Development Group should actually have ownership of planning out over the next 20 years—not just for the life of one project, but over multiple projects, over at least a two-decade period. In a rolling fashion, they should be updating: 'What are the investments that the government needs to encourage industry to make, and, where necessary, the government needs to make, to have the engineering and manufacturing competence and capacity that is required to support our defence industry?' If we get that right, then not only will our Defence Force have more effective and available capabilities; we will have better-informed decision-makers within the military, and within government, which is the basis of being a sovereign nation.

Importantly, if we choose the right projects to invest in, to have that work done onshore, we will have a better return to the economy. I would just like to talk through that a little more. Professor Goran Roos, who is now based in South Australia but has worked extensively overseas, brings a focus to work that has been done in northern Europe, has been done in North America and has been done in the UK, where, for defence projects—and I highlight here that we are talking about defence projects—there is a strong case that can be made that the second-order effects, or those spillover effects, of investing in industrial innovation and capacity in a country, returns to that economy, over a period of time—a decade or more—multiples of anything from around 1.6 in the UK for their shipbuilding, through to multiples of up to six in the US for some of their aerospace projects.

This does not hold for other sectors. People often quote the automotive sector and argue that spillover effects cannot be measured and are not effective—and we just have to look at the money that has been invested in people like Holden and Ford here, and yet they are closing down.

The difference between other sectors and Defence is that, in other sectors, the public have the option to choose whether or not they will purchase those cars. If they want to go and buy a Hyundai or a BMW they can do that. So there is not a certain market. There is also not a certain time frame for a particular product that is developed.

The reason this works and can be quantified for Defence is that you have one customer, who is normally going to operate a piece of equipment for at least 10 to 15 years—sometimes 20 to 30 years—and so you have an almost guaranteed quantity that are going to be acquired. You have a through-life-support program put in place. You have an upgrade cycle put in place. So all the elements that contribute to second-order effects are there in a Defence acquisition. That is why it stands alone compared to others.

So this works for some projects, not all. For projects that are low-complexity and that do not involve a lot of innovation, the theories and the quantifiable effects are not there, which is why we should not necessarily rush to try and do everything in Australia. But there are some areas where complex projects, requiring systems integration and innovation, clearly have—and it is demonstrable and measurable—the spillover effects that will give us those engineering skills that will deliver the ability for us to be a smart customer, to have the sovereign capability as a nation to understand our equipment—its shortcomings; its effectiveness—so that our war-fighters have the best equipment, and the decision-makers—whether they be logisticians, people involved in the sustainment, or at a political level—have the information they need to make decisions that are in the best interests of the nation.

There are a number of examples that I can provide in both the maritime and particularly the aerospace sector, which is my own background, where the ability to understand, modify and certify aircraft has saved the Commonwealth significant amounts of money. Where we have lost those engineering competencies because we have not planned this out over time, we see disaster—for example, the collapse of the amphibious fleet in 2011. Navy has now had to spend a large amount of money trying to recreate and restore the engineering and technical competencies to actually understand and oversee the engineering to ensure the seaworthiness of its ships. So there is an investment that is appropriate for governments to make in the engineering competence and capacity in both uniform and industry, if we are going to sustain the capability. And that, fundamentally, is why we should be supporting shipbuilding here.

Turning to the particular terms of reference of this inquiry: it was looking at the supply ships and looking at why they were not built here in Australia. Looking through the submissions, one of the things that I see, and it is a constant theme, is that people such as BAE Systems and ASC—some of the major shipbuilders here—recognise that they could not deliver in the time frame that the government needed in order to replace the supply ships.

The time frame is important, as we see if we look at the decision points to actually get ships into service. The AWD is currently just past the peak of its workforce engagement. The decision to actually get ASC to be the shipbuilder was made in 2005. The decision on the design going to Navantia was made in 2007. So, 2005 to 2007 to now—we are talking seven to nine years between those two decisions and now. So, clearly, if we wanted a project to continue that workforce and that investment, the supply ships project was never going to cut it because it would not be delivered in time.

That is why the way forward to actually sustain that investment—that has been made, to their credit, by the South Australian government in Techport, in ASC, by BAE Systems and others, in the ability to design and manufacture ships, or to understand the design and manufacture of ships—is the future frigate project. The reason that that is viable is that—with the investment that the government has made, of some $78 million, to establish the viability of integrating the CEA radar and the Saab 9LV combat system into the existing AWD hull—that means that we could commission, early on, the manufacture of hull blocks which will keep those skill sets going when the fit-out of the three AWDs is finished. We then start looking to assemble and fit out the hull blocks for future frigates. What we start generating is economies of scale. We have proven with the Anzac project that we are capable of equalling, if not bettering, world's best practice in productivity. But it always takes a number of ships. So by continuing the lineage of that design around the hull, by integrating Australian systems, we achieve a continuity of build, which gets a return on the investment we have made in those skills and capability. It gives us the kind of engineering competence and capacity to deliver sovereignty to the nation, good capability to Defence and a return, importantly, to the Australian economy, which for South Australia would also have the flow-on effect of those jobs.

I seek leave to continue my remarks.

Leave granted.

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

I rise to speak to the motion to take note of the Economics References Committee report, Future of Australia’s naval shipbuilding industry: Tender process for the navy’s new supply ships, which Senator Fawcett has just referred to. I was a participant in this inquiry. In fact, the terms of reference for this particular inquiry were proposed by me to the committee. Although Senator Fawcett did not participate in the inquiry, I commend him for his very considered and wise contribution. I have enormous respect and regard for the fact that he served our nation well in the Australian Defence Forces in the Australian Air Force.

Let us make no mistake about this. The decision made by the government on the basis of advice from the Defence Materiel Organisation not to even allow Australian companies to tender for the $1.5 billion supply ship contract is a disgrace. It does not make sense to me that they be excluded entirely. It does not make sense to me that Australian companies did not even have a chance to be part of a competitive tender process. It is a gobsmackingly stupid decision by the government.

Having said that, I have a lot of respect for the integrity, the decency and the competence of our Minister for Defence, Senator Johnston. I think he is a good man who is doing his best, but somehow this decision was made. I do not want to focus my remarks on Senator Johnston because I suspect, although I have no evidence for it, that there were other forces at play, that, in relation to this particular decision, the bean counters won, that the DMO won the day, and that really concerns me.

Let us put this decision in perspective. The Australian government is effectively saying that Australian companies are not worthy, are not good enough to put in a tender for a $1.5 billion contract—$1.5 billion worth of shipbuilding with a huge strategic, economic and social impact on this nation. We heard evidence at the inquiry from local shipbuilders. We heard evidence from the Australian industry that they could have been part of this, that they could have participated in this. It was put to me privately that, for instance, the Australian industry could have participated in this project with a joint venture with overseas shipbuilders—maybe the hull could have been made overseas, given the time constraints, but that the fit out, the technology, the electronics, the various capabilities within that vessel all could have been done here in Australia, so that a significant proportion of the $1.5 billion could have been spent here in Australia. We heard from Senator Fawcett about the potential multiplier effect. We heard from him that it could vary from 1.6 to seven in terms of the number of other jobs it could create, the economic activity that could drives, let alone the skills base that it could build and let alone the strategic significance of that.

Let us put it into perspective, Mr Acting Deputy President Edwards, as a fellow South Australian senator. We are in deep trouble in our home state of South Australia with the impending departure of General Motors Holden as an automotive manufacturer in South Australia. We are losing skills. I know of smart car designers and engineers who are already going overseas because the jobs will not be here in three years time. We know that in South Australia there are many thousands of jobs in the component sector, directly between 7,000 and 10,000 and indirectly in tier 3 and 4 manufacturers, thousands more—a huge economic impact on South Australia.

We know that unless we ensure as a matter of urgency that there is a sufficient fund to allow those industries to transition, to make other things, other than for General Motors Holden, for Toyota or for Ford in Victoria, as they do, there will be mass job losses; there will be a massive impact on the South Australian economy. I do not understand why the federal government, in addition to ripping $500 million from the Automotive Transformation Scheme as part of their election promise, took another $400 million from the Automotive Transformation Scheme in the budget. I put on notice to this government that I will oppose that resolutely, I will oppose it every way possible to ensure that those cuts do not go through. I am grateful for the discussions I have had with Senator Kim Carr from the opposition, whose passion for manufacturing is well known. We need to ensure that those cuts do not take place and we also need to ensure that ships are built in Australia, that submarines are built in Australia and, as much as possible, in South Australia.

Senator Fawcett's contribution made a very good point about the capabilities and made a very good point about the fact that when you are building something you build up the skills and expertise, that to judge our shipbuilding industry by the first ship or the first submarine that is built is not fair because that is not how it works in the real world. We know that expertise and efficiencies are built up as you go along. If there are labour practices that could be improved, if productivity gains are to be made, then so be it. I am all for that, but not to allow the Australian shipbuilders to even tender for a $1.5 billion supply ship contract is extraordinary. It is a vote of no confidence by the DMO, by the Australian government in our shipbuilding industry

I think the ordinary man or woman in the street, if they heard that, would be scratching their head and saying, 'Why wasn't Australian industry given a chance, a fair go, to even compete for this tender process?' I know that Warren King, the head of DMO, has been around for a long time, but I do not accept his rationale for the decision. I think the rationale could be summed up as: 'We didn't want to put Australian industry to the expense of putting in a tender process.' How insulting!

I think it is important that we put it into perspective as well that, for every dollar spent on local defence procurement, there is a huge impact on our local economy. A study done in the United Kingdom indicated that, for every pound spent on local UK defence procurement, there was a return to the exchequer, the treasury of the UK, of 37 per cent. That is the magnitude we are looking at. So even if a ship is a bit more expensive to build in Australia, the economic benefits are still overwhelmingly in favour of it being built here—let alone the strategic significance of it being built here. We are losing our engineers in the automotive sector. We are losing our expertise in manufacturing. If we lose our shipbuilding, if we lose our submarine capacity, it will be a disaster for Australian industry and for my home state of South Australia.

I thank, and acknowledge the role of, Chris Burns, the head of the Defence Teaming Centre in SA. He has been a champion for the local defence industry and has spoken fearlessly on behalf of local defence contractors. In fact, what he has said resonates across the country. He is a highly competent and articulate representative for the industry and his views ought to be heeded by government. His submission, and his evidence, was incredibly powerful, yet it appears that it has been ignored by government. What Mr Burns told the committee needs to be heeded. We need to look at having some certainty for the industry. If we do not, the valley of death will be upon us. We will lose thousands of jobs that we will never get back and we will lose that critical defence capability, which will be a national tragedy.

I seek leave to continue my remarks.

Leave granted.

David Fawcett (SA, Liberal Party) Share this | Link to this | Hansard source

I rise to make a few brief remarks about the Economic References Committee report on the performance of the Australian Securities and Investments Commission. Whilst I am not a permanent member of that committee, I did participate in that particular inquiry because of my role as the chair of the Parliamentary Joint Committee on Corporations and Financial Services, which has a legislative role to oversight ASIC and its work.

This report has hit the media, and people are aware of the case that was used as an example, Commonwealth Bank financial planning. I have spoken to many people in the community and the industry about the report and about the media coverage. One thing I would like to say up-front is that I recognise and want to put on the public record that there are many financial advisers, both in large vertically integrated companies and in small independent operations, who work ethically, who work hard and who work for the best interests of their clients. I think it is important to say that because it is always disappointing to see an entire group of people or an entire profession being mired by the actions of a few.

Whilst there a few who are the cause of the worst action—in the Commonwealth Bank and others; recently Macquarie Bank has been in the news—the report does highlight, from a governance perspective, the role of the regulator and, particularly in the larger organisations, the role of the board, the senior management, the supervisors and the remuneration structures that are put in place. All of those things combine to either encourage or allow certain cultures and behaviours within organisations.

The report had a large number of recommendations. One recommendation in particular that has affected my committee was that we take on an inquiry looking at raising professional standards in the education of financial advisers. We have done that. We have called for submissions and we are starting to receive submissions from people in the industry. That is important because, at the moment, after doing a very brief course, RG146, in under two weeks you can have a qualification that enables you to work in a sector where you are advising people on their life savings, which can run into the tens or hundreds of thousands of dollars or even millions of dollars. I think the ordinary person on the street would expect that somebody who is going to be advising you on those things would have a higher level of training, qualifications and experience if you are going to entrust your life savings to them. I am pleased in that regard to see that, in recent weeks, some of the large financial organisations have come out ahead of our inquiry and said they recognise that they need to professionalise and they are going to start setting some benchmarks and looking at tertiary qualifications as well as ongoing professional development for their members.

The inquiry will have an important job to do to try and coalesce the interests of people who are working in the small independent firms, people in the large integrated firms and people who work in the self-managed superannuation space to make sure that we find a common landing ground for how that would work—who regulates it? Is it going to be regulated by industry? Is it going to be regulated by ASIC? Who sets the standards? Who enforces those? Who oversees ongoing professional development? How do we grandfather people who in some cases have been working very successfully and very ethically in the industry for many years but do not have a tertiary qualification? How do we bring them in? There is a body of work to do and I look forward to that engagement.

I do want to make the point that the report has provided for my committee, for ASIC and for industry a wealth of information about things that can go wrong in the governance of an organisation and in the oversight of the regulator. One of the things that my committee is doing, which I will be working with ASIC to do, is going through that report and identifying—not just the recommendations, but looking at the submissions and looking at the discussion by the committee—all the various aspects of behaviour, of governance, of how the regulator oversees the industry, to see what it is that we can learn. What is it that we can adapt, change or improve so that we reduce the burden of regulation whilst, at the same time, improve the quality of the outcomes? For the consumer the quality of the outcomes that we are looking for is advice around their financial circumstances that is suitable for them, widely available, and affordable.

I know that the financial services inquiry is also looking at some of these areas and is even looking at things like the structures of the financial services sector and whether the existing structures are right. It is an area that is in considerable flux at the moment. As a government, we have a dual responsibility where we have to seek to change but not for change sake, because every change we make has a flowthrough cost for industry. Every time there is a change in regulation the impact for those in back of house to their systems, their training, their IT systems, their personnel, is huge and can cost, in some cases I am told, into the hundreds of thousands of dollars if not millions of dollars in terms of whole-of-system changes. We have to be very careful that the changes we make are needed and are targeted so that we achieve the outcome for the consumer without increasing regulation, without dampening competition and without putting unfair impost on the industry.

I would like to commend the secretariat of the committee who took evidence from a wide range of people both from the industry and from those who had been affected by poor financial advice. I would like to thank the officers from ASIC. ASIC comes in for a fair hiding at different times. The public expectations of what they should be doing in a whole range of areas—whether it be information, enforcement, auditing or investigations—are very high. Yet they are an organisation with a limited capacity. I have seen a willingness to increase their learning on how they respond to and how they react to, for example, whistleblowers and to things like enforcement and increased transparency. There is a range of people here who have contributed to what this report represents. It provides a good basis for ongoing development work by the parliament, by ASIC and by industry, all of which, I trust, will be to the benefit of the consumers in Australia who need this financial advice to plan and to provide for their future. I seek leave to continue my remarks.

Leave granted; debate adjourned.