Senate debates
Wednesday, 9 February 2022
Committees
Economics References Committee; Report
6:52 pm
Kimberley Kitching (Victoria, Australian Labor Party, Deputy Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source
I move:
That the Senate take note of the report.
I'm pleased to have the opportunity to speak to the tabling of the Senate Economics References Committee's report into the Australian manufacturing industry. I want to thank my colleague Senator Chisholm, the chair of the committee, and the other members of the committee for the work that has gone into this report. I also want to thank Mr Mark Fitt, the committee secretary, and other members of the secretariat for the support they have given to the committee's work.
This is a timely report, as we are nearing the end of this parliament and the voters will soon have an opportunity to decide our country's course for the next three years. Among, I think, the many issues that will be before the voters will be industry policy; and, as the majority and minority reports that are now before the Senate make clear, the voters will have a choice because the policy approaches from the coalition and from the Labor opposition are different.
This report documents the sharp decline in Australia's manufacturing capacity over the last 30 years. As a share of the total economy, manufacturing has fallen from about 16 per cent in 1986 to seven per cent today. Over the past 20 years, employment in manufacturing has fallen by 100,000, while employment in the services sector has correspondingly risen. Australia has shifted from a manufacturing economy to a services economy. This seismic shift in the Australian economy has been the direct result of the economic reforms of the Hawke and Keating governments between 1983 and 1996, particularly the demolition of the tariff wall that had sheltered Australia's inefficient and non-competitive manufacturing industry since Federation. I don't make any apologies for those reforms. I'm glad of them and I'm glad of the consequences of them. Despite the cost to Australia in terms of manufacturing employment, the Hawke-Keating reforms have been of huge overall benefit to Australia. One of the reasons that we have had 30 years of almost uninterrupted growth and prosperity is that inflation has been held down by waves of very cheap consumer goods from Asian countries, which means that wage gains achieved through higher productivity have not been eroded by inflation as they were before 1983.
But we have to acknowledge that the world of 2022 is not the world of 1983. Under Deng Xiaoping and his successors, the People's Republic of China seemed to be heading towards becoming a genuine market economy, towards integration into the global rules-based trading system represented by the World Trade Organization and towards becoming a reliable and responsible trading partner for Australia. Instead, under President Xi Jinping, China has reverted to a state directed economy, in a quest for regional hegemony in both the economic and political spheres, and to a trade policy which rewards subservience to the Chinese Communist Party's agenda and punishes countries, such as Australia, which defy Beijing's diktats.
This development has exposed the perils of overreliance on a single trading partner, a single market for our exports and a single source of imported manufactured goods, particularly high-tech goods. We find ourselves dangerously exposed here. Remember, we haven't had enough PPE in the last couple of years. Indeed, Labor's trade and resources shadow minister, Madeleine King—who, may I say, would serve excellently in these roles in government—has called for a diversification of Australia's trade profile. She has argued, as have I, that we should be doing much more to engage with India and especially our neighbour to the north, Indonesia, which has a fast-growing middle class, as well as other regional ASEAN nations.
Our dilemma has further been cruelly exposed by the supply crisis brought on by the COVID pandemic, unfortunately now entering its third year. As I've said, we've faced successive shortages of masks, personal protective equipment, respirators, vaccines and, more recently, rapid antigen tests. It must be acknowledged that a contributory factor has been the difficulty in securing these products at a time of universal demand for them, not least in the source country.
We must face up to the fact that Australia's manufacturing policy settings are no longer fit for purpose. We cannot go on with an economy that relies on bulk exports of raw materials such as iron ore and coal to pay for a stream of manufactured goods from China and other Asian countries. No-one, certainly not I, is suggesting that we should return to the high-tariff regime of the decades before 1983. As the US under President Trump discovered to its cost, erecting tariff barriers just invites retaliation from trading partners, starting a trade war which finishes up harming both sides. But Australia does need to take serious measures to stimulate a revival of manufacturing in this country, both for reasons of national security and so that we are never again caught short by a supply crisis of essential manufactured goods as we have been over the past two years.
The Labor members of the Senate Economics References Committee have made a series of carefully considered and economically responsible recommendations which will, if implemented by an incoming Labor government, send our manufacturing industry policy in a new direction. They include measures to facilitate both public and private investment in manufacturing both for export and for the domestic market. They propose measures to increase the level of superannuation fund investment in manufacturing industries. They propose significant increases in support for research and development to improve and stimulate the development of self-sustaining manufacturing. Most importantly, they urge the revival of Australia's vocational education sector, particularly by ensuring that vocational courses in occupations with current or forecast skills shortages are accessible and affordable. Only by doing this can we restore the skills base needed both for a viable defence manufacturing sector and for high-tech medical and scientific production, which we obviously need much more of. Labor state governments, such as the Andrews government in my home state of Victoria, have begun this process by reviving the TAFE system after it was allowed to be run down so dangerously by previous governments, but I think this requires national leadership, and that must come from a Labor federal government.
I'd also like to note that Senator Patrick has supported the position taken by the Labor members of the committee. I would say that Senator Patrick has shown his usual good judgement. In his additional comments, aptly titled 'Stop just exporting rocks', Senator Patrick makes the point that, as important as the resources sector is to the wealth and prosperity of our nation, we cannot be content with just being a quarry.
No-one is suggesting that we should abandon our resources sector. A rush to do this would leave a huge revenue gap, not to mention the social devastation. Indeed, what would we replace this with in the short term? What services would need to be cut? What is clear, though, is that we need to couple this with more diversity in our economy. We rested on the economic windfalls that came in year after year in the lead-up to the GFC, and now we're behind the eight ball when it comes to diversification.
Part of the problem is that we lack complexity in our economy. We haven't invested enough in research and development or upstream value-added industries, and we heard quite a lot of this in the evidence on one of the hearing days. According to the Harvard Atlas of Economic Complexity, a index that measures the sophistication, diversity and opportunities of various nations, Australia ranks 86th in the world on the list, behind Iran, which is at 80, Albania, at 83, and Paraguay, at 85. While in many ways this is a simplistic measure, it does point to a problem. In contrast, Singapore, a country that has almost no natural resources and has to import both water and sand, ranks at No. 5 on the index. Since gaining independence in 1965, Singapore has invested heavily in research and development to become a world leader in numerous industries, notably in fintech and pharmaceuticals. There is no reason Australia cannot do something similar if we put our minds to it. Of course, we also have the great example of Israel. Ensuring Australians are better educated, better trained for work and reskilled has never been more important. If we don't do this, our economy is going to go backwards. We won't remain at 86; we'll be out of the Atlas of Economic Complexity. Productivity growth should be front and centre on our list of policy priorities.
From flight recorders to electronic pacemakers, Google Maps, penicillin, the bionic ear, plastic lenses, Gardasil, wi-fi and even the Hills hoist, Australian brains have provided countless inventions for the betterment of humanity. But we've stopped inventing things and making things, and these success stories belie the fact that today we have the same export profile as Uzbekistan. We all watched with horror as the former Treasurer, in the other place, goaded the local car industry to leave Australia. That was unacceptable and unforgivable. The men and women who worked in this industry and their families and loved ones have not forgotten.
When it comes to manufacturing in this country, we must have reformers and thinkers. There is a dissenting report, which I presume Senator Scarr will speak to. But there was a lot of interest, I think, from all committee members.
7:03 pm
Paul Scarr (Queensland, Liberal Party) Share this | Link to this | Hansard source
[by video link] At the outset, I would like to recognise the outstanding contribution which Senator Kitching made to this inquiry, and I commend her for that. I echo her sentiments with respect to the outstanding job which the secretariat undertook in preparing this report. For those who are interested in looking at it sometime, it is a good compendium of different views on the future of manufacturing in our country.
So where do we agree? In the first instance, we certainly agree about the importance of manufacturing to our country. I am far more optimistic than Senator Kitching and the members responsible for the majority report about the current status and the projections for our manufacturing industry. All the evidence suggests that the federal government's Modern Manufacturing Strategy has actually been successful in supporting critical parts of our manufacturing industry and addressing some of the concerns which Senator Kitching referred to. We are also on the same page with respect to the importance of research and development and also vocational educational training. Again I would say to the Senate that there are many, many initiatives, which have been extraordinarily successful, to promote both of those areas in a targeted and proportionate way.
It is at that point that our views diverge. Whereas the majority report members—the Labor Party and Senator Patrick—believe in an increasingly government driven, interventionist approach to promoting manufacturing, Senator Bragg and I, being the dissenting members, believe that the far better approach is one which is targeted and proportionate in this respect.
I want to touch on three areas which caused us substantial concern and led us to write such a strongly worded dissenting report. The first is the centrepiece of the majority report, which is the establishment of what can only be called a mega manufacturing industry fund. A $15 billion manufacturing industry fund is the centrepiece of the majority report. In relation to the reasoning which supports this key recommendation of the majority report, can I just say that the reasoning in the majority report is inconsistent. In paragraph 5.2 of the majority report it is stated:
The opportunity exists for Government to establish a framework for manufacturing without running the risk—
without running the risk—
of favouring specific sectors or business models.
Yet then, at paragraph 6.9 of the majority report, it is stated:
The committee supports a range of incentives and stimulus measures including the provision of equity, co-investment, direct government investment, and facilitating private sector investment, including by superannuation funds—
Hence there's a gross inconsistency that goes to the heart of this key recommendation from the majority report.
The reasoning then culminates in key recommendation 2, which provides:
The committee recommends that the Australian Government establish a Manufacturing Industry Fund to provide a range of co-investment incentives to the manufacturing industry in conjunction with the private sector.
Mr Acting Deputy President, I say: instead of looking to subsidise private sector enterprises, look at the barriers to investment, growth and job creation and address those barriers instead of taking money out of the hands of Australian taxpayers through a government siphon provided to the private sector.
There is a material issue going to the heart of this majority report, and I ask those Labor senators who are supporting this initiative with respect to this mega manufacturing fund: why can't the particular venture attract equity investment or debt support? Why does it need government support? If the private sector will not invest its equity in a venture, nor will commercial lenders advance sufficient debt funds, why should the government risk taxpayers' money? In our view, the focus should be on government policies which drive productivity and remove barriers to private sector investment.
The second concern I want to raise in relation to the majority report goes to superannuation funds and the role of superannuation in our economy. In recommendation 3, the majority report refers to the establishment of:
… a Superannuation Task Force to explore, develop and recommend structural changes and possible incentives-based programs and regulations to increase the level of Australian superannuation fund investment in Australian manufacturing industries, particularly those with an export focus.
Senator Bragg and I strongly disagree with this recommendation. Superannuation funds should make investments in the best financial interests of the Australians who own those funds. The purpose of superannuation is to provide for the retirement of the Australians who work to earn those superannuation funds, not to support some collateral purpose, however well intentioned. Any initiative which does not recognise this fundamental principle should be rejected. Government should not use superannuation funds as a potential pool of capital to be mobilised to achieve government policy objectives, however well intentioned. The proposed task force and what it might lead to in practice is scant on detail. Phrases such as 'structural changes' and 'possible incentives based programs and regulations' are cause for substantial concern. At best, they may result in the distortion of decision-making processes to try to achieve a public policy aim which is collateral to the purpose of superannuation. At worst, they could drive, or mandate by regulation, investments which may not be in the best financial interests of members who own the superannuation. It is their superannuation, not the government's.
The third area of concern is in relation to a number of recommendations relating to industrial relations matters. Whilst most of the language is vague and general in nature, it is cause for substantial concern that it signals an intention for a far more centralised and interventionist industrial relations approach. If I can give one example: there is a proposal here that the Australian Building Code 2016 be reviewed. That building code is absolutely essential to underpinning the rights of Australian construction workers, subcontractors and small businesses to freedom of association on Australia's construction worksites. It is a source of great concern to Senator Bragg and me that the Australian Building Code 2016 is being proposed for review. We are extremely concerned that that signals that a future Labor government would be concerned with removing some of the protections against those members of, in particular, the construction division of the CFMMEU who have not conducted themselves in accordance with Australia's industrial relations laws. That causes Senator Bragg and me a great deal of concern. I seek leave to continue my remarks later.
Leave granted; debate adjourned.
7:11 pm
Jordon Steele-John (WA, Australian Greens) Share this | Link to this | Hansard source
I move:
That the Senate take note of the report.
Having heard firsthand the experiences of the victims of the collapse of Sterling Income Trust, I want to acknowledge that the situation that has unfolded should not have been allowed to happen. Retirees involved in the scheme sold their homes to free up funds and then move into rental properties managed by Sterling First. They expected to stay there comfortably for the rest of their lives. Instead, the victims of Sterling First were ripped off. Some were left without their savings or, indeed, homeless. Instead of years building community and enjoying their retirements, these older people have spent years lobbying, campaigning and trying to get justice for their circumstances, left behind and falling through the gaps within the law. People with a track record such as those behind Sterling First should not be able to sell financial products, and regulators such as ASIC should have intervened earlier to stop what was happening to avoid people being ripped off.
I am pleased to read that the report includes recommendations such as:
The committee recommends that the Australian Government take all necessary action to support investors in the Sterling Group of companies, including those who invested in the Sterling Income Trust and Silverlink Preference Shares, being able to access the Compensation Scheme of Last Resort.
and:
The committee recommends that the Australian Government expand the scope of the Compensation Scheme of Last Resort to include managed investment schemes.
I hope these recommendations are picked up and actioned quickly so that those deeply impacted get justice and can get back to their retirement in peace and joy. I thank them for their active advocacy and their determination to ensure that their story was heard and that their representatives took notice of the injustice that was done to them.
7:14 pm
Louise Pratt (WA, Australian Labor Party, Shadow Assistant Minister for Manufacturing) Share this | Link to this | Hansard source
I also want to speak to this report. I was the instigator of this inquiry before the Senate. It is true there were devastating impacts on the victims of this financial collapse, and there was the absolute failure of ASIC and the government to take timely action to address these issues. Back in 2015, ASIC first had complaints about the Sterling Income Trust. Purportedly, it inquired into them. Then, in 2017, the state government had concerns about the scheme and referred the issue to ASIC in order to see it address those concerns.
The issue here is that we have an investment product that is both a retail investment, where people invest in a managed investment scheme, and at the same time a leasing arrangement. It was too good to be true, but no-one told these vulnerable consumers that that was the case. They were told by the proponents of this scheme that they would be able to pay their money upfront and get a lease arrangement that would last 40 years, and at the end of those 40 years—or upon their death—they would get all of their money back. They were told that this was ironclad and that their money was held in trust. We've already seen through determinations before AFCA that this company engaged in false and misleading conduct and that that has resulted in calls on the insurers of these companies to have those initial claims paid out. The issue now is that we know this company engaged in false and misleading conduct but we haven't seen adequate action taken by ASIC in that regard. It was very slow to act. We've been told that it might be looking at referrals to the Director of Public Prosecutions and the like, but, frankly, this is all too little, too late.
The product disclosure statements of these products were also false and misleading, and the 'buyer beware' approach of ASIC, where companies can say and do what they like and the regulator takes absolutely no accountability for what is said in a product disclosure statement, is part of what has seen these people lose their money. One of the product disclosure statements was withdrawn in around 2019 because ASIC asked for it to be withdrawn, because it was false and misleading. What did the company then go and do? It just put out more product disclosure statements with different variations which conned more people out of their money and into making this investment. It seems to me like all of the product disclosure statements attached to this company would, if ASIC had looked closely enough, have been found to be false and misleading.
When ASIC visited the residents who were renting homes through this scheme, it did not disclose to them that there were problems with the scheme, and the people who were in those homes were none the wiser. They didn't know that their money was on the verge of being lost and that, frankly, the company had already spent most of it, even though they had been told that it was held in trust. They had no expectation to complain at the time, because they did not have the insight and oversight as to how those investments were performing, but ASIC refused to look and to intervene before the company collapsed.
The state department responsible for consumer protection, DMIRS, referred the issue to the Commonwealth back in 2017. There were legal tenancies in place, but they acknowledged that the nature of an investment that overlooks a tenancy and the way it intersects is clearly an issue that federal and state governments need to look at together, which is exactly what our committee has recommended. It has recommended that this issue be reviewed. I endorse the recommendations. I am wholly horrified by what has happened to these victims of this financial collapse, and I wish I had longer to debate the issue tonight.
Andrew McLachlan (SA, Liberal Party) Share this | Link to this | Hansard source
We have hit the hard marker. The debate related to the Sterling Income Trust is in continuance. Senator Scarr, you will be able to make your contribution on the next occasion.