Introduction
6.1
During the course of this inquiry the Senate Economics References Committee (the committee) has received evidence from a range of witnesses and examined a number of matters of concern. In the evidence presented to the committee, a number of common themes emerged that have implications for public sentiment regarding the strategic outlook, funding, and support of manufacturing in Australia.
6.2
In this chapter, the committee will comment on the most prominent themes raised during the committee's inquiry and make recommendations.
Stimulating research and development (R&D), commercialisation and investment
6.3
Australia's R&D performance has some bright spots but is generally not delivering on its full potential due to the lack of an integrated, national approach to R&D funding, insufficient levels of investment, policy shifts away from fundamental to applied research, insufficient emphasis on commercialisation, and Australia's structural challenges.
6.4
It is clear from the evidence that collaboration needs to be improved both domestically and with international partners to develop the innovation and scale necessary for Australia to realise the benefits from its R&D activities. These connections need to be built between federal and state governments, higher education institutions, research organisations, manufacturing businesses and organisations, investors, and skills and training organisations. This includes encouraging international collaboration, advanced manufacturing R&D, commercialisation, investment, and support for manufacturing modernisation to improve international competitiveness.
6.5
The committee is of the view that the government should consider improvements to funding and development incentives to build a more integrated, national approach to R&D through proven collaborative models.
6.6
Government support for R&D must be substantial to encourage sufficient innovation to bring about new developments. This includes providing support to fundamental basic research—detached from commercialisation considerations in order to foster innovation and ensure a pipeline of future development and commercialisation opportunities.
6.7
It is also vital that manufacturing incentives have longevity and stability to provide certainty to manufacturers and investors. Focussing incentives on key areas such as the national manufacturing priorities (NMPs) will have the greatest impact on building capacity and scale, however, the committee is of the view that incentives should also be available for truly innovative products which may be outside the current NMPs.
6.8
The committee has heard about the importance of advanced manufacturing to improving the complexity and productivity of Australian manufacturing and believes that there is more that can be done to identify opportunities and stimulate growth across this sector, including through improving business confidence.
6.9
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.
6.10
The committee recommends that the Australian Government consider the periodic review of R&D, commercialisation, and investment incentives and tax arrangements to ensure they facilitate the growth of Australia's manufacturing industry and investment including:
the range of activities covered by mechanisms like the R&D Tax Incentive (RDTI);
that the incentives and arrangements encourage the development of self-sustaining manufacturing ecosystems incorporating innovation, collaboration, commercialisation and investment, particularly in the advanced manufacturing sector;
with regard to the minimisation, as far as possible administrative overheads for participants, and the availability of support mechanisms for participants, in particular small and medium enterprises (SMEs);
the effectiveness of governance, implementation, and reporting; and
consideration of any further mechanisms that would improve R&D, commercialisation, and investment outcomes.
6.11
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.
6.12
The committee recommends that the Australian Government consider 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
6.13
The committee recommends that the Australian Government consider significant increases to manufacturing R&D and commercialisation support to improve international competitiveness and stimulate the development of self-sustaining manufacturing ecosystems through:
expanded investment in industry growth centres and cooperative research centres (CRCs) in alignment with the national priorities, and with view to improving collaboration between training institutions and industry, in particular;
the establishment of a Research Translation Fund to fund large projects which encourage R&D and the commercialisation of innovative products, processes, and services;
sponsoring the development of advice and resources for finance providers and investors by industry bodies, to improve understanding and reduce risk perceptions of the manufacturing industry, leading to greater investment;
the establishment of an expert working group, with industry representation, to support the design and implementation of the patent box scheme.
Skills and training
6.14
There are clearly serious deficiencies in Australia's skills and training—in particular in Australia's vocational education and training (VET) sector. These must be addressed as a matter of urgency with particular regard to improved collaboration between the skills and training sector and industry. Around 50 per cent of VET funding is provided by states and territories, so improvements to the sector will require a concerted joint effort across government, as well as in conjunction with private sector training organisations.
6.15
The committee heard that qualifications need to be modernised, that skills and training recognition needs to be more flexible and that the skills and training sector needs to be more responsive to the needs of industry, while ensuring that training participants are provided with a wide range of knowledge and skills. Schemes such as the Automatic Mutual Recognition of Occupational Registrations (AMR) scheme will improve recognition and occupational mobility but there is more that can be done.
6.16
The current levels of support provided to apprentices are inadequate to support them through their qualification and are insufficient to attract the new blood necessary to fill existing and forecast future skills shortages across a range of occupations. The committee believes that better support, in particular for key occupations in current or forecast demand, will attract more people to trades and improve completion rates. More can also be done to foster
industry-academia collaboration through greater use of industry placements and employer incentives for the employment of higher degree graduates.
6.17
The committee is of the opinion that these initiatives will result in more skilled workers and more successful employment outcomes—a win for manufacturing employers and a win for Australians.
6.18
The committee recommends that the Skills National Cabinet Reform Committee, in collaboration with relevant stakeholders, fast track reform of the VET sector nationally through the development and implementation of a national action plan. The plan should have regard to:
prioritising the agreement to and implementation of VET sector recommendations from the Review of the Australian Qualifications Framework;
improving skills and training quality and delivery, responsiveness and collaboration with industry;
addressing skills shortages; and
ensuring that VET courses, particularly in occupations with current or forecast skills shortages, are accessible and affordable.
6.19
The committee recommends that the Australian Government address manufacturing skills shortages by considering the following initiatives:
the creation of a minimum ratio of apprenticeships on all
directly-government-funded projects, in consultation with employers, industry and unions;
higher wages for apprentices to encourage the take up and completion of apprenticeships;
exploring the benefits of an employer wage subsidy to cover the first 18 months of costs associated with adult apprenticeships;
the provision of additional funding to higher education providers through the Research Training Program, to enable better support higher degree research students; and
collaboration with the university sector to encourage more industrial PhDs (inclusive of industry placements), including targeted additional assistance for employers engaging PhD interns and cadets.
Creating secure, well-paid employment
6.20
Employment is anticipated to grow with stimulation of the manufacturing industry, however there is more that can be done to improve wages and conditions through industrial relations reforms, including in relation to workforce diversity.
6.21
Long and complex supply chains coupled with lack of transparency and monitoring enable modern slavery. The committee is of the view that stronger anti-slavery provisions will help address slavery in supply chains, while improvements to wages, conditions and access by unions will improve conditions for workers engaged in Australia.
6.22
Manufacturing workers and their families will face skills, employment, economic and social challenges as Australia's economy decarbonises and communities reliant on employment in fossil fuel industries are required to diversify. The committee believes that this transition needs to be just and that it is vital for workers and their communities to have access to resources that enable them to develop new capabilities and sources of economic growth.
6.23
The committee recommends that the Fair Work Commission review industrial awards and the 2016 Building Code, with input from manufacturing industry groups, employers, and unions, to ensure fair wages and conditions for Australian workers, including:
that pay rates are fair and just, including for apprentices, trainees, cadets, and interns, and workers with varying qualifications and experience; and
mechanisms that promote cooperation between workplaces, employers and workers, including through the involvement of unions.
6.24
The committee recommends that the Human Rights Commission, in conjunction with other government agencies, manufacturing industry groups and employers, and unions, take steps to improve the diversity of workers in manufacturing industry through:
the establishment of an expert working group to deliver an action plan to improve diversity, including how targets can be linked to government funding initiatives, and supporting implementation advice; and
the implementation of any necessary industrial relations reforms.
Procurement
6.25
Chapter 5 provided a summary of testimony with regard to procurement policies both state and Federal governments could pursue. There is some evidence that although there has been some support provided in state based policies, a lack of clear, consistent national procurement policies is holding back Australian manufacturers.
6.26
The committee believes that a greater effort should be made by the Commonwealth Government to support Australian manufacturing through its own procurement policies.
6.27
That Government tenders preference bidders who have sustainable supply chains that maximise the use of local suppliers, manufacturers, and service providers and which are committed to developing the domestic manufacturing industry, and that are sustainable.
6.28
That the Commonwealth Procurement Rules (CPR) be reviewed for possible amendments that would support the development of Australia’s domestic manufacturing capabilities and employment/training opportunities, and that this review also includes an appraisal of the appropriateness of current exemptions from Subclause 4.7 of the CPR for goods and services listed in Appendix A of the CPR.
6.29
That both Federal and State Governments adopt procurement policies which maximise both domestic production and the provision of local jobs, and that the Commonwealth take on a more active role in facilitating national coordination in industry development, so as to ensure that multiple states are not all trying to replicate identical outcomes when a differentiated result which leverages each state’s existing strengths and assets may be more preferable.
6.30
In Chapter 5, the committee noted the restraints that international trade agreements can have on Australian Government procurement policies. Nonetheless, the committee also noted that a number of submitters argued that Australian government can support Australian manufacturing through active procurement policies without violating those international agreements.
6.31
Accordingly, the committee recommends that future trade agreements be made that undermine the potential for Australian Government procurement policies to legitimately support Australian manufacturing.
6.32
That all future trade deals negotiated by the Australian Government avoid the inclusion of provisions that would have the effect of restricting the Commonwealth’s procurement arrangements from any form of preference for the purpose of providing for the full, fair and reasonable participation of local enterprises, including manufacturing companies, in government contracts as outlined in Commonwealth, state and territory industry participation policies and successor programs and policies.
6.33
The Australian Government can also stimulate manufacturing activity and create jobs by lowering the current major project threshold amount from its current level of $500 million. This threshold will capture more projects, requiring them to have an Australian Industry Participation Plan, creating more opportunities for local businesses to bid for the supply of goods and services.
6.34
Furthermore, it can promote the development of a skilled workforce and address skills shortages through the use of mandatory minimum apprentice-tradespeople ratios on government-funded projects.
6.35
The committee recommends that the Australian Government amend the Australian Jobs Act 2013 to stimulate activity and create jobs through lowering the current major project threshold amount from $500 million.
6.36
The committee recommends that the Australian Government develop minimum ratios of apprentices to tradespeople, with mandatory use of these ratios on all directly-funded government projects.
Anti-dumping provisions
6.37
Challenges with Australia’s anti-dumping framework were identified in a number of submissions, hearings, and supplementary responses. Several arguments were made that the current system was not up to date with changes in other countries.
6.38
For example, in China, the government imposes variable Value-Added-Tax (VAT) rebates and export taxes on state owned enterprises, thereby distorting Chinese export prices. On the Australian end, a zero-profit calculation is used by the Anti-Dumping Commission to determine whether dumping is occurring, despite other jurisdictions such as the European Union (EU) using a 6 per cent margin to determine whether dumping is occurring.
6.39
The Australian Council of Trade Unions (ACTU) observed:
Australian manufacturers’ ability to address and remedy predatory imports through anti-dumping and countervailing measures has improved in the last decade. Despite this, the pace of reform has slowed dramatically with the last significant tranche of anti-dumping reforms occurring in 2015. Vigilance and continual refinement form is required to avoid circumvention of duties and to pre-empt or at least react to overseas exporters and unscrupulous importers’ adaptive behaviour in response to the levying of duties.
The ACTU support further reforms to the Anti-Dumping system which promote transparency of import data, the combatting of circumvention and the avoidance of Anti-Dumping duties, the use of benchmark labour costs in cost construction methodology when considering a "fair price" of exports" and adequate funding of the Anti-Dumping Commission.
6.40
The combination of these and other factors means that Australian industry is often forced to compete on an uneven playing field. In addition to these challenges, concerns have been raise that small and medium enterprises (SMEs) have insufficient access to anti-dumping systems.
Energy policy
6.41
The committee also discussed in reasonable detail Australian energy policy, particularly with regard to transitioning to renewable energy. The committee noted that Australia's plentiful supply of solar, wind, and hydro energy, the societal push to de-carbonise and the reducing costs of renewable energy are seen to be advantages for the manufacturing sector. It is also welcome that some sections previously hesitant to commit to zero emissions by 2050 have now done so.
6.42
While a transition to renewable energy is warranted, it is also expected that gas will continue to play an ongoing role, particularly with regards to the advanced manufacturing sector. Gas will remain a critical input for many manufacturers, separate to its utility as an energy source.
6.43
Accordingly, the committee makes the following recommendations:
6.44
That the Australian Government continue to support green hydrogen as a potential longer-term alternative to gas use in manufacturing.
6.45
Establish a CRC for Sustainable Manufacturing to operationalise hydrogen and to identify opportunities that would support the development of a green metals industry powered by clean energy.
6.46
That the Australian Government continues to recognise the importance of the supply and affordability of gas in the future of Australian manufacturing, including through greater cooperation between environmental departments at Commonwealth and State Levels on approvals.
Domestic electrical equipment testing capabilities
6.47
In Chapter 5, the committee made specific mention of the Lane Cove testing facility which was brought to the committee's attention through a joint submission by Ai Group and Engineers Australia.
6.48
The committee noted that the closure of Lane Cove facility would deprive Australia of a critical piece of infrastructure used by Australian electrical equipment manufacturers, hurting small and medium sized manufacturers who will, without Lane Cove, need to access international facilities. Accordingly, the committee recommends that this facility be maintained if necessary through the intervention of the Commonwealth Government.
6.49
That the Australian Government prioritise the need to maintain domestic electrical equipment testing capabilities, including if necessary, interventions to ensure the ongoing operation of the Lane Cove Testing Facility.
Pharmaceutical supply chains
6.50
Chapter 2 discussed supply chains and their disruption. A number of submitters were pharmaceutical and noted the importance of reliable supply chains – particularly during the 2020–22 pandemic.
6.51
The committee believes that it is vital that these supply chains be secured and strengthened and recommends establishing a working group with representatives from both employers and unions to examine policy options with the aim of achieving that result.
6.52
Establish a working group with representatives from both employers and unions to examine policy options to secure and strengthen domestic pharmaceutical supply chains.
Senator Anthony Chisholm
Chair
Labor Senator for Queensland