Budget Review 2020–21 Index

Liz Wakerly

The share of total employment attributable to manufacturing has been declining for a number of years, falling from a peak of 1.3 million (more than 25 per cent of total employment) in 1966–67.^[1] Australian Bureau of Statistics (ABS) data show that employment in the manufacturing sector declined from 916,000 (8.0 per cent of total employment) to 862,200 (6.9 per cent of total employment) between August 2013 and August 2020, while services sector employment increased from 8.9 million (78.1 per cent of total employment) to nearly 10.0 million (79.3 per cent of total employment) over the same period.

On the other hand, the COVID-19 pandemic has hit employment in the services sector particularly hard. ABS data show that, over the year to August 2020, manufacturing sector employment fell by 1.3 per cent or 11,600 workers, but employment in accommodation and food services fell by 15.5 per cent (141,700 workers) and employment in arts and recreation services fell by 14.6 per cent (36,300 workers).

The ABS Survey of Business Impacts of COVID-19 reported in April 2020 that 82 per cent of manufacturing businesses anticipated adverse effects (over the next two months) relating to a reduced demand for goods, 59 per cent expected adverse effects arising from supply chain uncertainty, and 65 per cent anticipated adverse effects relating to uncertain financial markets.

Following the impact of the COVID-19 pandemic on global value chains, governments are increasingly intervening to promote domestic manufacturing (see, for example, Eurofund, the Boston Consulting Group, the World Bank and the Economist). The World Economic Forum identified five key imperatives to ensure the long-term success of manufacturing and supply systems, namely:

• rapid tailoring of manufacturing and supply systems to changing consumer behaviour
• agile manufacturing and supply system set-ups enabled by advanced technology
• logistics coordination across and within global value chains
• adoption of new ways of working and governing to increase manufacturing resilience and
• shared responsibility and collaboration among companies and authorities to address social and environmental challenges.

The National COVID-19 Coordination Commission (NCCC) Manufacturing Taskforce (the Taskforce) pointed to a drop in domestic demand, an increase in the number of unemployed (by nearly 29 per cent over the year to August 2020), supply chain uncertainty, decreased demand for Australian exports, rising trade protectionism, stalling international labour flows and growing digitisation as background to its interim report findings.

The Taskforce’s Interim Report (NCCC Interim Report) called for a longer term focus on creating value from investments, the rigorous implementation and measurement of impact, and support with structural reforms, starting with worker skills. The Taskforce estimated that its proposed reforms could improve the resilience of the Australian economy through diversification and lead to more than 170,000 ‘well-paid direct jobs in energy-enabled industries’ if manufacturing industry grew by 10–20 per cent.

The Government’s Modern Manufacturing Strategy

In a speech to the National Press Club (NPC) announcing the Modern Manufacturing Strategy, (MMS) the Prime Minister stated:

The objective is to build scale and capture income in high-value areas of manufacturing where Australia either has established competitive strength or emerging priorities.

The Government will provide around $1.5 billion over five years from 2020–21 to support the MMS, focusing on six national manufacturing priority areas with a perceived advantage or strategic priority: resources technology and critical minerals processing; food and beverages; medical products; recycling and clean energy; defence; and space. These sectors largely reflect those identified as ‘areas of competitive advantage’ in the May 2020 NCCC Interim Report. Table 1 shows planned expenditure over the next four years.

Table 1: Modern Manufacturing Strategy

Source: Australian Government, Budget measures: budget paper no. 2: 2020–21, p. 120.

Funding is allocated as follows:

• $1.3 billion over five years from 2020–21 to establish the Modern Manufacturing Initiative, which will provide co-funding for large manufacturing projects that have broad sectoral benefits across the National Manufacturing Priorities. According to the Prime Minister’s NPC address, the focus will be on:
  • building long-term business collaboration of around $80 million per project to foster large-scale production or research and development facilities involving consortia of businesses (expressions of interest from late in the first half of 2021)
  • industry-led projects translating research into commercial outcomes with investments of around $4.0 million on average and
  • investments of around $4.0 million to help manufacturers integrate into local and international supply chains and markets (applications opening in first half of 2021)
• $107.2 million over four years from 2020–21 to identify and address critical vulnerabilities in domestic and international supply chains by providing manufacturers with support through the Supply Chain Resilience Initiative (support available from 1 July 2021). In his NPC address, the Prime Minister announced this initiative as a means to ‘guard against supply chain vulnerability for critical necessities and to secure us against future shocks’
• $52.8 million over three years from 2020–21 for Round 2 of the Manufacturing Modernisation Fund, which offers grants of $100,000 to $1.0 million to help businesses take on new employees and upskill workers, and co-funding for capital investment technology upgrades (open before the end of 2020)
• $30.0 million over two years from 2020–21 for the Advanced Manufacturing Growth Centre (AMGC)—one of six government-funded Growth Centres—the purpose of which is to ‘transform Australian Manufacturing to be more globally competitive and generate the demand for jobs’^[2] and
• $20.0 million in 2021–22 to industry Growth Centres, including the AMGC, Food Innovation Australia, METS Ignited and MTPConnect.

The MMS is part of the five-year $74.0 billion JobMaker Plan and is one of a number of measures—including the Research and Development Tax Incentive, a research package, investment in new energy technologies and a Digital Business Plan—designed to ‘support businesses to create jobs’.

Many of these proposed measures reflect concerns raised by the manufacturing sector. For example:

• in its submission to the Senate Select Committee on COVID-19, the South East Melbourne Manufacturers Alliance called for government support for research and development investment by manufacturers, ‘effective models for industry-university collaboration to take innovation through to commercialization with production retained in Australia’, a clear energy policy, and incentives for businesses to invest in advanced manufacturing technologies, ‘recognizing that most manufacturing employees in Australia are employed in SMEs’ and
• in the face of widespread disruption to world trade resulting from the COVID-19 pandemic, the Export Council of Australia called for a ‘clear geographic mapping’ of Global Supply Chains to see the linkages and understand where there are weaknesses (in a submission to the Joint Standing Committee on Foreign Affairs, Defence and Trade’s, inquiry into the implications of the COVID-19 pandemic for Australia’s foreign affairs, defence and trade).

Other manufacturing industry support

In other manufacturing industry support, the Government has committed to provide:

• $15.0 million in 2020–21 to support an upgrade of steel processing and galvanising capability in Whyalla, South Australia and
• $5.0 million in 2020–21 to establish an advanced manufacturing facility in South Australia to facilitate the manufacturing and assembly of electric vehicles, and for a bi-directional vehicle-to-grid trial in South Australia.

In August 2020, the Government announced a $1.0 billion investment package to boost Australia’s defence industry. Initiatives included ‘accelerating important ADF capability development projects, targeting key manufacturing, construction and high-tech sectors.’

In September 2020, the Government announced a simplification of the Export Market Development Grant program, from a scheme providing assistance (to small and medium sized businesses) through reimbursement after expenditure, to an upfront grant agreement.

[1]. Productivity Commission, Trends in Australian Manufacturing, Commission Research Paper, 2003. Employment in manufacturing temporarily accounted for 33 per cent of all employed persons in the mid-1940s, reflecting the war time manufacturing boom.

[2]. The Growth Centres (AMGC, AustCyber, Food Innovation Australia Ltd (food and agribusiness), MTPConnect (medical technologies and pharmaceuticals), METS Ignited (mining equipment, technology and services) and National Energy Resources Australia (oil, gas and energy) are not-for-profit organisations, led by boards of industry experts. Each has its own Sector Competitiveness Plan describing a ten-year strategy, identified regulatory reform opportunities and industry knowledge priorities such as skills and research requirements.

All online articles accessed October 2020

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