BUILDING A NEW FUTURE FOR AUSTRALIAN MANUFACTURING

Good morning, and thank you for the invitation to address your Industry Leaders Forum once again.

I wish to acknowledge the chair of the Australian Food and Grocery Council board, Mr Clive Stiff, the chief executive, Ms Tanya Barden, and board members.

When I spoke at this gathering two years ago, I talked about the dismantling of innovation and industry assistance programs established under the former Labor Government.

On this occasion I want to remind you of Labor’s approach to innovation and in particular, industry policy.

Our fundamental premise is that government has a critical role to play in working with industry to secure the future prosperity of our nation.

We will build national capabilities in Australian manufacturing by ensuring that our industries are able to work effectively with our scientists and researchers.

Developing those capabilities will allow us to adopt and adapt advanced technologies.

And that will assist us to enter and be competitive in new markets, international and domestic.

The approach that I take is that we don’t just have one shot in the locker. Our policy is not one size fits all.

We will work with firms of all sizes. We need to be able to ensure that both management and workers are able to participate effectively in improving our national economic performance.

Manufacturers have been united in telling us that there are two issues of paramount importance.

First, the cost and reliability of energy; and second, access to finance.

The politics of ensuring affordable and reliable supplies of gas and electricity in Australia have become toxic in Australia.

Many food manufacturers across the nation simply cannot secure new contracts for gas and electricity at reasonable prices.

For many of you, prices have doubled or trebled in the past year.

When big producers – who have bargaining power with the generators – are reporting that their energy costs will have risen by 93 per cent over the next two years, then smaller players are in desperate straits.

This is partly because gas producers have been allowed to export most of what we produce, so that domestic gas prices keep rising and force electricity prices up too.

That is a problem for any manufacturer, and for those who  also use gas as a feed stock, the problem is even worse.

Despite what is said by the gas producers, Australian gas can be bought more cheaply in Tokyo on the spot price than it can here, which is absurd considering that this country has the world’s largest gas reserves.

The particular problems caused by gas prices and availability have compounded the wider problem caused by the Government’s failure to develop a coherent energy policy.

We have to acknowledge that this is one the biggest national policy failures of the past generation.

The political system has simply not been able to develop a coherent, long term, bipartisan, stable environment that secures investment.

It is deeply disturbing that the government’s announcements this week have rejected overtures that would have produced the necessary bipartisan approach.

On electricity, the ACCC has made it clear that skyrocketing prices are a product of fundamental market failure.

The Government’s latest efforts put enormous faith in the capacity of the energy companies to do the right thing.

The industry has come to be dominated by vertically integrated oligopolies that to date have operated to protect the producers’ interests, not the national interest.

Rod Simms is right. This is a clear example of the failure of privatisation and deregulation.

On one reading, the Government’s new policy is an attempt to paper over their internal political divisions rather than meeting the national interest.

However, a more careful examination of the government’s proposals is required.

The Government’s latest effort has received a cautious reaction from business, a more lively response from the states and a hostile reaction from environmental groups.

It’s a missed opportunity brought about by political expedience.

The Government was planning to make this announcement in December, but it has been brought forward, before any modelling was undertaken, and before clear lines of communications had been developed.

It has been rushed out before proper consultation has been undertaken with the Opposition or the states. We now understand that detailed modelling will not be ready until November.

Heaven knows how the Liberal Party room was able to assess the principles underlying this package without the necessary information.

What’s particularly interesting, and I am not certain that the Government party room has understood this, the new measures have remarkable underlying similarities to the principles of the Electricity Intensity Scheme that were rejected last December.

That is, both the EIS and the National Energy Guarantee involve limitations on emissions. The EIS applies this mechanism by requiring generators to trade credits in an open market.

Under Mr Turnbull’s new model it is the retailers that are required to trade through contracts. Or to put it in another way, one model involves an open transparent market, the other is an over the counter transaction.

While the claims made on price and reliability remain modest, and don’t start for three years, without the modelling we cannot realistically assess how they are to be achieved.

In fact the Chairman of the Energy Security Board, Kerry Schott, told Lateline on Tuesday night that “no one could guarantee a reduction”.

And without that security, investment cannot be assured.

Finally my concern is that the electricity sector’s contribution to climate abatement is to be reduced under Mr Turnbull’s new initiatives.

This inevitably means that other sectors, where that abatement is likely to come at greater cost – like manufacturing – will be required to do more if we are to meet our international obligations.

But I repeat, the energy crisis is the worst public policy failure in recent years, and the Labor Party remains committed to finding a long term coherent solution. So we will look at these initiatives in a careful and considered manner.

As you know food and grocery processing is the biggest part of Australia’s manufacturing sector.

The industry has a yearly turnover of more than $127 billion and employs more than 320,000 people.

So that now, one in three manufacturing jobs is in your industry.

But the importance of the industry is not only a matter of its total size.

It is also about its geographic extension – more than 40 per cent of food manufacturers are located in rural and regional Australia.

That matters in a time when most of the new employment growth in Australia is in the CBDs and inner suburbs of the capital cities.

Access to finance is a major impediment for many manufacturers in this country.

Business groups have long complained that access to finance is the biggest obstacle to firms wanting to innovate.

The NSW Business Chamber, for example, has made this point by noting that “ABS data suggests that access to finance is the most common barrier to innovation for all businesses”

The Australian Industry Group has argued that “banks impose especially stringent lending criteria on the manufacturing sector.” Financial institutions are “responding to perceptions of higher risks facing the industrial sector, downgrading manufacturing industries and making access to finance more difficult and expensive for businesses across the entire sector, regardless of individual circumstances or risk”

That is why a Shorten Labor Government will establish the Australian Manufacturing Future Fund.

The Fund is a $1 billion investment in Australian jobs and in Australia’s future in advanced manufacturing.

That is especially the case for manufacturers and for small and medium-sized enterprises.

The Australian Manufacturing Future Fund will help remove that barrier to innovation.

The model here is one that we already know works – the Clean Energy Finance Corporation, which we created when we were in office and which has been highly successful.

The new Fund would offer loan guarantees, concessional loans and equity investment.

It won’t make cash grants, or seek to replace private finance.

By investing in advanced manufacturing projects that face high barriers to obtaining finance, the Fund would lower the perceived risk in this type of project.

That would then make them more attractive to private lenders.

What sort of enterprises might benefit from finance obtained through the Fund?

Among the obvious contenders are food and grocery manufacturers with an eye on expanding markets in Asia.

The Manufacturing Fund will have an independent board, but will work closely with other government agencies like EFIC.

Firms that want to retool and introduce new equipment to process or package new products.

Firms embedded in communities where they are major employers.

Or perhaps, firms seeking to move into communities where they could become major employers.

Many of your members fit these descriptions, but many more businesses in the industry are not your members

I understand that your 150 members represent the larger manufacturers and the bulk of the industry, but there are over 30,000 businesses involved in food manufacture.

Bill Shorten and Labor have announced this fund because we want to build that future with you.

The Australian Industry Group, in welcoming this fund, made the point that such a fund should be adopted by all political parties.

Unfortunately the Government has declined this opportunity.

This is not our final word on the future of manufacturing.

When we were last in government we developed a 10-year innovation strategy – Powering Ideas – with a suite of measures to assist firms to become more competitive in this very challenging environment.

This is because we know that innovation is strongly related to the performance of firms across a range of indicators – profit growth, employment growth, and longevity.

Our strategy led to programs such as Enterprise Connect, to support for our science agencies such as CSIRO’s food division, to our Research and Development Tax Incentive, to innovation councils and supplier advocates, and to Government procurement policies, among other initiatives.

Again, we will have more to say on these questions in the future.

A key focus of our approach will be changing attitudes towards innovation.

Innovation report after innovation report has attested that only a minority of firms invest in themselves. That needs to change.

That’s why Bill Shorten has committed us to the goal of spending 3 per cent of GDP on research and development by 2030.

Unfortunately we are still waiting for the Government to respond to its review of the R&D tax incentive, handed down in April last year.

The ABS tells us that business expenditure on Research and Development has fallen by 19 percent in manufacturing since 2013. And the situation is only going to get worse given the government’s approach to the automotive industry.

When it comes to culture, we need to talk about the attitude towards access to markets.

Domestically the domination of Coles and Woolworths remains critical to food and grocery manufacturers in Australia.

Labor is committed to continue to work with you on this matter.  The work of the ACCC has had mixed results.

While the grocery code is an advance, there is no question that we need to keep up the pressure so we don’t see a resurgence of the anti-competitive practices that have been the scourge of this industry.

This is an area where we need to remain vigilant.

Finally, let me just say something about the importance of innovation politically.

At the last election innovation acquired a bad name. The inept way in which the term “innovation” was used repelled rather then attracted public support.

I agree with Senator Sinodinos’ observation that the government copped a “shellacking” at last year’s election because it couldn’t explain how the innovation agenda would benefit everyday Australians.

In fact, the Auditor General has issued a damning verdict on the government’s national innovation statement which is systematic of the chaotic way on which the government has been operating.

Senator Sinodinos was the fourth Minister in a little over 12 months.

Let me reiterate. We need to have an approach to modernisation of industry that is inclusive.

We cannot have a situation where the public and workers are alienated from new technologies and more effective industrial methods.

We need to be able to talk about the experience of opportunities for new investment in high-skill, high-wage jobs, rather than the threats of disruption and mass unemployment.

I am attracted to the approach taken in Germany, in looking at new approaches to innovation through developments like Industry 4.0.

Germany’s manufacturing sector is still large – 24 per cent of the economy, and the German Government expects it grow another six per cent by 2020.

And the Germans are confident that they can achieve this while also continuing to adopt new technologies, including robotics.

I believe we can do adopt the same approach to change here in Australia.

We can invest in advanced manufacturing techniques and the new smart factories. This is important not just in terms of economic performance. It is important for our social stability.

The reason why increasing numbers of people feel that the economy and the political system is not working for them is that they see jobs being lost and inequality increasing.

Industry policy provides us with an opportunity to demonstrate that hope and optimism is justified.  That prosperity can be properly shared.

And this is particularly important in our outer suburbs and regional cities where economic opportunities are being hollowed out.

We don’t have to keep shedding manufacturing jobs in the outer suburbs and in rural and regional Australia. That is why people turn away from mainstream political representation.

Industry policy is not just about economic prosperity: it is about the legitimacy of our democracy.

Thank you.


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