Australian manufacturing, Switzerland, and the ‘Big Mac Index’

For the past 28 years, The Economist’s Big Mac Index has been offering a light-hearted but valid insight into purchasing-power parity.

The index released in June this year priced the Big Mac at US$4.81 in Australia. The same bun, meat patty and cheese creation costs 42 percent more in Switzerland.

So when Australia’s largest biotechnology manufacturer decided to build its $500 million plant in Switzerland, it was cause for alarm – and action. Switzerland shares Australia’s high labour costs and unfavourable exchange rates, but that did not deter CSL.

Australian manufacturing has lost over 100,000 jobs in the last six years and there’s no sign of this trend reversing or even slowing. CSL’s new Swiss plant will create 500 jobs – jobs that Australia desperately needs.

Local manufacturers have long called attention to higher productivity and more supportive governments in some other countries. In addition, we’re burdened by an unhelpful tax regime. There is a push for us to adopt a policy similar to the UK’s patent box system which reduces tax payable from profits derived from the commercialisation of qualifying intellectual property within Australia.

GlaxoSmithKline claims the UK’s tax changes encouraged it to build a new pharmaceutical plant in Britain and to bring many patents held overseas back into the UK. Patent applications filed by German businesses in Britain increased 27 percent in 2012, ahead of the introduction of the patent box.

There are companies like Cochlear and RODE Microphones who intend to retain their manufacturing operations in Australia. Cochlear needs highly specialised skills for low volume manufacture of their hearing implants and automation is not an option. RODE is using cutting-edge equipment and lights-out manufacturing to keep its production local.

Unfortunately, companies like RODE and Cochlear are becoming the exception rather than the norm. Worryingly, more and more Australian-developed patents are being sold overseas with the products manufactured offshore.

On finding about about CSL’s new Swiss plant on reader Ron posted this comment: “5 Australian employees get the ideas and 1000 Swiss get the jobs.”

Australia needs to get its house in order, or else the high price of Big Macs alone is not going to stop other companies venturing overseas.