EDITOR’S OPINION: Baird government stabs local manufacturers in the back

Image: NSW government

Yesterday’s shocking announcement by the NSW Coalition government that a $2.3 billion contract for 500 intercity train carriages has been awarded to a multinational (mainly South Korean) consortium including UGL, Hyundai Rotem and Mitsubishi Electric Australia was met with a wave of outrage and derision across the state and Internet.

What is clear by the many comments is that the Baird government – the ideological soulmates of Prime Minister Malcolm Turnbull, who continually espouses the ‘jobs and growth’ mantra – has basically kicked its own party and the people of NSW in the guts with this odious and short-sighted announcement.

Trying to minimise the political damage, Andrew Constance, the state transport minister, claimed the winning bid offered a 25 per cent cost advantage.

“If I didn’t go with this winning bid you’d be criticising me the other way,” said Constance.

“Of course everyone is pro-Australian manufacturing and jobs but at the same time you’ve got to weigh it up, in terms of cost and in terms of technology.”

Really, minister?  What about the overall and long term benefits to the NSW economy? Is that not worth anything? What about areas with a proud history of heavy rail infrastructure manufacturing such as the Hunter Valley and the Illawarra, areas that up until very recently have been literally begging for these type of contracts?

As one of our readers, Les, pointed out overnight on the Manufacturers’ Monthly website: “Have they (Govt) not heard of the Local Multiplier Effect (LME). The term refers to how many times dollars are recirculated within a local economy before leaving through the purchase of an import. Famed economist John Maynard Keynes first coined the term “Local Multiplier Effect” in his 1936 book The General Theory of Employment, Interest and Money. Spending the extra 25 per cent on $2.3b would have delivered multiples of that to the NSW economy.”

Another one of our readers, Mick noted: “That 25 per cent saving you are talking about Mr. Minister could have easily return back to government in the form of income tax paid by the people employed to produce those carriages. One does not have to be a genius to understand basic economics.”

Exactly. It’s not just about the cost of the actual manufacture of the trains, it’s the overall benefits that work has to the entire NSW economy over an extended period of time. This kind of economic activity value adds to the whole state and, as such, is not to be judged as just a number on a Profit & Loss balance sheet.

According to the Australian Manufacturing Workers Union secretary, Tim Ayres, this decision is “a betrayal.”

Speaking to the Newcastle Herald yesterday, Ayres said that: “This is money that should have been invested in Australian workers and Australian communities,” he said.

“Mike Baird does not understand what these jobs mean to regional communities. Decision after decision shows that he is out of touch with the lives of the people of this state.”

“The Hunter Valley has the highest youth unemployment rate in the state, but instead of investing in apprenticeships for young people he is sending taxpayer money overseas.”

Going further, Newcastle MP Tim Crakanthorp said: “They [the government] are just turning their backs on manufacturing jobs in Newcastle and Hunter.

“We are losing the skills. Where are the apprentices, where will the skill uptake come from?”

For me this announcement also has a personal sting to it. Right after my family migrated to this country, my father’s first job was working as a fitter and turner for ComEng, helping to build the silver double-decker suburban trains that are still in service today. That job helped put food on our table and allowed us to buy a car, a house and helped us live a good life. That is precisely what local jobs equates to, a fact seemingly lost on the likes of Andrew Constance and his ilk in Macquarie Street.

Making this announcement even worse are recent reports from the US state of Pennsylvania, where a third of the 360 carriages built by Hyundai Rotem were temporarily removed from service due to a range of issues.

The reasoning behind the Baird government’s decision seems to be (if I’m reading between Andrew Constance’s lines correctly) that ‘jobs and growth’ is a great throwaway slogan but in reality, ‘what we only care about is saving money, that in effect really doesn’t belong to us and should be pumped back into the NSW economy instead of going overseas, but we’ll just ignore that small fact.’

In other words, for the hapless Andrew Constance and the rest of the economic neophytes in the NSW Baird Coalition government, ‘jobs and growth’ seems to actually infer jobs and growth in South Korea but not in NSW.

I hope that people of NSW and especially those that are in the manufacturing sector and in regional areas remember that at the next state election.

As another of our readers, Robert Day asked: “How will local manufacturing in Australia ever survive when the State and Federal Governments have no vision or commitment for secondary industry?”

Yes, how indeed!

19 thoughts on “EDITOR’S OPINION: Baird government stabs local manufacturers in the back

  1. If we spend the money in OZ the benefits are greater and now we owe 2.5 billion to someone else. I hope we selling more goods to cover the cost. In my mind stupid. Particular now as our export are falling.

  2. OK, so here is a question. Why was the local bid 25% more expensive in the first place? If we are such good engineers as I read about why will it cost so much more?

    1. Because Australian governments are so out of touch, they offer our Primary products to international buyers for many times less than to our own nationals. Australian Coal and Gas can be purchased internationally and returned to Australia for less than you can purchase them direct within Australia. The same goes for Australian Steel.
      And they call that a “Level Playing Field”.

      Someone is not on the level ! – Who could that be ?

      1. Australian manufacturers often use imported steel. Import pricing does drive the price of local produce anyway. I doubt it is the major driver of the overrun vs import

        1. Yes I am aware of dumping by foreign steel makers into Australia.
          However my point is that and Australian Toolmaker can purchase AUSTRALIAN made Tool steel internationally and ship it back to Australia, cheaper than they can purchase the same Australian steel within Australia ???

          Soon we will be able to bulk purchase Australian gas internationally and ship it back to Australia cheaper than we can purchase it in Australia.

          Where is the level playing field in these analogies ?

          1. Barry, I agree, the level playing field is a myth and always has been. An Australian group could have made the trains using imported raw materials

    2. I guess you could also ask why are your wages double of triple what it is in the other country? I don’t think its the engineering side that is the cost, I think its the higher manufacturing cost, higher wages, tax, much higher energy costs, etc. I am surprised that we were only 25% more expensive, its not enough to justify importing the trains.

      1. Rod, wages are higher without a doubt. From the bureau of statistics analysis of manufacturing cost structures in Australia it won’t bridge the gap but is part of it. Basic productivity issues (talk to suppliers to the Waratah trains built a few years ago) bedeviled the project driving up costs and delaying introduction. Management and design inadequacies drove, and still do, a lot of waste in many local manufacturers. The issue is a management one, plenty of other issues contribute but management is a huge driver.

          1. Graeme, it was. So the offshore players have made it clear the specs are frozen, are taking a risk and we will end up paying more anyway. I still do not see why a local had to offer a price that was 25% more.

  3. Ridiculous economic analysis by another State-Federal government that
    doesn’t understand the MAJOR objective of this era. – Maintaining OUR
    workforce in gainful employment that takes advantage of the Local
    Multiplier Effect.

    Deciding for a simple 25% cost saving is banal !

    Not only do we lose the LME, but now also add in the cost of the redundant workforce being dealt the Dole !

    Governments have been promoting “a Lean Workforce” and “more Industrial Innovation” for decades.

    How about we opt for some LEANER & MORE INNOVATIVE Government instead !

    Why not reduce the cost of Local Government through a Free Trade
    International Tender Process. – Maybe Korea could deliver us a 25%
    saving there ! Would Baird go for that ?

    No way. One rule for the rulers and …

    Barry

  4. The cost of compliance with Australian employment conditions, Annual leave, superannuation, Federal and state taxes etc probably make up most of the 25% difference.
    Short sighted politicians making long term decisions without getting the facts have killed manufacturing in our country.
    Get rid of these clowns..

  5. Virtually all politicians have no appreciation of the value of the manufacturing industry as they are so remote from the industry. In the UK they have now released what they have lost and are trying very hard to get some of its manufacturing industry back. Hopefully all Australian governments will soon realise the importance of the manufacturing industry before it reaches a point of no return!

  6. My friend has just returned from 2 weeks in Japan he said he was ashamed for Australia because we are so Backwards as we sell our soul to the highest bidder the rest of the world just loves us for doing that,

  7. I am disgusted with the Baird govt and the ineffective Turnbull federal govt which preaches innovation and agility to the business community
    How hard is it for the states and federal governments to align government purchasing of taxpayers money . Do you think the Baird govt gives a toss about taking thousands of people off the dole or the lost bucket loads of payg income tax, they don’t because it is the federal govt which benefits not the state
    The state misses out on collecting payroll tax and workcover workers comp premiums which is not insignificant
    When you add the total lost benefits to the country that is federal and state benefits for a poultry 25% initial cost saving, this decision is criminal
    Can we see some innovation in government purchasing policy??
    Australia is doomed and I feel for the 20% youth unemployed and under employed people
    Both Turnbull and Baird will be voted out in a landslide as they are both incompetent and lowering the Australian standards of living

  8. What a sad day it is when the only bidder prepared to manufacture in Australia was a foreign company with all local rail manufacturers offering fully imported trains

    Disgusting decision and the federal and state govt will receive the backlash at the polls

  9. wages in South Korea are as high as here ( almost)– a few less benefits, but still not a cheap location to manufacture–also this does not explain why Germany with its uber expensive workforce can beat Oz every time….the wages argument is a red herring– its all about their subsidies and creative accounting– and of course our own lazy pollies who believe the last bloke that screams loud enough…

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