Manufacturing the Budget

Budget

The Federal government said the Australian manufacturing industry will be allocated more than $1 billion in new investment.

Billy Friend takes a deeper look into this year’s federal budget and its implications for Australian manufacturing.

With the Australian Federal Election scheduled for this month, the Coalition Government’s Budget 2022-23 and the Labor Party’s Budget Reply 2022 have naturally been the subject of the usual scrutiny.

In wake of the COVID-19 pandemic and its attendant disruptions to international commerce and supply chains there has been much talk in the media of ideas such as “onshoring” crucial manufacturing capabilities. Developing “sovereign capability” in Australian manufacturing is of even greater concern when understood in the broader context of renewed global military and trade hostilities with great powers such as Russia and China, as well as ever-pressing concerns to boost Australia’s green manufacturing capabilities to tackle climate change.

To this end, Manufacturers’ Monthly examined the manufacturing-related commitments made by Treasurer Josh Frydenberg in the Budget 2022-23, as well as the alternative agenda put forth by Leader of the Opposition Anthony Albanese in his Budget Reply.

New manufacturing initiatives

Treasurer Frydenberg mapped out the government’s aims for growing a modern and resilient manufacturing industry in his Budget speech, delivered before Parliament in late March.

“COVID and events in Ukraine have been a powerful reminder that we must increase our self-reliance,” Mr Frydenberg said. “Australia has a world-class manufacturing sector. Tonight, we announce new funding to solve vulnerabilities in our supply chains.

“New funding to make Victoria the first place in the southern hemisphere to manufacture the mRNA vaccines. New funding to drive collaboration between our universities, CSIRO and industry to rapidly commercialise new technologies in clean energy, medical supplies, defence and other high priority areas. And a new patent box for agriculture and low-emissions technology sectors. This will see income from new patents developed in Australia taxed at almost half the rate that applies to large companies.”

According to the government, the Australian manufacturing industry will be allocated more than $1 billion in new investment, building on the already-existing Modern Manufacturing Strategy, with the stated intention of securing supply chains and jobs during a period of heightened global uncertainty. Furthermore, an additional $200 million in funding has been promised as part of the Regional Accelerator Program, to strengthen sovereign manufacturing capability.

$53.9 million is to be committed to the Manufacturing Modernisation Fund Round 3, to co-fund capital investments for small and medium manufacturers, and $4.7 million to support women in building careers in Australian manufacturing.

Additionally, the federal government stipulated that it would work with industry over the coming 12 months to finalise Manufacturing Investment Plans for each National Manufacturing Priority sector.

The National Manufacturing Priorities – announced in October 2020 – are to “turbo-charge Australian manufacturing” and “focus on areas of comparative advantage and strategic importance”.

The National Manufacturing Priorities are:

  1. Resources Technology & Critical Minerals Processing
  2. Food & Beverage
  3. Medical Products
  4. Recycling & Clean Energy
  5. Defence
  6. Space

The government says finalised plans for these priorities will help better guide further long-term investment in Australian manufacturing, with steps specific to each sector.

“Our Modern Manufacturing Strategy is already delivering and accelerating the transformation of Australian manufacturing, and now we want to further supercharge its job-creating power,” said Angus Taylor, Minister for Industry, Energy and Emissions Reduction.

Defence and national security

On the national security front, Mr Frydenberg drew attention to the imperative of shoring up Australia’s defence capabilities in view of an increasingly tense strategic environment.

“We have put in place a 10-year defence capability plan worth more than $270 billion,” he said. “Hobart Class Warfare Destroyers, built in South Australia, now in the water. Combat vehicles, maintained in Queensland, now in service. And F-35A Joint Strike Fighters with parts made in Western Sydney, now in the air. In this Budget, we continue to make record investments in our Navy, Army and Air Force.”

In his Budget speech, Mr Frydenberg said the government was building on this plan, announcing a new 10-year, $9.9 billion investment in Australia’s offensive and defensive cyber capabilities. “This is the biggest ever investment in Australia’s cyber preparedness.”

Energy and emissions reduction

In its efforts to have Australia reach Net Zero emissions by 2050, Mr Frydenberg stated that “technology, not taxes, will get us there.”

“Tonight, we make further investments in microgrids to support regional and remote communities that don’t otherwise have access to the grid with small-scale renewable energy projects like solar and wind,” he said. “A low-emissions future with reliable and affordable power is critical to our plan for a strong economy.”

Labor’s Budget reply

Opposition Leader Anthony Albanese delivered his Budget Reply speech before Parliament on 31 March.

As is usual for the out-of-government party, Mr Albanese’s speech focused on broad priorities and didn’t delve into precise numerical figures – the elaboration of which will be the responsibility of a new Labor Treasurer should the ALP win the election.

That said, Mr Albanese did flag the importance of making greater commitments to Australian manufacturing.

“We can revitalise Australian manufacturing – and power that manufacturing with Australian made renewable energy,” he said. “Exporting resources will always be important to Australia’s economy. But we should also use our resources – like our minerals and rare earths – to make products like batteries here, instead of just shipping them offshore and importing finished goods.”

Mr Albanese linked energy, emissions reduction, manufacturing, and infrastructure considerations together as key “pillars” upholding Labor’s “plan for growth and prosperity”, providing us insight into what to expect from an incoming Labor Government.

“Our Powering Australia plan to drive investment in cheap, renewable energy [will] create 604,000 new jobs by 2030, with five out of every six in the regions, and lower power bills for households and businesses alike,” he said.

“Our plans for a Future Made in Australia [will result in] making more things here, diversifying the economy and revitalising the regions,” Mr Albanese said. “Using our National Reconstruction Fund, we will work with businesses to help turn good ideas into good, secure jobs and new homegrown industries.”

He also noted Labor’s plans to invest in infrastructure, “because roads, rail, ports, and high-speed broadband are the building blocks of a stronger, more connected, more efficient economy.”

Meanwhile, on the Defence front, Mr Albanese didn’t commit to any special initiatives, outside stressing the necessity of more spending in this domain – owing to the international situation. “But that spending needs to lead somewhere,” he said. “It needs to actually improve technology and capabilities – and deliver them when they are needed.”

Industry response

After six years in the Industry Growth Centres program, the budget confirmed what the Advanced Manufacturing Grwoth Centre (AMGC) had factored in from the outset – the organisation will have to become self-sufficient with industry taking the lead.

Jens Goenneman, managing director said the confirmation provides AMGC with clarity and prupose, while it has some incredibly exciting projects under development as we shift into the next part of our life cycle.

“Included in the budget was support for a mRNA vaccine manufacturing plant in Victoria, enabling the entire country to better respond to future pandemics. This is good news. We can’t and we shouldn’t try to do everything ourselves. Therefore, we need to focus on the few right things and critical health capability is certainly one of them,” he said.

“We were also pleased to see $53.9 million for a third round of the Manufacturing Modernisation Fund since the last two rounds of the program were heavily oversubscribed – and why wouldn’t they be popular when you get dollars on top of gear you would have gotten anyway?

Now is a good opportunity to move away from purely spending on capital equipment with one dollar on top of every three dollars for a new machine. We advocate to tailor the Manufacturing Modernisation Fund to rather encourage investment along the entire manufacturing ‘smiley curve’ rather than focussing on its middle, lowest value adding element only.”

In a statement, CSIRO confirmed it will play a central role in the Government’s University Research Commercialisation Action Plan with $150 million to expand the CSIRO Innovation Fund, managed by Main Sequence, to accelerate the commercialisation of research and increase industry collaboration as part of Australia’s Economic Accelerator.

Innes Willox, Chief Executive of the national employer association Ai Group said the budget hosts a mix of measures focussed on building the longer-term strength of the economy.

“The measures to lift Industry and university collaboration and the support for small businesses investing in digitisation are important steps to drive Australia’s longer-term economic development,” he said. “The Budget unfortunately does not make headway into some of the structural barriers to further growth including taxation reform and the still disappointing levels of business investment. Hopefully this can be addressed in the lead up to the election.”

Dr. Kevin Otto, Professor in the Manufacturing and Industrial Engineering Group in the University of Melbourne’s department of mechanical engineering, said the budget takes steps to accelerate Australia’s Modern Manufacturing Strategy, despite the challenge of a lack of training and upskilling in Australian companies.

“In the long run, Australia must do more to reduce its dependence on global supply chains and our local manufacturing ecosystem where SMEs play a huge role, but share in only a small pool of funding,” he said. “There remains a lack of discussion on programs to foster highly technical competence within existing Australian companies. Education and skill development for manufacturing is critically important for the growth of Australian’s manufacturing. It needs to be addressed across all educational sectors.”