What does the budget mean for manufacturing?

Australian manufacturers might just have to hold their breaths to see whether the 2011-12 Federal budget released Tuesday night, will throw the manufacturing industry a much needed life line amidst a surging Australia dollar and patchy economic conditions.

Whether the budget will ease the pressures the local manufacturing industry experiencing will largely depend on the flow on effects of the government budgetary initiatives, including:

  • A$34.4 million “Buy Australian at Home and Abroad” package, which seeks to link local suppliers to the mining and resource industry major projects, and increase the level of involvement of Australian manufacturers in large resources projects;
  • A$3 billion Workforce Training and Participation package, which the manufacturing industry is said to be a primary beneficiary;
  • The establishment of a mentoring program to tackle the low apprentice completion rate; and
  • The staged increase in superannuation guarantee to 12% by 2020.

Cashing in on the resources boom: “Buy Australian at Home and Abroad” package

The introduction of the A$34.4 million Buy Australian at Home and Abroad package, which seeks to link local suppliers, and most importantly, manufacturers to the burgeoning opportunities in the resources sector, will provide a much needed boost for Australia’s struggling manufacturing industry and enable Australian manufactures to benefit from the resources boom.

The package is a response to complaints from Australian steel industry that local businesses were unable to compete with foreign firms, especially in the large liquefied natural gas projects being undertaken across Australia.

In a statement, Minister for Innovation, Industry, Science and Research, Senator Kim Carr said the aim of the program was to “embed Australian business in the resources sector supply chains”. It is estimated that there will be up to A$76 billion in investment in the mining industry in the coming year.

The Australian Industry Group has welcomed the Government’s move to increase the level of involvement of Australian manufacturers in large resources projects in its budget analysis as one which acknowledged “the structural pressures facing the manufacturing sector”.

The “Buy Australian at Home and Abroad" package includes:

  • A$12.4 million over four years to expand the Supplier Advocates Program to help manufacturers identify opportunities and enhance their competitiveness compared to foreign companies;
  • A$15.5 million over four years to expand the Enterprise Connect Program which is  designed to help small and medium businesses thrive. For small businesses in manufacturing, this will be able them tap into global supply chain networks through Enterprise Connect Centres.
  • An extra A$1million per year to fund the Industry Capability Network (ICN), where specialist advisers will work with the procurement teams of major projects; and
  • The establishment of a Resources Sector Supplier Advisory Forum made up of representatives from major resources companies, unions, manufacturers and resources technology services firms, which will champion Australian businesses in the resources sector.

Overall, manufacturing small businesses with expertise in the resource sectors will stand to gain from this initiative to promote Australian manufacturing involvement in the resources sector.

Fixing the skills shortage: Skills and training

Manufacturers are also likely to gain from the A$3 billion spend over six years as part of the Government’s Workforce Training and Participation package aimed at training and up-skilling Australia’s workforce and to improving apprentice graduate rates.

While funding is mostly headed to the education sector to deal with the challenges thrown up by the mining boom, a number of proposed training and skills initiatives is expected help counter the skills shortage currently being faced by the local manufacturing industry. Of particular interest is the new training programs which focuses on apprentices.

Australian Manufacturing and Workers Union (AMWU) has welcomed by the skills and training package stating that the funding will see up to 40,000 apprentices receive mentoring – a huge boost for Australia’s trade-based industries which has been failing to attract the younger workforce.

“Apprentices who are usually experiencing significant changes in their lives – working in their first jobs, moving away from home, buying their first vehicle and generally adjusting to adult life – are under a lot of pressure,”  said AMWU National Secretary Dave Oliver.

“Providing a mentor with experience in their industry has proved to make a difference in helping young people realise the benefits of completing their trade.”

The established of an apprentice mentoring program is also expected to help drive the average apprentice graduate rate of 30%, higher for engineering and ICT apprentices, up over the six year package period to counter Australia’s aging manufacturing workforce.

“The A$101 million mentoring program will significantly boost Australia’s skills base, and make a profound difference to the lives of tens of thousands of apprentices who will benefit from lifelong careers as fully qualified tradespeople, ” said Oliver.

“Higher completion rates will mean employers benefit from a greater return for the resources they put into training apprentices.”

The skills and training package includes:

  • A$558 million National Workforce Development Fund
  • A$200 million on improving apprentice completion rates including A$101million allocated to a national apprentice mentoring program to help up to 40,000 apprentices in traditional trades.
  • A$100m in developing competency-based progression of Australian Apprenticeships, which will see Industry Skills Councils and peak industry bodies partner with employers, training organisations and other key stakeholders to deliver 24 major partnerships targeted at industries facing skill shortages, including manufacturing.

 Jobs and wages: Superannuation guarantee

One area that has received mixed responses from Australian manufacturers is the staged increase in the superannuation guarantee, which will reach up to 12% of a worker’s pay by 2020. The major concern is the affect it will have on labour costs and the cost production across the manufacturing industry.

And with the current cost of labour already high, it’s unclear what the real affects of increased superannuation rates will have on the jobs and wages – whether it could lead to the further erosion in wages, or worst, the off-shoring of production as employers attempt to off-set the new wage costs for cheaper labour. The possibility of greater adoption of automation technology across the manufacturing industry is also a real possibility.

While the 2011 budget contains some firm measures, especially in relation to skills and training, budget commentary indicates that Australian manufactures will continue to struggle with high labour costs on a global scale, which is unlikely to alleviate rising costs of production.

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