Can the Carbon Tax boost Australian Manufacturing?

There have been a lot of articles and public comment about the impact of the proposed Carbon Tax, on the Australian manufacturing industry, most of it from the belief that the impact will be negative.

It would be fair to say that, given that exact details of the proposed scheme are not known, the outcome of the proposed tax can only be theorised or used to increase fear in the general market. One thing that can be guaranteed is that, if the scheme is implemented incorrectly, it could cause a significant change in the balance of Australian manufacturing vs. the International market.

However many new opportunities could be created, and possibly provide long term benefits to Australian manufacturing. There could be in the potential to increase competitiveness by reducing the cost of freight on all locally produced goods, using locally produced raw materials. Our current regime of digging up raw materials and ship it offshore for refining and processing, then import the finished goods back, will be dramatically impacted with the price of fuel. If the government chooses to also implement a levy on goods exported/imported to and from countries which do not have a recognised carbon trading or taxation scheme, the playing field could be even further levelled. 

If we look at this a little closer, we can see that even though the cost of exporting goods would still be higher, it can still be more competitive than the current situation. For example: Iron ore as a raw material is shipped overseas. The Carbon tax will make this process more expensive to ship. The amount of raw material required is far greater than the amount of finished goods in the product of steel that will be imported back for our manufacturer. Once our manufacturer has taken this steel and turned it into a finished consumer product there is even less material to ship, however the value of the finished product is higher, and the amount of impact from the additional freight cost is less.

Locally refined and processed steel however could be made available at a more competitive rate, especially if a levy to balance the tax on the energy input for locally against countries who do not have an approved scheme in place. Australia is also well placed to develop far more efficient processes and equipment, using our relatively high level of expertise and knowledge. If an industrial power house like Germany can still remain a dominating force in the manufacturing field, despite having one of the highest labour costs and taxation rates, then Australia is surely able to grow and be incredibly successful in the manufacturing area as well.

Suddenly our nearest neighbours who currently take our manufacturing on the basis of labour costs, do not look anywhere near as attractive. Also the “green” marketing message for locally manufactured goods, from locally sourced materials becomes much stronger, and with the growing impact of gen X and gen Y consumers, this will be very important. Also it provides a “measurable” benefit which will allow the “accountant” run companies to justify investment in new machines and technologies. Currently the intangible benefits technology brings are difficult to measure so on paper alone projects get rejected, even though the engineering and production teams “know” the returns will come and often quicker than expected.

So a carbon tax scheme, might just be the shot in the arm Australian manufacturing needs. It all comes down to how the scheme in implemented, and looking at the opportunities created rather than focussing on the ones lost.

Ken McNabb is technical manager at CellTec.

Do you agree with Ken’s opinion that the carbon tax could benefit manufacturing? Comment below or on Twitter @manmonthly.

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