Federal budget overlooks manufacturers struggling from strong Australian dollar

 For business, the Federal Budget is annually a mix of wins and losses, and this year’s was no different. There were indeed some important benefits for industry, primarily in terms of investments in skills, training and infrastructure and the reduction in the company tax rate to 29%.  

We were pleased to see the establishment of a National Workforce and Productivity Agency, which will create a new framework for investment in skills based on a strengthened partnership between government and business. The creation of the new Agency was based on a proposal put to the Government by Ai Group.

However, for manufacturers around the country not linked in to the mining boom, the Budget was light-on in terms of programs and strategies to support industry under pressure from an Australian dollar that has recently reached as high as US$1.10.

Ai Group is keenly aware of the impact this is having on the Australian manufacturer – particularly those trying to survive in export and import-competing markets. Our Business Prospects in 2011 survey released in February found that only 7% of manufacturing CEOs believed that their exports could be competitive if the exchange rate exceeded parity with the US dollar – a reality they are now painfully confronting. Even fewer businesses considered they would still be able to compete against importers in local markets.

The dollar might help keep inflation down, but for those in industry it is fundamentally eroding our competitiveness. Over the past 10 years, the average OECD economy has lost 11% of its share of global goods and services, largely to China. For Australia, that figure is 32%. We need to move quickly to instigate some genuine productivity gains to offset that loss of competitiveness. 

It is in this area that the Budget fell short: little investment in innovation – and the Government is still persisting with the flawed R&D tax incentive bill that is before the senate; little support for business capability development; and continued disappointment for exporters hoping for appropriate levels of funding to be restored to the important Export Market Development Grant (EMDG) scheme.

Ai Group is determined to continue advocating the need for policies to support manufacturing and the need for Australia to preserve a balanced and diversified economy.  We are nearing completion of a major study of the manufacturing industry which will provide analysis of how the industry is performing and where it is heading and the basis for developing new proposals for government policy action in support of this important and high employment sector.

By the time the next Federal budget comes around, it’s likely the need to address imbalances in our economy will be even more stark. 

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