Exorbitant cost of the Coalition’s renewed interest in manufacturing

Before the budget Scott Morrison announced through Michelle Grattan a $1.5 billion plan to boost manufacturing in six priority areas – resources technology and critical minerals processing, food and beverage, medical products, recycling and clean energy, defence and space. Not surprisingly there was no critical examination by the mainstream media.

Morrison  said that Australia needs ‘to keep making things’. It sounded promising!

But hang on. It was only three years ago that the Coalition Government deliberately shoved our large car manufacturing sector out the door.

The car manufacturing industry had an Effective Rate of Protection of 8% and employed 200,000 people. We were told by the Government that the void left in South Australia  would be filled by building the  French submarines in Adelaide. No it won’t! That project will create about 2,000 new jobs in SA and the Effective Rate of Protection for the submarines will be 300% – the highest rate of protection ever in Australia. Even in the days of high protection with the likes of Tom Playford and Jack McEwen, we never saw a rate of protection like this.

And I thought the Coalition believed in markets and free enterprise without government  protection.

Apart from the massive level of protection and the $80 billion-plus cost, the Coalition has yet to adequately explain how our security will be improved by building these conventional submarines to operate against Chinese nuclear submarines in the South China Sea. Even the US has reservations about our inserting 12 conventional submarines in the South China Sea. Projecting ourselves into that area against China is likely to make us less secure.

To compare the motor vehicle industry and the proposed new naval shipbuilding in SA,  see Jon Stanford in ‘Business welfare under the Coalition (1)’ and ‘Business welfare under the Coalition (2)’.

As Stanford noted: ‘Car manufacturing, the imminent loss of which may cost an estimated 200,000 jobs, has an effective rate of assistance (ERA) of less than 8%. The proposed submarine acquisition will require an ERA in excess of 300%. In return, according to the Defence Minister, the project will create “1,100 jobs in the shipbuilding process, potentially 750 jobs in the supply chain”. As a payoff for such a high ERA this is a very damp squib … The Australian Submarine Corporation in Adelaide has been consolidating three air warfare destroyers (AWDs) for the last 10 years. They have been plagued with cost and delivery overruns. Finance Minister Mathias Cormann has noted that “these ships are costing $3 billion a ship when equivalent ships from other parts of the world would have cost us $1 billion a ship”. Not only is the cost of the ships unacceptable, but they are already years late in delivery, leading to significant additional costs for the RAN.’

Neither the Business Council of Australia, the Australian Financial Review nor News Corporation in their political partisanship have raised a word of query or criticism of the 300% protection rate and the unacceptable strategic delays that are in prospect for the French submarines.  This is despite the persistent arguments about free markets and not picking winners. In fact, their arguments are invariably about protecting business and capital rather than allowing the market to work effectively.

Just imagine if a Labor Government had acted so foolishly! It sounds like a repeat of the National Broadband Network.

The best prospect for a renewal of our manufacturing industry is by substantially reducing the cost of production through renewable energy. Professor Ross Garnaut has described the major benefits that renewable energy offers for a revived manufacturing sector. The International Energy Agency has in the past few days told us that solar power is now ‘the cheapest electricity in history’. But the Morrison Government is committed to high cost and dirty coal and gas, not renewable energy.

So manufacturing is back in vogue with the $1.5 billion plan. Pity about car manufacturing and pity about the opportunities that renewable energy offers. Perhaps it was all about marketing!

And as usual the ALP is nowhere to be found!

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John Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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