Scott Morrison names six priority areas in $1.5 billion plan to boost manufacturing

The federal government is selecting six priority areas for support in a $1.5 billion manufacturing plan Scott Morrison will outline in a pre-budget address.

They are resources technology and critical minerals processing, food and beverage, medical products, recycling and clean energy, defence, and space.

The plan will also focus on building “supply chain resilience” after the COVID pandemic exposed the risks of not having enough capability to quickly produce large amounts of vital items such as personal protective equipment.

The funding will be provided over the budget’s forward estimates period.

In a Thursday speech to the National Press Club, released ahead of delivery, Scott Morrison says this budget “will be one of the most important since the end of the second world war”.

“This budget will be necessarily different in scale to those we have seen for generations. It will respond responsibly to the challenge of our time.

"The budget will confirm the strong plan we have to recover from the COVID-19 recession and to build our economy for the future.”

Morrison says Australia needs “to keep making things”. Manufacturing employs about 860,000 and before COVID generated more than $100 billion in value annually for the economy and more than $50 billion in exports.

“Our government is determined to set a ten-year time horizon where all parties – industry, workforce (including unions), governments at all levels, capital (including superannuation funds) and our scientific and research community – are pulling in the one direction,” Morrison says.

He says the government’s “practical strategy” has three elements: creating a business environment where manufacturers can be more competitive, aligning resources to build scale in areas of competitive strength, and securing sovereign capability in areas of national interest.

The policy involves considerable government intervention – picking winners in terms of sectors, and collaborating with them in planning.

A $1.3 billion “modern manufacturing initiative”, focused on the priority areas, will invest in projects to help manufacturers “scale up” and create jobs.

The government and industry will partner to develop industry-led roadmaps to identify growth opportunities, barriers to scale and what is needed along the value chain in each area.

These maps, to be prepared by April, will be guides for investment and actions by both government and industry.

They will set goals and performance indicators – in jobs, research and development, investment – for the following two, five and ten years.

The manufacturing plan is one of a series of policy initiatives the government is announcing in the run up to the budget.

Others have included deregulation of credit policy to stimulate lending, changes to insolvency provisions to cushion struggling businesses, measures to promote digitalisation, and policies on energy.

Morrison in his speech again strongly talks up the importance of gas for the economic recovery generally and the manufacturing sector in particular.

“If you’re not for gas, you’re not for jobs in our manufacturing and heavy industries,” he declares. “For many manufacturers, it is half the problem.”

The National Covid-19 Co-ordination Commission had advised that gas was 20-40% of many industries’ cost structures.

“Combined with higher electricity costs, the NCCC said that has moved many firms into a ‘doom loop’ where they are living ‘turnaround to turnaround’, making existential decisions at each point of the next major maintenance decision, rather than decisions to invest in technology and much-needed productivity improvements to remain competitive. This needs to change,” Morrisons says.

“That is why, as part of our gas-fired recovery plan, we have committed to resetting our east coast gas markets, unlocking gas supplies, establishing a new gas hub and improving our gas grid distribution systems.”

His speech comes as Santos’s $3.6 billion controversial Narrabri coal seam gas project has this week been given “phased approval” by the NSW Independent Planning Commission, with its development subject to it meeting a range of conditions.

Morrison says the government’s “modern manufacturing initiative” will provide a new investment vehicle to help overcome the barriers to scale. It will leverage co-investment with states and territories, industry and research institutions across three activities

• collaboration: investments of an average of $80 million each to foster long-term, large-scale production or R&D facilities involving consortia of businesses and other organisations, including physical clusters (such as at the Western Sydney Aerotropolis)

• translation: investments of about $4 million for industry-led projects translating research and commercialising new products

• integration: investments of about $4 million connecting local firms with export markets.

The national sovereignty part of the manufacturing plan has more than $107 million earmarked for “supply chain resilience”.

“We cannot ignore the obvious. The efficiency benefits of hyper-globalisation and highly fragmented supply chains can evaporate quickly in the event of a major global shock like the COVID-19 pandemic.

"It is only sensible that Australia consider more options to guard against supply chain vulnerability for critical necessities and to secure us against future shocks,” Morrison says.

Currently, a government review is being done of Australia’s supply chain vulnerabilities in the wake of the pandemic.

The resilience initiative “will support Australian manufacturers investing in capabilities to address areas of identified acute vulnerability domestically, and to ensure they are in a position to contribute to the supply chains of trusted partners and like-minded countries.

"Sovereign Manufacturing Capability Plans will be developed in key areas and a range of policy options will be considered including procurement and long-term contracting arrangements, as well as actions to promote better information sharing and collaboration between government and industry.”

But Morrison stresses this does not herald a return to protectionist policies.

He says Australia is complementing its actions to boost domestic sovereign capability through greater collaboration with like-minded countries.

The manufacturing policy also includes $52.8 million for the existing manufacturing modernisation fund which gives grants to support transformational technologies and processes.

In a Wednesday pre-budget speech Anthony Albanese renewed his calls for trains to be built locally.

“State governments will invest billions of dollars in new public transport projects over the next two decades, requiring hundreds of new rail carriages.

"We should build them here. We have the facilities in Maryborough, Ballarat, Bendigo, Newcastle and Perth. We also have the skills,” he said.

“What we need is a government prepared to back in Australian-made trains and Australian-based jobs.

"This is just one example of how the government should use its purchasing power to create good, secure jobs while strengthening our sovereign industrial and research capabilities.”