Primarily due to adopting free-trade policies, Australia lost its manufacturing industry to countries, like China that at the time had much lower wages and far less onerous employment and workplace safety requirements and lower environmental standards to comply with. The question of whether that had been beneficial for Australia does not fall within the ambit of this topic.
The first question under this topic is, should we (Australia) re-establish a manufacturing industry? I surmise that most of us would say we should. Re-establishing a manufacturing industry would make us more resilient as a country – because it diversifies our sources of revenue, business opportunities and employment opportunities.
That answered, the second question for us is: What sort of manufacturing do we want to have? That’s more difficult to answer, so let’s consider the sort of manufacturing we don’t want. I surmise that most of us would agree that we don’t want high polluting manufacturing, nor manufacturing that could cause a lot of damage – for example, manufacturing that used big quantities of highly flammable liquids.
The next question for us to answer is: Do we want to re-establish manufacturing that we lost to offshore markets, such as garment manufacturing and the manufacture of vehicles? Unless there is a major change in their manufacturing, those businesses would still not be economically viable in Australia. This would mean government having to subsidise that manufacturing or government having to impose import tariffs on similar products. Both the subsidies and tariffs are a cost to the Australian people. In the former case, the subsidies, less of government tax collection would be available for allocation to education, health and other necessary public services. Our taxes should go to those activities that add the most value to our lives. Keeping unprofitable businesses afloat is not one of them. In the case of tariff protection, Australians would pay more for the product, money they could have invested or spent on other things to enrich their lives. Neither would be in our best interests – neither would increase our prosperity or well-being – so wouldn’t want to re-establish that manufacturing.
Another question is answer is, what sort of manufacturing would we want here in Australia? The simple answer is one that can stand on its own, is sustainable, and does not increase our risk of injury or death, does not harm our environment, and increases our average prosperity.
The more difficult question to answer is, how do we facilitate the establishment of such manufacturing operations here in Australia? What is it that we, as a country, can offer entrepreneurs and big businesses to persuade them to setup their manufacturing operation on our shores, rather than in other countries?
We lost a lot of manufacturing to countries with lower wages, less onerous OH&S compliance and less environmental compliance. With the rapid development of humanoid robotics, their advantage of lower wages, lower entitlements and poorer working conditions, disappears. Both will have access to humanoid robotics.
Both humanoid robotics and Ai require enormous amounts of power, so reliable energy will be a key factor and so will the cost of that energy. Australia has an abundance of coal and gas reserves for generating reliable power, but a large proportion of our population want to shut those industries – so we could not say our energy is reliable. Also, due to our governments wanting to encourage the development of so-called ‘renewable energy’, we require energy generators and big users to purchase ‘large scale generation certificates’, and ‘Australian Carbon Credit Units’. This adds to the cost of operating an energy dependent manufacturing business in Australia.
In doing the economic viability assessment of the venture, the analysts would also consider our tax regime – not just income tax but also CGT, GST, payroll, interest withholding tax, and thin capitalisation rules. Other countries offer a tax regime more favourable to companies.
Add to this the rampant corruption being reported in the press implicating the Victorian Labour Government and our having one of the world’s highest numbers of public servants relative to population size and consequential bureaucracy and ‘red tape’. The result does not bode well for the case of justifying a large investment in an energy hungry manufacturing business in Australia.
We should also consider why it is that it is not economically feasible to produce steel in Australia, given that we export our iron ore for it to be converted into steel through energy produced by burning coal and gas we have also exported. The cost of power from coal and gas should be the same as that for an Australian steel producer and so should the cost of iron ore. Similarly, we mine and export uranium for generating cleaner and cheaper nuclear power. Given the future distances, the foreign steel producers should be paying more for shipping, but are they? Our labour costs are higher, but I would expect labour costs to be a minor component of the production costs. The cost of shipping around Australia is notoriously expensive – due to having to use Australian registered ships and Australian crew. It seems absurd that we ship our coal, gas, and uranium abroad to generate power to convert our iron ore, which we also send abroad, into steel and then import the steel we need.
Similarly, Australia is the world’s largest producer of bauxite, with about half of it exported. Most of the balance is converted to alumina and most of that is exported to produce aluminium. The production of aluminium is heavily energy dependent. Again, it is puzzling why we are not major aluminium producers.
A Classic Liberals Australia government will work with industry to understand what needs to be done to make steel and aluminium production economically viable businesses here in Australia. Subsidies, grants and tariffs will be off the table’, will not be considered. If the problem lies with ‘green-energy taxes’, these will be removed. Why – because the world’s climate won’t be saved by our coal and gas being burnt offshore rather than onshore. Surely that’s common sense.