During the investment phase of the mining boom, resources of
capital and labour moved into the construction of mines, and the high exchange
rate meant that Australian exports were less competitive in overseas markets. Many
companies closed down or shifted production offshore.
Now that the investment phase of the boom is winding down, the
Australian economy will need to adjust. Other industries will need to take up
the slack in the economy to provide jobs and growth. However, there will not be
a simple reversal of the processes of the boom. The companies that provide
growth will not simply be the ones that were there before. To maintain high
standards of living it will be necessary to develop innovative, highly
productive, knowledge intensive industries.
The necessary adjustments will be assisted by macroeconomic
conditions including a lower Australian dollar, low wage growth and low
interest rates. However, as the Reserve Bank of Australia has observed, ‘non-mining
business investment has been subdued, although many of the conditions typically
associated with stronger investment are in place.’
Several commentators have pointed to the need for active
policy to stimulate the growth of new industries. Former Treasury Secretary Ken
Henry noted that the endowments on which we have to build include natural ones
and ones that previous generations have built. His list includes systems
supporting research and innovation, and other economic and social
infrastructure. He implies that the need to build on them creates a role for
The Business Council of Australia has called for a more
active industry policy, involving:
- ‘adopting a global mindset in
everything we do and coming to terms with what it means to operate in a truly
returning to a more thoughtful role
for government in facilitating and coordinating economic development and social
dramatically increasing our
competitiveness through innovation
growing those sectors of our
economy that can win on a global scale and make the greatest contribution to
lifting our national wealth.’
The Commonwealth Budget is regarded as the most important
economic statement of the year. So it is perhaps surprising that the word ‘industry’
did not occur in the Budget Speech.
There are few new budget measures in the Industry and
Science portfolio. All are savings measures, except for $13 million in
2016–17 for the Australian Nuclear Science and Technology Organisation’s
operation of the Australian Synchrotron, and payments to the automotive
industry, which are dealt with below.
In the 2014–15 Budget the Government established the
Entrepreneurs’ Infrastructure Programme to implement its new approach to
industry policy. Elements of the program are:
... the commercialisation of good ideas, job creation and
lifting the capability of small business, the provision of market and industry
information, and the facilitation of access to business management advice and
skills from experienced private sector providers and researchers.
The new approach involved funding of $484 million over five
years, but represented a net saving of around $360 million. In this Budget there is a
further reduction in funding for the Entrepreneurs’ Infrastructure Programme of
$23 million in 2014–15, and a $32 million reduction in funding in 2014–15 and
the two years following for the grants programs that were closing on 1 January
Budget Paper No. 2 shows an expense of $783 million
over five years for the Automotive Transformation Scheme. This is a reversal of
the reduction in funding to the industry which had been announced but not
passed by the Parliament. However, the description of the measure notes that
the Government does not expect most of this money to be spent, because of ‘decisions
taken by motor vehicle manufacturers’ (p. 126).
One of the central features of the Budget is the Growing Jobs
and Small Business package. None of the measures in
the package is in the Industry and Science portfolio. The package comprises:
tax measures, most importantly a reduction in the tax rate for
small businesses, which are dealt with in another article in Budget Review
workforce measures, mostly aimed at helping at-risk job seekers
into work, which are dealt with in another article in Budget Review 2015–16
$32.4 million over five years for the Australian Taxation Office,
the Australian Securities and Investments Commission and the Department of
Industry and Science to develop a single online portal to facilitate the
establishment of a new business and
$8 million for the Australian Securities and Investments
Commission to improve the regulatory environment for crowd sourced equity funding,
in part by making it easier for a business to become a public company.
The tax measures are not selective: they treat all small
businesses alike. This may be equitable, but it is not necessarily a good way
to encourage economic growth. The Productivity Commission in a recent report
notes that most small businesses are not innovative (and that larger businesses
tend to be more innovative). While the PC warns against directing assistance to
particular business models, technologies, sectors or locations,
it does suggest that:
... criteria based on desired outcomes (such as
technology transfer and spillovers) with matching private sector investment,
are less likely to distort incentives and behaviours, particularly in a rapidly
In this case the PC is referring to
establishing new businesses, but the general suggestion that assistance should
be directed to outcomes that benefit the economy, and should not distort
behaviours, is worth noting. In particular, the new accelerated depreciation
measure favours asset acquisition above, for example, purchasing advice on
improving management or developing export markets.
The economic theory underlying this approach to industry
policy appears to be that the economy will make its own adjustments. And
understandably there is a reluctance to ‘pick winners’. But there are some
features of the Australian economy and society, and some developments in the
rest of the world, which make it possible to identify policies with a good
chance of payoff. The Department of Industry and Science last year released two
reports, The Australian Industry Report and The Australian Innovation
System Report, which could be the basis for a strategic approach to developing
industries where Australia has a competitive advantage.
Some action has been taken under existing programs towards the establishment of
Industry Growth Centres for industries identified in the Australian Industry
Report, but the limited funding available for the five industries specified
($188 million, presumably over five years) suggested that they can at best be
Reserve Bank of Australia, Statement
on Monetary Policy, May 2015, p. 35.
K Henry, ‘Why
Australia needs a new economic reform narrative‘, Asia and the Pacific
Policy Society Policy Forum, September 2014.
Business Council of Australia (BCA), Actions
Needed to Build Australia’s Comparative Advantages, BCA media release,
28 July 2014.
J Hockey (Treasurer), Budget
Australian Government, Budget
measures: budget paper no. 2: 2014–15, 2014, p. 164.
The budget figures in this article have been taken from the
following document unless otherwise sourced: Australian Government, Budget
measures: budget paper no. 2: 2015–16.
Australian Government, Growing
jobs and small business, Budget 2015–16 overview paper, 2015.
K Swoboda, ‘Small business tax changes’, Budget
Review 2015–16, Research paper series, 2014–15, Parliamentary Library,
M Thomas, ‘Workforce
participation measures’, Budget Review 2015–16, Research paper
series, 2014–15, Parliamentary Library, Canberra, 2015.
Productivity Commission (PC), Business Set-Up,
Transfer and Closure—Draft Report, PC, May 2015.
Department of Industry, Australian
Industry Report, 2014; and Department of Industry, Australian
Innovation System Report 2014, 2014
Australian Government, Industry
Growth Centres, Australian Government Business website.
All online articles accessed May 2015.
For copyright reasons some linked items are only available to members of Parliament.
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