3.1
A strong manufacturing industry requires a number of elements to in order to create manufacturing ecosystems of sufficient scale to enable self-sufficiency and growth. This chapter discusses a range of attributes including:
innovative research and development;
the ability to commercialise and attract capital investment
an appropriately skilled and trained workforce;
employment opportunities; and
incentives to develop these capabilities.
Innovative research and development
3.2
Research and development (R&D) plays an important part in creating knowledge, understanding what develops technology, what gives it meaning, how it might be used, and stimulating innovation. The Productivity Commission (PC) points to three ways in which R&D benefits manufacturing:
when conducted within a company it provides a competitive advantage;
when undertaken by other manufacturers it provides a spill over effect and is gradually adopted across the sector; and
when invested in non-manufacturing sectors it can lower costs or improve the quality of manufacturing inputs.
3.3
The PC notes the value in government's role in setting policy and regulation which fosters innovation and encourages R&D where there is under-investment—particularly for fundamental or strategic research.
3.4
The committee heard that Australia has a strong R&D track record in particular areas, but that more could be done to develop its R&D capabilities. Witnesses put Australia's somewhat lack lustre performance down to factors such as; a fragmented approach to research funding, policy and funding shifts from fundamental to applied research, insufficient focus on collaboration and commercialisation, comparatively lower levels of international collaboration, specialisation at lower technological levels, and structural challenges associated with Australia's lack of scale and concentration of SMEs.
Collaborative research—challenges and opportunities
3.5
A range of witnesses, including the Advanced Manufacturing Growth Centre (AMGC) and Australian Academy of Technology and Engineering (ATSE), clearly identified the need for funding which boosts collaboration, including between industry and research bodies to build capability. Manufacturing on the Move (MotM) noted that of the 12 billion taxpayer dollars spent on research over the last decade or so, only the $230 million spent on cooperative research centres (CRCs) has required collaboration.
3.6
Manufacturing Australia (MA) discussed further the value of collaboration:
Incentivising collaboration with both academic and industry partners is key to achieving scale. Incentivising academic collaboration alone is less likely to lead to scale projects in manufacturing industries where Australia is likely to be a "technology taker" rather than a "first mover". In those instances, broadening the global awareness and engagement by Australian manufacturing firms is preferable, and helps to build understanding of global best practice that can be introduced in Australian supply chains.
3.7
Ai Group told the committee more traditional industry-university collaborations can be challenging, including because universities tend to overvalue intellectual property (IP), while industry focus bringing research to market, and the pace of research tends to be slower than that of business.
Cooperative Research Centres and other collaborative models
3.8
Industry abounds with different forms of research organisations, including Cooperative Research Centres (CRCs), companies and institutes, collaborative research organisations, innovation hubs, other research bodies such as universities, industry alumni and professionals, and service providers.
3.9
Australia's CRCs are one outstanding example of a collaboration model. Cooperative Research Australia (CRA) explained that CRCs are designed to be flexible, de-risk research investment and improve global competitiveness by building relationships and shifting whole sectors over a period of time, rather than focussing on individual organisations or single innovations. A crucial feature of CRCs is co-funding as it builds commitment to the venture and its success. CRA highlighted the value of supporting CRCs, in particular over the longer term, and their potential as 'the most tried and tested program in the Federal Government's innovation toolkit'. It suggests extension of the model given:
One of the things it [the CRC Program] does is provide a really clear framework for industry and research institutions to engage with one another … One of the lessons we can take from the CRC Program is the importance of a framework that helps those different organisations learn to work together and explore how they can work together.
3.10
The committee heard of the success of a range of other collaboration models, such as sector-specific research centres and oversight bodies, and their value to small and medium enterprises (SMEs), in particular, given the latter's potentially limited capability and/or capacity to access scientific and research expertise and specialised equipment, or to build extensive networks.
Patent and IP issues
3.11
Commercialisation partners recognise the importance of commercialising research, but IP arrangements remain a source of confusion and misunderstanding. Witnesses described the tension between industry—which may wish to protect IP for longer—and researchers who need to publish.
3.12
The CRA outlined the benefits of the CRC model in which IP arrangements are negotiated between the participants on a case-by-case basis, offering significant flexibility to suit both industry and other partners.
3.13
A range of changes to the IP regime were proposed including changes to copyright fair use provisions, the application of competition law, the strengthening of rules and compliance relating to IP with international partners, extensions to current IP protections to improve Australia's foreign investment competitiveness and amendments to address delayed income earning impacts and processing bottlenecks on manufacturers.
Investment and Commercialisation
3.14
While Australia has a strong reputation for R&D it 'does not perform as well in terms of commercialising its ideas and innovations and in terms of diffusion as other countries'. The Australian Council of Trade Unions (ACTU) suggests that Australia has failed to develop a culture of 'entrepreneurship and calculated risk-taking'. while MA emphasised the challenge of developing the business case for commercialisation of research in Australia.
3.15
However, for some manufacturers the experience has been different. Ms Arabia from the Australian Academy of Science (AAS) elaborated:
While Australia sometimes receives bad press for research commercialisation, the reality can be quite different. Australian scientists … have had remarkable success commercialising their discoveries, and they make excellent case studies for this.
3.16
Dr Marcus Zipper, Director of Manufacturing at the Commonwealth Scientific and Industrial Research Organisation (CSIRO) explained the value of their flexible model in commercialising R&D, with witnesses who have partnered with the CSIRO agreeing:
We work a lot with consortiums on different initiatives and through investing capital in these sorts of test beds, new ideas and new technologies with SMEs and governments. We do quite a bit of that … We have all the models. It has to be a flexible model, because every company or every organisation or instance is different.
3.17
In contrast, the Australian Industrial Transformation Institute (AITI) thinks that CSIRO's 'position with respect translation of research to production, together with that of other research organisations, is on the whole, very weak'.
3.18
Several witnesses discussed the importance of access to capital to commercialisation, with challenges varying from general capital availability, to the type and timing of availability, and perceived risks associated with manufacturing investment. The Advanced Manufacturing Growth Centre (AMGC) agreed that perceived risk is a factor, particularly for SMEs:
[manufacturers] … regularly report that banks are unwilling to lend to companies to fund growth or new equipment purchases because banks lack an understanding of what manufacturing looks like today and perceive it to be high risk. Manufacturers report … there is a 'valley of death' when it comes to finding the larger amounts of money required to grow their enterprises to commercialisation and meaningful scale.
3.19
The high representation of SMEs and lack of scale in the Australian economy also goes some way to explaining investment and commercialisation barriers. Witnesses raised the importance of maintaining key manufacturing sectors onshore in order to develop scale and manufacturing ecosystems to accelerate research translation:
In the wake of the closure of automotive manufacturing in Australia, because there are very few if any larger firms with which to coordinate production efforts, and thus no reason for firms to share knowledge, the result has been an erosion of the networked knowledge-sharing and commercial collaborations that previously sustained a vibrant manufacturing sector.
R&D and commercialisation reforms
3.20
Witnesses, including Dr Jens Goennemann from the AMGC, advocate for funding across the manufacturing lifecycle, with an emphasis on funding higher technology readiness levels (TRLs):
… if you look at the scale of technology readiness levels 1 to 9, where the money is being spent in Australia and where we run out of puff is blindingly obvious. It's undisputed … I'm not advocating against the basic research. It's very important for the problems which occur and need to be solved in 20 to 30 years. However, if we want to be a capable country with regard to manufacturing, we need to fund more in these areas.
3.21
Statistics provided by the AMGC show that Australia spends 60 per cent of its funding at TRL2. The AMGC argues that early research is being overfunded, at the expense of TRLs 4 to 8—the commercialisation 'valley of death'—and that continuing down this path will not result in commercialised products.
3.22
Collaboration and the development of manufacturing ecosystems emerged as key reform measures, particularly to assist SMEs. SEMMA and the Manufacturing Excellence Forum (Sunshine Coast) (MEF(SC)) provide successful working examples of collaboration models, with SEMMA explaining that its approach has enabled its members to act as consortiums and access opportunities that would not otherwise have been available to them as smaller manufacturers.
3.23
Ms Natalie Currey, General Manager Supply Chains at the Australasian Railway Association (ARA) explained the importance of a national, sectorial approach to manufacturing, as well as mechanisms to bring key partners together to work towards common goals. In this context, she expanded on the importance of the National Rail Action Plan in fostering a common direction, collaboration, national coordination of work, and standards harmonisation.
3.24
The ACTU recommends the establishment of a commission for Australian manufacturing as a Commonwealth statutory body with a mandate to support Australian manufacturing by establishing strategy and policy, facilitating collaboration, providing business support, and guiding skills and workforce development.
3.25
Ai Group and AMGC recommend the development of resources aimed at investors and finance providers to explain manufacturing's technological evolution and their role in commercialisation to 'help shift perceptions of manufacturing being high risk industry' and open up access to finance.
A skilled workforce
The need for a skilled workforce
3.26
The committee heard a range of evidence about the crucial role of Australia's manufacturing workforce, and heard that there is a lack of skilled workers to sustain the sector. This is attributed to an ageing workforce, difficulties attracting new workers, rapidly changing skill requirements, reductions in skills and training funding, and a decline in the ability of the skills and training sector to respond to industry needs or requirements.
3.27
Several submitters pointed to the loss of major manufacturing sectors—such as the automotive sector—as having significant impacts on the loss of the skills, diversity, and complexity necessary to drive innovation and productivity.
3.28
Some witnesses were concerned that failures to support ecosystems is putting Australia at risk of losing critical skills in manufacturing, particularly in pharmaceuticals. Mr Richard Glenk, Delegate from the United Workers Union commented:
…the greatest concern is that we're going to create a skills vacuum as we're going to lose so many capable people within the industry who are likely going to look elsewhere. There's a huge risk we'll never get these people back for the mRNA once all this comes on board, and it will be a very challenging time for Australia to move on and create their own sovereignty with their own pharmaceutical manufacturing.
3.29
Mr Amedeo (Harry) Fischer, Delegate, United Workers Union, also commented:
Western Australia has an issue because their industry will be decimated by Pfizer's removal. Victoria in particular has been a hub of pharmaceutical manufacturing for a long time. As we lose the critical mass we lose all the associated quality parts to that manufacturing process and, like we worked with Monash to produce the Rotarix into a BFS preparation, we then lose the relationships with the universities and the funding from the pharmaceuticals companies of the universities for studies into pharmaceuticals. So, this isn't just about the manufacturing.
3.30
Moreover, support for these ecosystems needs to happen quickly in order to retain the skills that already exist. Professor Hugh Bradlow, President, Australian Academy of Technology and Engineering, commented:
But it is a global race, as you point out. A lot of these new technologies are skill limited not resource limited, and we are competing with other countries for those key skills.
3.31
Mr Fischer continued:
If we wait two or three years, all these people with all their experience and all their validation simply won't be validated...
Realistically, it would take between 18 months and two years before someone could be trained up enough for them to be independent personnel, and that's still not particularly skilled. The point I was making with BFS technology was that I could foresee a future whereby BFS plays a larger and larger role in the manufacturing of pharmaceutical preparations, and, at a time when it is really important to have that capacity, we seem to be literally throwing it away…
…a lot of these people will simply not be there, they will not be available to work. Beyond the validation issue, they won't be there because they will have either found something else or they won't be in a position to attend the new site, if it's in a new location or what have you.
Identifying skill and training requirements
3.32
In July 2020 the Australian Government established the National Skills Commission to ensure that changing skill needs align with education and training, including through the provision of detailed labour market analysis, and identification of skill needs, with the latter potentially addressing the need for a skills audit raised by several witnesses.
3.33
Witnesses discussed the manufacturing industry's changing skills and training requirements, advising the committee that manufacturing increasingly requires a range of digital, science, technology, engineering, and mathematics (STEM) based skills.
3.34
ATSE emphasised the importance of STEM skills to manufacturing, supporting findings of the National Skills Commission which found that employment in STEM occupations has increased by 85 per cent since 2000 and is projected to grow a further 12.9 per cent by 2025:
… traditional manufacturing skills will no longer be applicable in this brave new future. We need a STEM-skilled workforce. The sorts of people who are going to be employed in manufacturing are going to need to have digital skills, data collection skills, analysis skills and a range of skills that come from high levels of STEM training.
3.35
The committee heard of the increasing demand for skills in sustainability, advanced maintenance and diagnostics, supply chains, procurement, as well as the demand for management and 'soft' skills such as leadership, workforce planning, creative and analytical thinking, complex problem solving and active learning skills, as well as attributes such as resilience, adaptability, and the ability to cultivate productive interpersonal relationships.
Qualifications framework
3.36
Industry representatives told the committee that reforms to curriculum design, qualifications, and skills recognition (including micro credentials), and the inclusion of industry and unions is vital. Training provided by the vocational education and training (VET) and university sectors needs to be better aligned with industry requirements and needs to produce a job-ready labour force. The ACTU expressed its frustration:
While experiences with the system vary, in terms of manufacturing qualifications the current system has proven to deliver primarily bureaucratic inaction … While government has made some moves towards reforming this system in the latter half of 2021, this reform has taken far too long to occur and has failed to involve industry stakeholders in reform design.
VET sector
3.37
Across all industries around 23 per cent of employers use the VET system to train apprentices. The PC noted that parts of the manufacturing industry are 'especially reliant' on workers with VET qualifications, including more than 40 percent of the construction, mining, and manufacturing workforces. As stressed by the ACTU:
The basis of many manufacturing-related skills is a trade-based apprenticeship. Whether in mechanical, electrical, fabrication or other fields, apprenticeship is the basic building block of skill formation. … The building block approach inherent in these classifications show the importance of the trade as the backbone of the skills required in manufacturing industry. Apprenticeships therefore remain a critical pathway into the manufacturing sector and the health of the sector is itself intrinsically linked to the integrity of the Australian apprenticeship system.
3.38
Enrolments across all manufacturing-related VET qualifications was 101,685 in 2020, a drop from 104,690 in 2019 and 114,430 in 2016. As of March 2021, there were 35,545 apprentices and trainees in training in the manufacturing
sector—an increase from 28,395 in March 2017.
Significant problems in the VET sector
3.39
However, evidence from a number of witnesses, indicate significant problems in the VET system. Commencement numbers have fallen since 2016, but are still relatively high, but dropout rates are also high, with around 50 per cent of apprenticeships completed and VET course completion below 50 per cent. The pandemic has not helped—increasing training contract suspensions and resulting in fewer new contract commencements.
3.40
Witnesses told the committee that the VET system is in trouble, with SEMMA stating, 'the TAFE [technical and further education] system is broken'.
3.41
The Construction and General Division of the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) estimates that since 2013 around $3 billion in federal funding has been cut from the VET
sector—almost half of the federal contribution. The PC confirmed the funding drop, finding that total real government funding for VET had fallen over the last 10 years, largely it says, 'due to reduced State and Territory spending'.
3.42
Witnesses linked drops in funding and increases in private sector participation to decreases in training quality, fewer training locations and gutted infrastructure, impacting apprentices and employers. The ACTU told the committee:
… many students do not receive the training they are paying for and where graduates are often not sufficiently skilled. Due to steady declines in funding, and the loss of students to private providers, TAFE is no longer the centrepiece of VET in many areas. TAFE campuses have been closed and much TAFE infrastructure has degraded. Thousands of qualified VET educators leave the sector each year—representing a significant loss of expertise.
3.43
The ACTU believes that the VET sector is 'critical' to manufacturing but that the decision to privatise delivery and allow 'the market' to provide has been unsuccessful:
The government has thus far failed to take any meaningful step towards addressing the issues of quality and quantity of VET graduates or the lack of industry leadership of the training package development system. Significant reforms of both the VET sector and the training package development system are needed to ensure that the manufacturing sector has access to the skilled workers it will need in future.
…
For-profit VET providers are failing to produce a skilled and adaptable workforce. The current return on public investment is unsatisfactory, if not illusory.
3.44
Despite evidence to the contrary, Mr Jonathan Coppel, Special Advisor to the PC told the committee that the VET system is generally working well.
3.45
This view is not universal, with Ms Rachel Livingston, Assistant Secretary, Industry Advice Branch at DESE advising the committee of employer disengagement with the VET system and witnesses raising concerns about the relevancy of courses to the skills required by industry, saying that 'the content of some of the programs is antiquated'.
3.46
A 2020 Review of the National Agreement for Skills and Workforce Development—an instrument which defines the framework for the VET system—found a number of areas for improvement in the VET system. The review made numerous recommendations, including in relation to improving alignment with industry needs, completions, and quality.
VET reforms
3.47
Ai Group, the CFMMEU, and the Centre for Future Work argue for reinvestment in the VET sector, while other witnesses call for the improvement in training quality and accessibility.
3.48
The ACTU thinks that a rebuild of the VET system is required to 'ensure coherence, certainty and confidence to delivery skilled manufacturing workers'. It advocates for a clearer purpose and direction for the VET system:
There is a lack of certainty in what the VET system is producing, increasing calls for flexibility and specialisation designed to meet the narrow interests of individual employers and training providers, rather than the broader interests of the 'industry', are blurring the scope of key production, traditional trade and technical vocations and students and employers have little chance of developing into the informed and demanding consumers our VET system desperately needs while the current levels of fragmentation and incoherence prevail … We must establish a clear and unambiguous purpose statement to guide our approach to reforming the skills and vocational education & training systems.
3.49
There were also calls for VET to address the needs for higher skilled jobs and further education and training, beyond the Certificate III level.
3.50
Stakeholders recognised that changes to the way skills and training are structured would need wider coordination and require changes to the way state-based training authorities recognise qualifications, changes to industrial awards to make provision for higher qualifications, and national tertiary policy and funding amendments in order to be successful.
3.51
The ACTU supports the creation of a coordinating Commission for Australian Manufacturing with specific responsibilities for skills analysis, workforce planning and development to guide improvements in occupational skills and workforce development.
More support needed for apprentices
3.52
Inquiry evidence pointed to a need for more government support for apprentices to improve completion rates. Surveys of apprentices completed by the Australian Manufacturing Workers' Union (AMWU) 'have consistently shown the apprentices are struggling financially due to increased costs', with the CFMMEU also calling for improvements.
3.53
Mr Coppel from the PC agreed that more can be done:
… better screening of prospective apprentices, better structuring of the support during that apprentice period and the wage received for an apprenticeship, as well as pathways into different occupations. These are all measures that can take the strengths of our education and training system and amplify them to bring in some of the groups that have less access, partly because of their age and partly because of these economic factors.
3.54
The CFMMEU believes that lack of enforceable ratios of apprentices to tradespeople has contributed to skills shortages and has undermined attempts to train young workers. Both the CFMMEU and the AMWU support a minimum ratio on all government-funded projects.
3.55
Adjustments are also required to the timing of employer incentives so that more support is provided at times when the risk of cancellation of apprenticeships is at its highest.
3.56
Ai Group reported that in their 2020 Skills survey, 80 per cent of respondents said they would take on higher apprentices, cadets, or interns in order to improve skill levels, however half of the respondents expressed the need government support to make this happen. This suggests that:
Tangible action here would be the take up by the Government of proposals such as the national cadetship proposal for VET [students] … the proposal suggests apprenticeship-style subsidies for employers to take on students at scale using existing system infrastructure.
Higher education sector
3.57
In their report Australian Sovereign Capability and Supply Chain Resilience, the AITI conclude that Australia has a strong university sector, but that it is showing signs of weakness due to funding linked to full fee-paying
students—many of whom are international—and significant reductions in revenue resulting in staff reductions of at least 17,300 in 2020, decreasing capacity.
3.58
Evidence from DESE showed that funding amounts for courses have decreased and that costs associated with running courses may be higher than the equivalent full-time student load (EFTSL) determined by some universities, with additional costs borne by students.
3.59
The Australian Sovereign Capability Alliance and other submitters recommended more effective university—industry collaborations to improve core capability and outcomes for industry, including improvements to the Research Training Program to cover employer and salary costs of PhD industry internships, with an industry-led focus and to encourage employment of recent PhD graduates.
3.60
The PC suggests that 'there are good reasons to expand the availability of income contingent loans', with Mr Coppel noting that mature-age workers in particular need assistance to enable 'life-long learning'.
3.61
Along the same lines, Project Iron Boomerang suggests a HECS-HELP-like loan arrangement to enable skills and training, while the Australian Steel Institute (ASI) recommends that the government provide more general financial support to enable workers to upskill.
Collaborative design and delivery
3.62
Skills and training delivery is increasingly being delivered through collaborative arrangements and employers through work-based learning arrangements—arguably because traditional delivery systems are failing. A range of witnesses described the importance of developing these alternative models to meet rapidly changing requirements and skills shortages, with wider reforms needed to address issues relating to curriculum design, qualifications flexibility, skills recognition and transferability, and the participation of industry and unions.
3.63
In keeping with the collaboration theme, witnesses support a cooperative and forward-thinking approach which enables co-design, virtual or physical industry training hubs—regional and metropolitan—to support rapid reskilling in specific locations and industries, work-based learning networks, virtual learning platforms, and the development of innovative educational institutions that combine vocational and higher education as needed.
3.64
A number of organisations expanded on the value of their own collaborative models—including CRCs and ARA's development of a National Rail Skills Hub—and their success in developing partnerships and training. The AFGC agrees that there are many training pathways:
I don't think there's just the one avenue. There is absolutely a role for strengthening VET programs. There is a role for something like an industry training centre and there's very much a role for on-the-job training and programs that can be provided in-house and with partnership agreements between industry and government on those sorts of programs.
3.65
However, the ACTU warns that the development of broader, transferrable capability and skills is vital—rather than just addressing immediate needs. It also highlights the importance of involving unions:
Over the period of time of this government, the unions have been progressively excluded from the bodies that are designed to advise government about how you align skills that are needed in the VET system with industry. That's a really big gap. You need, of course, to hear from business, but you also need to hear from the voice of worker representatives, because sometimes the approach to skills is driven only by short-term business needs.
3.66
Ai Group, the Centre for Future Work, the AFGC, the MEF(SC) and others recommend more flexible government funding for skills and training to cover a range of programs including short-form training, on-the-job training, or industry-led learning programs.
Manufacturing employment
3.67
While a skilled workforce is important, it is vital that skilled workers have secure jobs, meaningful work and appropriate wages and conditions.
Current employment environment
3.68
One of the key aspects of Australian manufacturing is that it supports good, secure jobs. Mr Steve Murphy, National Secretary of the AMWU stated:
I would just say that the jobs that we have throughout our manufacturing industry but particularly our energy industry are secure and well-paid jobs because workers have organised and have fought to deliver that job security, the wages and the conditions that they currently enjoy.
3.69
However, the committee heard that when these good secure jobs are lost, people tend to go into lower paid and less secure jobs. Mr Murphy continued:
We've seen jobs go offshore because our governments haven't been supporting Aussie made. We've seen apprenticeships drying up and young workers missing out on that opportunity to learn a trade in our industries. We've seen those good, secure jobs with the good wages and conditions vanish and be replaced by outsourced labour hire and permanent casual workers with no security and no stability.
3.70
The impact on workers is significant. Mr Murphy described the impact on workers when good, secure manufacturing jobs are lost:
…30 per cent of those workers go into decent jobs afterwards—there's generally something within the community they can go to—30 per cent go into low-paid secure work and 30 per cent never work again. That's one of the things that we want to avoid as our energy needs and our economy change all of the time. We want to be able to make sure that we've got a reliable, resilient manufacturing industry that pays those good wages and, of course, has those secure jobs that people can rely on.
3.71
At the same time the industry reports a shortage of skilled workers, especially those with in demand niche skills which are and transferrable to other industries such as construction, logistics, and engineering. The AMGC reports that manufacturers' 'biggest growth constraint is a shortage of suitable staff'. Skilled worker shortages been exacerbated by pandemic border controls, quarantines, and the halt of skilled migration.
3.72
A 2020 Ai Group survey found that technicians and trade workers are the most difficult roles to fill (including welders, boilermakers, mechanics, process workers), followed by managers, professionals, and sales workers. This is supported by the AFGC and the National Skills Commission:
There are pockets of shortages across most occupation groups. Generally, shortages are greatest among technicians and trades workers occupations, which includes electricians, carpenters, chefs, fitters and motor mechanics.
3.73
Witnesses described a variety of challenges to recruiting suitably skilled staff including the difficulties in attracting new workers to the manufacturing industry—despite 'long-term' stable, well-paid employment. An ageing workforce, facility closures, rapid technological change, and the transition to low emissions energy are also factors, requiring workers to reskill and redeploy.
3.74
The PC recommends financial measures support mature-age Australians needing to reskill and upskill. While SEMMA sees value in programs to transfer knowledge from experienced tradespeople in retirement or
semi-retirement to the next generation through mentoring or training.
3.75
Arrival suggests the creation of an energy transition authority to plan and oversee the reskilling, retraining, and redeployment of workers currently employed in fossil fuel industries to ensure a just transition for these workers and their communities.
3.76
Dr Jim Stanford from the Centre for Future Work does not support the view of a general labour shortage, but agrees that there are challenges getting workers with the right skills into suitable jobs:
We still have at least three million Australians who want to work more than they are, because they're unemployed or they're underemployed or they're not actively in the labour force. The idea that we're running out of workers is not true. But, certainly, part of the challenge is that we have to provide people with the right skills and put them in the right place to do the right jobs; that is certainly true.
Projected jobs growth
3.77
Research by the National Council for Vocational Education Research (NCVER) found that manufacturing will need to recruit almost 300,000 skilled workers by 2024 in order to meet demand, as shown in Figure 3.4.
3.78
Dr Stanford discussed the need for longer-term vision and consistency to build business confidence and subsequent jobs growth telling the committee that manufacturing 'supports better jobs, more stable jobs and potentially higher income jobs'.
Changing nature of manufacturing jobs
3.79
Dr Goennemann stated that overall manufacturing jobs are not contracting, but that the nature of jobs is changing as the sector transforms away from production to automation:
… production jobs are declining for two reasons. Number one, they are being replaced by automation robotics and the former workers are being upskilled to supervise and program these robotics. And the other, more central, reason is that these production jobs move up and down the value chain of manufacturing, hence we have more manufacturers in higher value and higher paying jobs in Australia than we are aware of. That is number one. Number two, with that in mind, is that we don't have the numeric decline of manufacturing; we have a transformation of manufacturing to better, higher paying and more resilient jobs.
3.80
Other witnesses agreed, highlighting that automation is making manufacturing more productive and competitive, and enabling workers to be redeployed away from dangerous and repetitive manual tasks to higher skilled and more highly paid roles. The OECD highlighted the potential benefits of this high-value manufacturing but warned but it may not result in significant employment growth:
Labour costs will overall be less important in these new products and production processes; hence curbing the need for offshoring of manufacturing activities to low labour cost regions. This would especially create growth opportunities for high technology manufacturing in developed economies; it is not sure however that this would directly result in large numbers of extra jobs given the small importance of labour (costs) in the total production process. Furthermore, given the high technology intensity, most of these jobs would be concentrated at the high skill end.
Employment reforms
Stimulating jobs
3.81
Witnesses want to see greater investment in manufacturing, through for example, government procurement and local content procurement rules, with more local jobs resulting from increased business opportunity, activity, and business confidence. Business confidence is an important factor with several witnesses explaining that loss of confidence—due to the rising cost of inputs, or the declining profits—has a direct effect impact on jobs.
3.82
One mechanism that may be used to develop this confidence is the Australian Jobs Act 2013 (AJA), which requires major projects with a total capital expenditure of $500 million or more to have an Australian Industry Participation Plan and provide opportunities for local businesses.
3.83
Both the ACTU and the AWU suggest that the threshold under the AJA be lowered to stimulate activity and create jobs, with the ACTU recommending that threshold levels should be around half the current $20 million to address the combined employment impact of smaller projects and procurements.
3.84
In order to help fill manufacturing vacancies the AMWU recommend that employers required to train young workers so that they are sufficiently skilled to take up employment opportunities.
Improving workforce diversity
3.85
Several witnesses told the committee of the need to improve diversity in manufacturing workplaces—particularly in STEM sectors. They submit that a more diverse and inclusive workforce—which includes women, people with a disability, First Nations people, people from a culturally and linguistically diverse background and other diverse people—will make the industry more attractive and create cultural, community and social benefits. The ACTU recommend reforms to enable the targeting of certain sectors of the workforce to improve diversity, with targets for key groups.
Industrial relations reforms
3.86
Multiple witnesses told the committee that they want to ensure appropriate wages and conditions for manufacturing workers through industrial relations reform, government policy and procurement measures, including for workers taking flexible, non-apprenticeship pathways into manufacturing. They want to see wages and conditions which take account of the social and community value of jobs:
… you should also be requiring in those tenders and contracts that it be ethical employment, that it's not simply any job that can then be outsourced to somebody else on a lower set of pay and conditions. You want direct employment, you want secure jobs where people get fair wages and conditions and you want an ethical approach to supply chains.
3.87
The ACTU and the CFMMEU argue for industrial relations law reform—in particular changes to the 2016 building code—to promote cooperation within and between workplaces, and between employers and workers. It wants workers to be given a 'real voice' in their workplaces, and the establishment of a system that recognises and values the rights of workers and unions 'as a necessary precondition to the success of businesses that rely on them'.
Incentives to develop manufacturing
3.88
Key Federal Government incentives for manufacturing are discussed here, with a fuller list in Appendix 3. This section discusses witness views on the effectiveness of key measures and potential alternatives.
3.89
The committee received a variety of evidence pointing to the importance of stable, long-term funding, particularly given long term lead times in manufacturing, as well as immediate, short-term funding and co-investment with government. STA said:
… one of the things that we've observed about schemes that tend to work very well in other countries is the idea of long-term stability in the policy framework—so setting up an investment vehicle, whether that's a mix of early-stage direct grants or grants and loans, but then ideally having a strongly stable policy framework. That's really important to foster industry confidence in investing, knowing that the scheme isn't going to be chopped and changed but that there'll be a long-term commitment to those schemes that can enable them to get on and prove the product up to commercialisation and manufacture.
Co-funding incentives
3.90
Witnesses also drew the committee's attention to the value of industry-led,
co-investment opportunities, with Dr Goennemann of the AMGC advising:
Australia is obsessed with grants—throwing money at something and hoping it sticks; usually it doesn't. But the difference when an initiative is industry led and a grant is co-invested … That is the magic difference between just a grant—fire and forget—and checking homework and making sure that the co-investment for the advanced manufacturing is happening.
Industry Growth Centres
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Industry growth centres appear to have made headway in stimulating networks and manufacturing ecosystems, with Complementary Medicines Australia (CMA) advising that further government support is needed for growth centres, such as MTPConnect, in order to further develop manufacturing ecosystems.
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Dr Goennemann explained that the success of the AMGC has hinged on four pillars: direction setting through research, demonstration of research through projects, creating industry-wide awareness through networks, and measurement of outcomes. He advocates for the growth centre model and calls for additional investment and government recognition of the value of growth centres, including their role in supporting the Government's agenda:
I'm not advocating for the extension of the growth centres in the sense in the sense [sic] of being dependent on government. All the growth centres knew from the outset that we had to become self-sufficient, and we're happy to do that, but we highly recommend continuing to work closely with federal, state and territory government to continue doing what works and transform Australian manufacturing …
Tax incentives
Company tax
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Certain witnesses emphasised the importance of Australia's regulatory and tax regimes, including company tax, to its success in attracting investment, with the Ai Group stating:
Of course, it's a globally competitive environment. Everyone is searching for capital. We need to make ourselves an attractive destination as best we can. There are many factors working against us, not least our very small market size and our distance from other key markets. So any cause of friction, such as a taxation regime that's out of step with the rest of the world, will make us less attractive … The lower the company tax rate, the better the after-tax return.
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However, others, such as SEMMA, warn against tax cuts, instead suggesting that improving domestic demand and improving investment incentives would be more effective:
… despite current financial stresses, [survey results showed that] an Investment Incentive, on a dollar for dollar basis, would encourage them to commit to purchase equipment/technologies to grow their business. Reduced company tax rates were not generally seen as offering incentives to invest i.e., when revenues and profits are down, the corporate tax rate loses its efficacy for stimulus.
Research and Development Tax Incentive (RDTI)
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The committee heard varying evidence as to the success of the RDTI in encouraging innovation and investment.
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MA supports a broad-based tax incentive approach (such as the RDTI) but emphasises that any incentive must be predictable and stable to improve competitiveness:
Australia's Research and Development Tax Incentive has been subject to considerable review and amendment in recent years. While the overall rate of incentive has been reduced and is now lower than many competing jurisdictions, the first priority should be to stabilise the scheme to enable confidence in the reliability of the incentive to rebuild amongst industry. Ideally, in future years the R&DTI should be increased, at least in line with neighbouring incentives in New Zealand, to ensure the rate remains globally competitive over time.
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Ai Group backs additional support for the RDTI to stimulate R&D—noting that SMEs in particular may be reluctant to fund R&D without clear government signals or demand.
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Several witnesses recommend changes to RDTI processes and support to make it easier for manufacturers to apply for the incentive and to migrate to commercialisation incentives without starting from scratch.
Patent box scheme
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MA, the STA, Medicines Australia are supportive of the patent box scheme with modification. Medicines Australia believes that the concessional rate 'must be lowered', and that the concessional tax rate be applied to all publicly funded R&D, whereas the STA would like to see an earlier start date to include earlier investments. Other submitters want to see the scheme extended to sectors such as low emissions technologies.
Accelerated depreciation deduction
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The committee heard from several submitters in support of this scheme, with MA recommending it be extended to cover the long capital investment cycles in the manufacturing industry. The AFGC expressed concerns about the current eligibility threshold, suggesting that the threshold for large manufacturers be removed or that it has regard to existing capital assets in need of upgrade.
Grant incentives
Modern Manufacturing Initiative (MMI)
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MA is supportive of grant funding such as that provided through the Modern Manufacturing Initiative (MMI) and argued that a more targeted approach is needed for sectors the government is trying to encourage and where R&D activity is in the national interest.
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However, not all witnesses are satisfied at the Government's approach, with Ai Group supporting public funding for broader innovative activity on any topic, not just those which align with the National Manufacturing Priorities (NMPs), and other stakeholders encouraging a merits-based approach:
… we were so disappointed to see such a narrow set of industries that can participate in the Modern Manufacturing Initiative … it's quite disappointing that a program that promises so much in the title and preamble delivers nothing for our industry.
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The ACTU and the AFGC expressed their dissatisfaction with the funding available and the effectiveness of the roll out:
I would say that the sector has been disappointed. The pace at getting the dollars rolled out has been slower than anticipated, and the level of funding coming forward has been lower than anticipated … I know many companies are very disappointed about that as they had put a lot of effort into grant applications. Had they known such a small amount was forthcoming, they may not have bothered. There has been disappointment around that.
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DISER defended the scheme, telling the committee:
… we have seen that the private investment is definitely there. The Modern Manufacturing Strategy is sending a signal to industry about government's investment in these six priority areas, and we're seeing private investment coming in at around two to one, so it's $2 of private sector investment for $1 of government investment. So there definitely is a lot of interest from private sector investors and from industry. Like I said, 150 applications purely in the recycling and clean energy space is really encouraging.
Support for other grant initiatives
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A number of submitters supported the Government's Technology Investment Roadmap, with MA highlighting the value of initiatives which de-risk investment in new technologies.
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The Centre for Future Work, ACTU and Ai Group support the further expansion of the Australian Renewable Energy Agency's (ARENA) funding to enable it to support a range of organisations and technologies, with the ACTU supporting the use of the Clean Energy Finance Corporation (CEFC) model in other sectors.
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Ai Group stands by the continuation and expansion of the Entrepreneurs' Programme to develop the capabilities and ambitions of Australian manufacturers, advising:
The Entrepreneurs Program [sic] and its predecessors provide countless examples of a successful and adaptive policy measure that has materially improved the management of the businesses that have benefited from its services. There is considerable scope for expansion and rejuvenation of this, and similar programs.
Innovation, collaboration, and research
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Witnesses suggested a range of other measures to fund innovation, collaboration, and research:
prizes, with financial reward for the first proponent to reach a specified innovation milestone, large enough to cover development costs and risks and provide an attractive return, potentially coupled with open access to the resulting IP;
outcomes-based procurement by government (procurement is discussed further in Chapter 5);
a 100 per cent depreciation rate for IP under corporate income tax arrangements to help foster faster investment; and
the creation of a general manufacturing fund which encourages and rewards collaboration across currently disconnected entities, which focusses on areas where Australia can uniquely value add, and which facilitates new research resources.
Capital investment and commercialisation
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The committee also heard from witnesses who suggested incentives to improve capital investment and commercialisation in manufacturing, including:
the importance of regulation, government policy and favourable tax settings to Australia's success in attracting foreign direct investment;
tax incentives or deductions, or the utilisation of special economic zones or activities to encourage capital investment, including by superannuation and investment funds;
the establishment of a tradable tax credit market to allow pre-taxable manufacturers to trade future tax credits; and
the use of royalty structures, similar to those used by extractive industries.
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The STA recommends the introduction of a research translation fund which directly funds industry and research bodies to bridge the gap between an idea and a product, noting the funding gap between traditional research grants and when a product becomes commercially viable—a significant for SMEs. SEMMA also recommends the establishment of a new fund, but with the added requirement to invest in Australian-made goods and/or services.
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The Australian Citizens Party and National Civic Council called for more government investment, recommending a national, government-backed development bank, such as those used in Norway, Germany, China, and Japan and not dissimilar to existing entities such as the Northern Australia Infrastructure Facility (NAIF) and the Clean Energy Finance Corporation or the original Commonwealth Bank.
Sector-specific support
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Several witnesses argued for sector-specific support, beyond those areas identified in the NMPs. For example:
the MUA suggest government investment and shareholding in a strategic shipping fleet, as well as R&D, regulatory and taxation support for the maritime and shipping industry in order to support and grow the industry, creating new products and jobs;
the Grattan Institute thought that there should be support for R&D into technologies that match zero-emission energy or feedstock with demand, addressing both industry and emissions reduction needs;
the Carmichael Centre recommends the establishment of an authority to oversee the decarbonisation of transport systems and associated transition, supported by equity funding; and
other submitters suggested the establishment or ongoing support for sector-specific research centres and oversight bodies to facilitate collaboration and advise government on policy and fiscal measures.