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Manufacturing a Half-Baked Manufacturing Policy

Another weekend, another big political announcement. The Gillard Government today unveiled what is to be their big plan, their attempt to keep manufacturing viable in Australia. The plan involves money, lots of it, and will also require legislation of a somewhat coercive nature enacted by the parliament. When it all boils down, what we are left with is an expensive set of ideas which will not have much benefit for the Australian manufacturing industry. On top of that, government interference in industry decision-making markedly increases – again for little material benefit.

The Gillard Government’s attempt to keep manufacturing jobs in Australia will cost $1 billion. To fund this new manufacturing policy, the government announced it will remove a tax concession for big businesses with a turnover of more than $20 billion, which is aimed at promoting research and development.

The government would want to be absolutely sure that removing this tax break will not hamper the research and development efforts of Australian companies. Who knows, perhaps research and development conducted in Australia might discover a way to produce Australian manufactures more cost effectively.

The move to end the tax concession is also effectively a hit on the bottom line of those companies.

Under new legislation to be introduced into the parliament, large companies with projects worth more than $500 million and business opportunities which receive $20 million in state or federal funding, will be required to give local firms the ability to bid for contracts before any off-shoring can occur. They will be required to compile Australian Industry Participation Plans. All this does is increase the length of time businesses will have to take in order to make commercial decisions.

Individual ventures which are worth $2 billion dollars or more will be required by law to employ Australian Industry Opportunity Officers. They must do this in order to receive a five percent tariff reduction on imports. Further, these businesses will need to report on their efforts twice a year. Again we have another cost to business and more red tape to negotiate.

Neither of these two initiatives place any emphasis on improving the competitiveness of Australian manufacturing. For there to be any real benefit to the whole economy, it is essential that aiming to improve the manufacturing side of the equation is not neglected by government policy. All efforts the government can make which help cut the cost of business should be explored and implemented.

The Gillard Government also plans to spend $500 million dollars of the money raised to establish ten industry precincts in manufacturing hubs around Australia, starting with Melbourne and Adelaide. This will go part of the way to improving the manufacturing industry in Australia. It will bring manufacturers closer together so that collaboration is easier. This is however just a small element in the overall policy framework required to improve the lot of manufacturing in this country of ours.

Other elements of the policy include plans to help SME’s attract business and an increased vigour in the area of venture capital which is an integral part of modern business.

Like other policies the government has announced, the manufacturing policy is an attempt to influence decision-making that only looks at half of the policy equation. It’s also a further attempt to pursue big government at the expense of smart government.

It is quite intriguing that the plan which will cost $1 billion over four years, according to government figures, may add as little as $1.6 billion dollars to industry. This is not a particularly large sum when taking into account both the cost of the new framework and the susceptibility of the industry to internal and external shocks.

A Response to an NDIS Opinion Piece

Today Prime Minister Julia Gillard introduced the legislation for the National Disability Insurance Scheme. This Medicare-like scheme is a very important reform, a long time coming for people with a disability, who have suffered under inadequate and differing support regimes from state-to-state. The NDIS will create a national framework under which the needs of those with a severe and permanent disability will be met.

The introduction of the legislation in the House of Representatives is just the first step. NDIS trial sites will be launched next year, but there is still a need to keep the pressure on, to ensure that the fully-fledged system will be realised.

Up until recently, most of the negative debate around the policy has been about the cost. It is significant, requiring approximately $15 billion a year from the first full year of implementation in financial year. That time comes at the end of this decade. But the scheme can and must be funded. There are numerous ways to ensure that it is fully funded.

This week, in an opinion piece in The Australian written by Doron Samuell from SR2 Healthy, relatively new arguments came to light.

In the first instance, Mr Samuell argued that, “lured by the promise of taxpayer dollars, it is inevitable that disability services will come to be dominated by large, corporate players in the post-NDIS world.”

Later in his op-ed, Doron Samuell provides an argument which says that this is already occurring. So really, what we will have is the status quo. It is hard to envisage that smaller providers could be crowded out even more than they already are.

For equipment, like wheelchairs and other mobility aids, disabled people will most likely choose to use bigger organisations that might have the capacity to carry a broader range of stock and therefore, more cost-competitive products.

For services, users will probably choose to use a mixture of smaller, community-based organisations and larger “corporatised” ones. This will, again, at least maintain the status quo. There is also a strong chance that smaller organisations able to adapt to client needs under the NDIS will be able to grow if they can prove they provide good services.

The idea of the insurance scheme, as it will apply to many applicants, is to give users, capable of decision-making, the choice to pursue services from providers that they perhaps already identify with.

Also on the question of choice, Samuell made what amount to some pretty offensive, not to mention inaccurate comments about the capacity of people to choose wisely under the disability scheme. He actually claimed that the disabled were “often unsophisticated” purchasers and asked “these consumers going to make the right decisions?”.

Well, of course those who have a capacity to make decisions for themselves are overwhelmingly going to make the right decisions according to their needs. People with a disability are no less rational than ‘able-bods’ and nobody else knows their personal requirements better than people with a disability themselves. No doctor, no healthcare professional, no bureaucrat understands disability better.

Mr Samuell also appears to have forgotten a provision in the bill, which allows for funds to be provided to a carer or directly to a service provider in the event that someone eligible for NDIS funds is unable to make or communicate decisions for themselves on their own care needs. The latter is a worry because, again, bureaucrats should not be making these kinds of decisions.

Samuell also states that “the NDIS will need to ensure that buying decisions are scrutinised, audited and reviewed”. The legislation actually provides for this.

Doron Samuell does go to the question of funding. He does this from the position that Medicare, the system that the National Disability Insurance Scheme is based on, is under-funded and has a bloated bureaucracy.

There is a danger that the NDIS will be under-funded. There is always that danger when government embark upon significant reforms, that costs might be under-estimated. But what is clear is that the claim about Medicare only coping “by progressively lowering the standard of care to maintain its universality”, will almost certainly not apply to the NDIS.

A bloated bureaucracy is of some concern. There will need to be a significant number of  jobs created or filled across the states  and territories to oversee the agency. However, the bigger concern should be too much centralisation of the increased bureaucracy.

Finally, Samuell’s contention about the NDIS not being based on insurance principles is neither here nor there. What is important is that this landmark reform provides adequate support for those it is targetted at.Getting bogged down in definitions is pointless.

The biggest concern should be making sure the introduction of the full scheme occurs in 2018-19.

Crowing About Making Life Harder

It feels like a while since any substantial discussion has occurred involving policy and the business of government more broadly. Lately we’ve been stuck on constructing and deconstructing personalities and political parties. We’ve also been debating what should or should not be said as part of the usually robust, but recently vitriolic public discourse. Today is the day we must again begin focusing on policy and the business of government, looking above and beyond the easy analysis of people and personalities.

During all the hubbub a milestone went by almost undetected, with only a brief passing mention in the political media as the sexism and misogyny debate accelerated.

The Gillard Government, often wrongly accused of not getting on with the business of government, announced to the media that they had managed to have passed through the parliament over 400 bills. That much legislation passed over 2 years is certainly not, by any stretch of the imagination, not getting on with the business of government.

There was probably much back-slapping and the brief mention smacked of pride. Why wouldn’t the government be proud of that achievement? That much work making it through the parliament, a minority government occupying the benches, would not have been an easy task, made both easier and harder at different junctures since the August 2010 federal election.

But is all this work necessarily a good thing? Will all this work lead to less government and bureaucratic interference in the lives of individuals and businesses? Will it make life in Australia a smoother process? Finally, what is better, new rules and regulations and processes to follow or new or beefed up penalties for existing or newer forms of wrongdoing ?

The answer to the first question is an emphatic ‘no’. Having passed 400 bills is not something to crow about. Yes, there will be legislation now in force among the new laws which will be beneficial. But that does not mean the overall number of bills passed is a good thing, it is not. But of course, for a government struggling to be able to take credit for work they have actually done, well, you cannot really blame them.

The problem with passing over 400 bills through the parliament is that it inevitably means there will be more government, not less and that the level of bureaucratic interference in the lives of individuals and businesses will of course be higher. There will be more rules to follow, more forms to fill out in your personal life and in the life of businesses and that is never a good thing for time or money.

So life in Australia as a matter of course, with over 400 new bills passed will not be smoother in a broad sense. Again, there will be, in that immense stack of paper, some legislation that might serve to make life easier in some narrow sense. However, with the sheer amount of bills that have been made into law being so high, those act’s of parliament making life easier, will be drowned out but extra rules and regulations in other areas of life.

What should governments focus on when engaging in the business of lawmaking? Should they have a predisposition toward business and people going through more regulatory approval, having more forms to fill out? Should the focus instead be on increasing penalties for wrongdoing rather than more oversight aiming to stem bad behaviour? Or is it the case that administrations need to focus on repealing laws?

The answer is a combination of the above. What should be first and foremost when thinking of amending or even introducing legislation is a focus on the penalty side of the good and wrongdoing equation. This means that those behaving appropriately are rewarded with less time needed for bureaucratic nonsense and more to do the business, personal or otherwise that they need to do. At the same time it punishes those few that do the wrong thing.

There should be little or no focus at all on increasing rules and regulations. Extra rules, read for breaches of law, should only be introduced to deal with wrongdoing that evolves or emerges, whether that’s for new technology or new practices which develop.

More red-tape is, in just about every case, an absolute no-no. Bureaucracy must be avoided at just about any cost. Businesses and people, both time-poor, just do not need extra time and pressure to apply for or get approval for aspects of their businesses and lives. There will of course be times where it is necessary.

Ideally, there should be a predilection toward actually cutting approval processes, forms and other time-consuming activities where practical and that means actually repealing some legislation or parts thereof. Stupid offences too, and there are certainly plenty of those, should also be on the legislative chopping block.

So really, the ALP might be happy with their work and so too the cross-benchers closely linked with the government, but the question is, should we the people and should the businesses of this country be jumping for joy too?

There’s Always More Money For Defence, Some Aspirational, Some Real, Apparently

Today the Opposition Leader revealed a broader outline of defence policy for an incoming Liberal National Party Coalition Government, some of it firm commitments, some of it aspirational. That’s the thing about administrations of the right side of the political spectrum, there’s always space in the budget, no matter how tight or how far in deficit the fiscal position is. It’s all about appealing to the need to feel secure, that we’re being looked after and protected by a strong government from nasties within and external to the country. Of course a firm level of defense is always required, but conservative governments like to go a bit further to say the least.

First, in terms of looking after those who have been in the Australian Defence Force, rather than in terms of security, the Coalition, after fairly prominent debate has decided it necessary to “properly” index military pensions. This would happen in the first year of an Abbott Government and, if based on the template of the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill, would cost about $1.7 billion over 4 years.

In terms of existing spending commitments, Mr Abbott today said in his speech to the RSL National Conference that within 18 months of taking government, the Coalition would look at a timetable for the acquisition of the troubled Joint Strike Fighter. This is not something to rush into and is a project area where other nations are being increasingly cautious.

One of the first defence capability purchases that the Coalition would make would be a fleet of unmanned aircraft. Mr Abbott said that these capabilities were necessary, especially to provide surveillance over business projects 0n the North West Shelf as well as searching for those pesky asylum seeker boats.

Despite the pledge to immediately purchase drones, Mr Abbott today announced that submarine capabilities are the “probably the most urgent big procurement decision” the government needs to make. These would replace the Collins Class fleet purchased under the Howard Government. Presumably the announcement of submarine construction, to be based in South Australia, means that the Coalition would continue, at least in part, with Labor’s $40 billion pledge to build 12 new submarines

To get a broader look at the needs of the ADF, again, the Coalition would, within 18 months of taking office, proceed with another defence white paper. That means just a year to 18 months after the 2013 defence white paper is released, there will be another one. Surely that one is likely to say exactly the same thing as the one released in 2013. Defence capabilities simply don’t change and evolve that fast, though security challenges can, but this is unlikely, especially with the winding down of the Afghan conflict and future challenges, a term used very loosely, like the rise of China and India firmly in mind.

Finally, there’s an aspiration to grow the defence spend by 3% yearly, once the budget is back in order, surplus, to keep on top of perceived defence materiel and other needs of the broader defence organisation.

So where’s the money coming from? Well, supposedly room will be made in the frontline capabilities budget by making changes, a purge of backroom bureaucrats. This might make some savings, but would in no way go anywhere close to the budgetary savings necessary to accommodate such significant and ongoing funds.

So what else would have to go from the federal budget? Health? Education spending? Maybe that big paid parental leave scheme the Coalition holds onto? Well, most of the priorities are aspirational, so perhaps these departments can take some solace, at least that defence spending might not result in a cull of their staff and programs.

The freed up spending from the planned return of combat troops from Afghanistan though will provide some not insignificant room in the budget of a future government. As a consequence, some of these aspirations might become a reality.

There’s always more money for defence, of course.

Foreign Investment and the Coalition With the National Party

Foreign investment has been in the media a lot recently. Increased talk about foreign investment as part of the Australian political discourse has amped up over the last few years in particular with reports of particularly Chinese-based companies buying up farmland, chiefly across New South Wales. It’s prompted raised concerns from some in Australian politics. The interesting thing is that most of the questioning of foreign investment in Australia, again mostly in relation to farmland has come from the conservative side of politics. What is not so surprising  is that most of the scepticism around foreigners buying up and investing in our country from the right side of politics has come from the National Party, the party traditionally of the farmers.

But what is very interesting about this and different from previous times is the willingness of the National Party’s major coalition partner, the Liberal Party to indulge the National’s in the debate with a proposal to examine more deeply, at a lower threshold, more of the proposed investments of companies from outside of Australia.

There’s been much mixed messaging from the Coalition, from National Party Senator Barnaby Joyce openly questioning the appropriateness of too much foreign investment at any opportunity, to Tony Abbott in China appearing to talk down to China about their investing in Australia whilst overseas as a guest in their country. Then just in the last week or so we had Joe Hockey and Tony Abbott both talking down the prospects of a change in foreign investment rules and scrutiny by the Foreign Investment Review Board.

Then today, flanked by Joe Hockey and Leader of the Nationals, Warren Truss, Opposition Leader Tony Abbott announced a discussion paper which flags a lowering of the purchase price of agricultural land and businesses at which the Foreign Investment Review Board will examine purchases.

The paper proposes that the FIRB look at purchases of agricultural land valued at over $15 million dollars and purchases by foreign companies of agriculture businesses valued at $53 million. This is way down from the current threshold at which injections of funds of $214 million and over are examined by the review board.

The change in policy has copped criticism from both sides of politics, with the ALP jumping at the chance to have a dig at the party of the free market for wanting to lower the scrutiny threshold.

But there’s also been criticism from their own side of politics, with not just conflicting words in the lead-up to today’s decision from Liberal and National Party politicians, but also from former Coalition MP Peter Reith who launched an attack on Twitter today. Mr Reith in comments today on social media said that the move was “crazy, stupid politics.”

Reith also said that the decision “is just a quick fix to satisfy the Nats, but which will come back to bite the national interest”. Peter Reith, in saying this is not far from the truth, perhaps even spot on with his comments.

The Nationals, in an incoming Coalition Government, which now appears a certainty, would have much higher influence within the joint party-room than they do at present in the current parliament. So this announcement today can easily be seen as a move to placate the National Party ahead of the next election. Tony Abbott and the Opposition leadership undoubtedly realise there will be much more competition of ideas and much more competitive and vigorous debate from two contradictory standpoints within the Coalition caucus.

But what about the decision itself and what Tony Abbott says it will mean for the future of foreign investment in Australia?

Well, for his part Mr Abbott says he wants to “make it absolutely crystal clear that the Coalition unambiguously supports foreign investment in Australia.” Further, he says “we need it, we want it, it is essential for our continued national prosperity.” He also said, “what’s very important though is that the public have confidence that the foreign investment we need and want is in Australia’s national interest.”

Well, it seems pretty ambiguous the level of support there is on one side of the Coalition for further foreign investment in Australia. The Liberal Party are undoubtedly all for it, with the current level of examination likely deemed more than sufficient, perhaps too much for a number in the Liberal and National Party room. But the National Party, particularly given the words of its loudest member, Senator Barnaby Joyce, is certainly far from sure about people from overseas investing in Australia.

The Coalition for its part says that the move is all about increased “scrutiny” of foreign investment decisions as they relate to agricultural land. But this standpoint, is actually to be taken as read and believed, has unintended consequences at best.

If it’s just about a ramped up level of scrutiny in foreign investment and every investment decision that applies to this lower threshold is given the tick of approval, then there’s just unnecessary bureaucracy and red tape for inevitable decisions.

But more likely, with the same “national interest” test applying, albeit at a lower monetary level, then smaller purchase decisions, much smaller ones in fact, will be denied if the national interest test requirements are not met.

Could this and other recent decisions and thought bubbles or proposals of a similar protectionist nature be a sign of things to come?

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