In the post-COVID era, the need to diversify supply chains and reduce Australia’s reliance on offshore manufacturers, particularly those located in China, has been a hot topic.
Specifically, much has been made of the need to reshore manufacturing to mitigate supply chain risks for Australian companies, and to arrest the decline of Australian manufacturing – the sector has been shrinking rapidly since 2008, and real output has contracted every single quarter since September 2011.
Until recently however, it seemed as though the private sector would be left to its own devices to take these steps. Not surprising really when you consider that for the last quarter-century Australia has pursued a political agenda that prioritises free trade over protecting domestic industries. By the way, I’m not saying I think the agenda is entirely wrong, just that I believe you can have your cake and eat it too.
So it was with interest that I noted that the Federal Government’s ‘A Future Made in Australia’ plan – aimed at invigorating the manufacturing sector – was a centrepiece of the 2024-2025 Budget.
The plan provides a number of benefits and incentives to Australian manufacturers:
1. Investment in Renewable Energy and Net Zero Transition
2. Support for Critical Minerals and Resources
With $8.8 billion earmarked for critical minerals, the budget also promotes the processing and refining of these essential resources. This includes significant investments in strategic projects, mapping, and supply chain enhancements, fostering growth in high-demand sectors like batteries and electronics.
One specific measure proposed is a Critical Minerals Production Tax Incentive, which will provide a production incentive valued at 10% of relevant processing and refining costs for Australia’s 31 critical minerals. This incentive will be applicable for up to 10 years per project, for production between 2027-2028 and 2039-2040 by projects that reach final investment decisions by 2030.
This makes sense to me insofar as Australia’s ‘dig and ship’ obsession has seen us dig stuff out of the ground and send it offshore without value-adding for at least the last 15 years. While the number of mining industry jobs has doubled since 2006, one in four manufacturing jobs has disappeared over the same period. And although offshore processing might be cheaper, we still need to buy back the finished products. The gritty reality is that a significant proportion of those purchases are made from China, a country that has gone from being one of our closest trading partners five years ago to one that is viewed with a degree of caution by both businesspeople and government today.
If we can get the policy setting right, why can’t we mine and manufacture and export value-added products rather than just raw materials?
3. Manufacturing Clean Energy Technologies
4. Digital and Technological Advancements
5. Skills and Training for Future Industries
6. Streamlining Approvals and Encouraging Investment
7. Strengthening Supply Chains
8. Support for Small Businesses
Last but not least, the budget offers $641.4 million in targeted support for small businesses, including energy bill relief and extended asset write-offs, measures which will help small manufacturers manage costs and invest in growth opportunities.
So there you have it. The 2024-25 budget appears to provide some encouraging initiatives to support the manufacturing sector through significant investments in renewable energy, critical minerals, technological advancements, and workforce development. By fostering innovation and reducing operational hurdles, it aims to secure Australia’s place as a leader in global manufacturing. Can it follow through and turn these initial steps into reality? I’d love to know what you think.
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