More government funding needed to boost local manufacturing, RSM report

Thursday, 09 November, 2023

More government funding needed to boost local manufacturing, RSM report

Australian advanced manufacturing can only compete globally with a quantum increase in funding and government contracts, and the National Reconstruction Fund (NRF) alone may not be enough to achieve this, according to a report by RSM Australia.

The company’s ‘Innovate, Transform & Thrive: Securing Australia’s Manufacturing Industry’ report has four recommendations:

  • The level of funding and number of government contracts for advanced manufacturing must increase.
  • The NRF must direct funding to critical industries where Australia has a competitive advantage and for meaningful impact provide substantially larger amounts to targeted companies.
  • Implementation of Australia-first supply chain requirements for major projects and mandates for majority-owned Australian companies must be considered to support local manufacturers.
  • The instant asset tax write-off must be reinstated to provide greater incentive to purchase capital equipment and machinery. This would encourage manufacturers to modernise, which could support decarbonisation, productivity and advanced manufacturing processes.

RSM Australia’s national leader manufacturing services Jessica Olivier said the backdrop to parliamentary hearings into Developing Advanced Manufacturing in Australia is a broader debate about the best way to fund and support the manufacturing sector, and who within the sector such funding should target.

“More government investment into manufacturing must be made if we are to truly embrace local manufacturing capability and boost the number of Australian-made goods,” Olivier said.

“Australia needs to model the US which is investing heavily in local manufacturing and pushing green technologies to grow its manufacturing capability.

“More clean-energy manufacturing facilities have been announced in the last year in the US than in the previous seven years. This translates to well-paid jobs and a massive boost to climate change initiatives that can reshape a nation.”

Backing winners

While NRF funding detail is still unknown, it should be significant for manufacturing, especially in its target sectors of critical technologies, renewables and advanced manufacturing.

“A note of caution is that NRF funds pale in comparison to US and EU allocations for manufacturing, even considering size differences,” Olivier said.

“It’s notable the US ‘Bidenomics’ flagship initiative, the Inflation Reduction Act focusing on climate, clean energy and manufacturing, is a US$740bn investment, contrasted against the NRF’s AU$15bn budget.

“With initial NRF announcements expected soon, we would hope to see funding targeted to those with the best chance of success in critical industries where Australia has a competitive advantage, such as medtech, defence, aerospace, clean energy and food and agriculture.”

Olivier called on the NRF board to be bold, now that its very experienced members have been announced.

“The finer details of their first tranche of funding will reveal a lot about whether Australia can take up the challenge to be a world player in advanced manufacturing. Given the intention to unlock funding for strategic projects in Australia’s interest, I’m hopeful the NRF board will accept moderately higher risks than their commercial and private counterparts, in exchange for broader economic benefits that other funders would not normally consider,” she said.

She agreed with the Business Council of Australia’s suggested strategy for the federal government to pick and back compelling ‘winners’ (rather than giving many companies relatively smaller $1–2m tranches).

This strategy was reiterated by Peter Gilmour, CEO of Gold Coast business Gilmour Space at the Advanced Manufacturing hearing in July. Olivier said Gilmour spoke passionately about the need for funding to be ambitious and for the government to try to ‘pick winners’ rather than spreading funding too thinly. He also emphasised the need for government support via contracts.

“I’d support more government contracts, as this would improve the sector’s competitiveness and capability — but grant funding and other government incentives still play an important role,” Olivier said.

R&D and tax reform

Olivier said food and beverage, machinery and equipment, defence and resources, and increasingly, advanced manufacturing, are transforming Australia’s manufacturing industry. Post-COVID, manufacturing businesses globally have innovated at unprecedented speed to stay relevant. This has made government support for R&D more crucial than ever for innovation, Olivier said, in light of a dip in the level of innovation across the Australian economy.

“GDP percentage spending on innovation in Australia has dropped from more than 2% to around 1.8% — an anaemic level that gives lie to Australia’s much talked about ‘world leadership’ in areas of technology. The US has passed legislation outlining 3% spending on R&D, and nations such as Israel and Sweden spend more than 4%,” Olivier said.

The RSM report also highlighted the need to continue international agreements to embed Australian manufacturing within global supply chains.

“Some trading partners, including the US and EU, support their local manufacturers first, creating an uneven playing field. The federal government should consider Australia-first supply chain requirements for its major projects, along with mandates for majority-owned Australian companies to support local business,” she said.

Olivier said the other major initiative that was important for Australia to compete with other OECD countries was tax reform.

“Targeted government investment and incentives such as reinstating the instant asset write-off, raising investment in specific advanced manufacturing niches, continued R&D benefits and overall tax reform are needed for Australia to thrive in the developing net zero global economy,” she said.

“The previously proposed Patent Box regime was also a very attractive proposition for large Australian manufacturers, which sadly seems to have been abandoned by the current government. Developing and implementing green energy technologies at scale to capitalise on our natural resources and existing skills in mining is also crucial in the next decade for manufacturing.”

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