The Budget reflects how the covid19 crisis and China’s belligerence have forced a major rethink of economic policy, but the preparedness to take on huge spending hasn’t been matched by a focus on building the strategic industries needed to ensure our sovereignty in another crisis.
Instead, the Coalition government has aimed its huge deficits at stimulating the economy to ensure an economic recovery, and for increased defence expenditure.
This is reflected in some of its key industry items:
- $1.5 billion for manufacturing (much more is needed);
- $2 billion for research and development, backed by halving company tax to 17 per cent for companies with new patents;
- Continuing for another 12 months the full capital write-off for approved equipment over the next year;
- $110 billion on infrastructure over the next decade, $11 billion annually; and
- $270 billion on defence over ten years, or around $27 billion per year.
In addition there are big increases for aged care, the National Disability Insurance Scheme and childcare, and tax cuts.
Almost certainly, this sort of budget will stimulate the economy, boost employment and drive a property boom.
However, such a broad economic stimulus doesn’t come to grips with the need to rebuild the manufacturing sector, given that we will continue to depend heavily on imported products from countries like China as our manufacturing sector has shrunk to a mere 5.8 per cent of the economy. Further, as almost all our imports arrive on foreign-owned ships, we have given away a domestic merchant navy.
As I recently pointed out in News Weekly in a strategic conflict Australia would almost grind to a halt in three months if our overseas supply chains are cut.
So, what needs to be done?
The NCC’s recent White Paper Manufacturing: Double production by 2035, calls for Australia to declare what strategic industries are needed both to defend the nation and to ensure economic survival and sovereignty in the face of an international crisis.
Given our defence and supply chain vulnerabilities, strategic industries need to include: important defence products, essential pharmaceuticals, transportation and agricultural equipment, machine tools, metals processing, advanced chemicals, telecommunications and transport, agriculture and food processing, liquid fuels and electricity.
Most importantly, the Government needs a “super department” for strategic industries to identify the industries Australia needs to maintain a resilient economy in a crisis and that focuses policy on building these industries.
It needs to be backed by a development bank, that would reduce the need for huge government deficits by helping to finance strategic industries.
It needs policies to keep newly established industries in the country.
Overall, the Government needs to declare now that it aims to double manufacturing industry by 2035 so that businesses can plan for major investment and expansion.
Such a plan would ensure the hard industries the nation needs while generating well paid jobs and the tax revenue that pays for the investment.
“Decouple [from China], have industrial policy, invest in your people, science and technology, STEM [science, technology, engineering, and mathematics] education, infrastructure, manufacturing and, for heaven’s sake, build a secure, encrypted internet for your people where you can protect them from outside influence from authoritarian regimes.”