The confirmation that the Federal Budget was in surplus for a second time last year is an important reminder of the need to remain vigilant about government spending. While the $15.8bn surplus for 2023-24 is a pleasing outcome, budget estimates still suggest significant deficits for the rest of the decade. The Federal Government has been careful to note that this latest surplus was partly due to lower-than-expected government spending rather than higher revenues.
The Australian government must now be clear-minded that a robust manufacturing sector is not just about job creation and economic prosperity; it is an insurance policy to protect the nation. Australia’s vulnerability during the pandemic, when global supply chains faltered and essential goods became scarce, should have served as a wake-up call. In his semi- regular column with the Australian Strategic Policy Institute, John Coyne cites a string of external geopolitical tensions and climate disasters that are reviving and exposing supply chain vulnerabilities much like those visited during peak COVID times.
Australia still relies heavily on international suppliers for essential goods and raw materials. Its recent shortage of IV bags and palliative care drugs highlight its reliance on fragile global supply chains. The Albanese government’s made-in-Australia policies and initiatives to boost local solar panel and battery production aim to promote domestic manufacturing in renewable energy. Focusing narrowly on that sector leaves many other manufacturers without the support needed to be competitive, let alone grow. Without addressing skills development, innovation, and supply chain resilience, these initiatives will unlikely foster a diverse and sustainable national manufacturing capacity.
A good starting point would be to bolster domestic production of medical supplies and agricultural inputs using technologies of the fourth industrial revolution. Such investments would reduce reliance on imports, mitigate risks posed by global trade disruptions and strengthen national security. Moreover, they could ensure that geopolitical tensions or economic shocks would not disrupt much of the economy.
Coyne and many others may be critically applauding the Albanese government's efforts. However, innovation and technological advancement in manufacturing must be further incentivised. As global competition intensifies in that ‘polycrisis’ we’re all in, Australia needs to catch up in developing and adopting cutting-edge technologies. The future of manufacturing lies in the advanced production techniques of automation, artificial intelligence, 3D printing, and many further unimagined technologies.
Modern manufacturing addresses the challenge of scale that has bedevilled Australian businesses. It enables companies to optimise production processes, reduce lead times and costs, and efficiently adapt to on-demand supply needs while maintaining high quality and precision. To maintain a competitive edge in these emerging fields, Australia must lead in adopting and developing these technologies.
The Reserve Bank highlighted that the economy’s ability to meet demand is stretched, as evidenced by the persistence of inflation and ongoing strength in the labour market. Therefore, state and federal governments must ensure that their spending doesn’t put upward pressure on inflation.
Spending measures must be well-targeted to those who need them most, especially at this stage of the economic cycle. The RBA also reminds us that “labour productivity is still only at 2016 levels, despite the pickup over the past year,” so more substantial productivity growth is critical to controlling inflation.
They tell us this will allow them more room to reduce supply pressures in the economy and create long-term income growth to help fund government spending sustainably. It’s all swings and roundabouts and one hell of a ride we are all on.
Paul Hellard
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