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One in three recommendations either partly or wholly rejected by the State Gov for the Manufacturing Sector

Yesterday (1st May 2018) the State Government responded to a series of recommendations made by the Queensland Productivity Commission (QPC) on how to secure the future of the State’s manufacturing sector. Out of 17 very good recommendations made by the QPC the State Government accepted in whole five, accepted another six in principle, partly rejected five and outright rejected one.

I will succinctly summarise the Inquiry's findings through my own 'cut and paste' exercise from the QPC Report.

In September 2016, the Queensland Government asked the Queensland Productivity Commission to conduct an inquiry into manufacturing to identify policies to improve the sector’s productivity and competitiveness.

Manufacturing in Queensland generates around $20 billion a year in gross value added for the Queensland economy. It employs 168,000 workers in 16,400 businesses.

The sector faces significant pressures:

  • High input costs  particularly energy and labour;
  • Electricity prices have increased by 4.9 per cent each year on average, between 1998–99 and 2016–17;
  • Difficulties maintaining workforce size and quality;
  • Strong domestic and international competition; and
  • Changing consumption trends and new production technologies.

Although manufacturing is declining as a share of economic activity, it is a strong and diverse sector in Queensland, with a prosperous future if and with:

  • Leading-edge technology;
  • Targeting niche markets, producing unique or customised products;
  • Responding to fast changes in preferences by shortening the lead time from factory to retailer and customer;
  • Using innovation to drive quality and efficiency;
  • Bundling manufactured goods with services such as maintenance, financing, distribution and insurance, to add value for the customer; and
  • Leveraging their proximity to key raw materials and other comparative advantages.

There is no magic bullet in terms of policy levers for the Queensland Government as many of the underlying issues are outside the influence of government.

The QPC proposes a Manufacturing: Policy Action Plan, built on broad-based policy reform—to address cost pressures, increase productivity and improve government programs—and supported by effective implementation.  Key actions are provided in this slide:

So what has been the State Government response:

The State Government accepted in whole five recommendations (2, 4, 6, 7 and 12) which relate to better management skills; innovation tracking; improving VET skills; and opening up gas exploration.

The State Government accepted in principle six recommendations (5, 8, 9, 10, 11 and 17) which relate to consolidating innovation programs; regulation stocktakes for certain industry sectors; a stocktake of who has received industry assistance and what it achieved; assisting with structural adjustment through training; ensuring electricity market efficiency to drive down prices; and Ministerial responsibility for the Manufacturing: Policy Action Plan.

The State Government rejected in part five recommendations (1, 3, 13, 14 and 15) which relate to industry assistance loans instead of grants; innovation programs should be targeted at all businesses instead of specific segments; delivering best price / quality outcome in government procurement; greater transparency around benefits of Trade and Investment QLD; and industry assistance should not be targeted at individual firms or projects.

Only one recommendation was rejected wholly by the State Government (rec 16) which involves reforming the state’s tax framework. The Government agreed that tax efficiency, equity and simplicity are important aspects of the taxation framework, however it is not prepared to go it alone without a national process to achieve holistic tax reform.

In summary, the State Government have in effect rejected in part or outright one in every three recommendations made by the QPC. The significant gap between the QPC’s recommendations and the State Government’s response really highlights the ideological divide that exists between QPC’s 'economic rationalist' or 'freer market' approach and the State Government’s more ‘mixed’ and 'interventionist' approach.

I guess this is to be expected but I believe this Inquiry has fallen well short of what could have been achieved despite the excellent work conducted by the QPC.  Again to my mind, it shows up the QPC as not having a clear purpose at present under this Government which I discuss here. 

Finally it has also been a curious exercise in the first place as many of the policies or initiatives cited by the State Government in their response have already been delivered or are underway.  It kind of raises the question of why have the Inquiry in the first place if the solutions provided were prepared well ahead of the Inquiry reaching completion.

The final QPC report can be found here and the Government Response can be found here.

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