‘Out of favour’ sectors should be reconsidered

Federal Budget 2013

As Federal Budget announcements are about to be made, Grant Thornton Manufacturing Lead Matt Byrnes argues it may be time for a shift in mindset regarding the role of out-of-favour sectors such as manufacturing in filling the growth and revenue gap.

A slowdown in the mining sector, coupled with the significant deterioration in Australia’s terms of trade, has put increased pressure on the budget bottom line. It may be time for a shift in mindset regarding the role of out-of-favour sectors such as manufacturing in filling the growth and revenue gap.

But this will require a significant jolt in our current thinking.

For example, labour productivity in Australia has been a touch-point for some time. But it is capital productivity, or capital deepening, which has flown under the radar. Capital deepening refers to increasing investment in new and leading edge capital technology, rather than simply building more of the same scale and capacity.

Leading-edge capital technology focussing on high-end production can differentiate Australia from our Asian neighbours, who we know are more efficient with labour-intensive, low-value, high-volume production.

The government could consider incentives to encourage innovation and investment in capital deepening assets. Favourable tax depreciation rules or government programs to attract and support investment in such assets would be a good start.

We need to encourage innovation and skills development to allow production to move up the value chain. We have seen this already in other high cost countries such as Germany, and Switzerland - which is now said to be relying on its manufacturing sector for its future prosperity, rather than its more recognised financial sector.

Australia’s focus should be on high-end, high-value manufacturing in more technologically challenging areas, which can be a key driver of future growth. For example, products that combine clean energy and digital technologies will be in high demand and can deliver better margins.

There is a real danger that we are writing off the whole manufacturing sector as a lost cause because we can’t compete with China for low-tech, low-value goods. But this is only part of the story and we think there is not enough debate about what we can do to reshape our manufacturing sector and remain globally competitive at the high end, through investment in innovation and skills development.

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To speak with Mr Byrnes or for further information please contact:

Helina Lilley
National Public Relations Manager
T  +61 2 8297 2421
M  0437 725 520
E helina.lilley@au.gt.com

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