PM’s manufacturing plan risks creating business ‘class’ system: Productivity Commission

The Productivity Commission is an independent Australian government agency that provides research and advice to help inform policy decisions. Its role is to promote productivity and efficiency in the economy. In recent news, its chair, Danielle Wood, has expressed concerns about the potential unintended consequences of the Morrison government's manufacturing plan.

The Australian government's manufacturing plan, announced in late 2020, includes a $1.3 billion investment in modern manufacturing initiatives and a $150 million Modern Manufacturing Innovation Fund. The aim of these measures is to create jobs and stimulate growth in the manufacturing sector, which has been hit hard by the COVID-19 pandemic and the ongoing shift towards services and automation.

However, Danielle Wood has warned that this focus on subsidising Australian manufacturing could create a two-tiered system of businesses, with some relying heavily on government support while others thrive without it. In her view, this could stifle competition and hinder the long-term growth of the sector.

According to Wood, there is a risk that some businesses will become overly reliant on government funding and grants, rather than focusing on improving their productivity and competitiveness through innovation and efficiency gains. This could lead to a situation where these businesses are unable to survive without ongoing government support, and may even come to view it as a entitlement rather than a temporary measure.

Moreover, this could create an unfair advantage for these businesses over their competitors, who may not be able to access the same level of government support. This could lead to a distortion of market forces and a misallocation of resources, as businesses that are less productive and less competitive are artificially propped up while more efficient and innovative firms are left to fend for themselves.

It is important to note that this is not an inevitable outcome of the government's manufacturing plan. The Productivity Commission has emphasised that careful design and implementation of the measures could help mitigate these risks and ensure that they are targeted at businesses that are most in need of support and are most likely to use it effectively to improve their productivity and competitiveness.

However, the potential for unintended consequences should not be ignored, and it is important for policymakers to be transparent about the goals and limitations of their initiatives and to monitor their impact closely. This will help ensure that taxpayer funds are used effectively and efficiently, and that the manufacturing sector as a whole is able to adapt and thrive in a rapidly changing global economy.

In summary, Danielle Wood's concerns about the potential for a two-tiered system of businesses in the Australian manufacturing sector as a result of government subsidies are valid and should be taken seriously by policymakers. Careful design and implementation of the measures, along with ongoing monitoring and evaluation, will be key to mitigating these risks and ensuring that the manufacturing sector is able to grow and compete effectively in the long term.