Mr MacKELLAR(8.05) —In speaking to the Appropriation Bill (No. 1) 1990-91, there is much discussion at present about the parlous state of Australia's manufacturing industry-its failure to adopt an exporting ethos and the merits of the sort of policy environment advocated by the Garnaut report, the Australian Manufacturing Council and many others. The very existence of such a large and diverse body of opinion on the policy framework needed for industry is in itself testimony to the misgivings that exist about the Government's present policy approach. Those misgivings are no more apparent than in the recent Budget appropriations for the manufacturing industry.

Just to remind the House, the Budget provides for direct Government financial assistance to manufacturing industry in 1990-91 of $376.2m. On the face of it that sounds pretty impressive, but when put against the manufacturing industry's estimated annual turnover of $150 billion and fixed capital expenditure of $4.5 billion, it of course loses much of its significance. It loses even more if we take that a step further and look at its directional effectiveness.

Of that total amount of $376m, some $91m is directed to the photographic film, textile, clothing and footwear industries, all sectors where the assistance is motivated largely by political rather than by economic considerations.

Mr Hand —What about the people working in the industries?

Mr MacKELLAR —A further $80m is being directed to the shipbuilding, machinery, engineering and automotive industries where fundamental reform, rather than a few million dollars of assistance, is essential to restructure them into internationally competitive enterprises.

The point I make for the information of the Minister for Immigration, Local Government and Ethnic Affairs (Mr Hand), who interjected, is simply that at best some 50 per cent or a mere $180m of Government assistance is being directed towards industries, companies or projects where there may be some scope for the sort of growth and development that could eventually create viable and competitive export oriented enterprises. To date-and I emphasise this point-not one such industry has been created.

Let us look briefly at some of the assisted sectors. Between 1984 and 1989 the Government gave special assistance to the Australian steel industry. From previous Budget Papers, I estimate that total assistance to that industry over those years was of the order of $150m. I will discuss that a little bit later, but it will be my conclusion that the $150m of assistance and the five-year industry plan have failed to create a viable Australian steel industry.

The automotive industry has had about 20 years of government plans and associated financial assistance, but over recent weeks its spokesmen have claimed that it cannot survive without ongoing assistance of about $1.6 billion a year-that is the Ford proposal-or long term concessional loans-the Toyota proposal-or protection to offset Australia's economic shortcomings-the GMH proposal. After 20 years of protective industry plans, is this Government going to fall for more of the same arguments as the solution to the restructuring needs of this industry?

I address myself particularly to the Minister's interjection. Kodak (Australasia) Pty Ltd last year claimed that it was in such desperate straits that it successfully convinced the Prime Minister (Mr Hawke)-the fact that the business happened to be in the Prime Minister's electorate surely did not have any influence on the decision at all-to give the company $36m. This was, we were told, to prevent it closing its Melbourne plant and to assist it with export promotion in the Asian region. Last month it was observed that Kodak's parent company in the United States reported a second quarter profit of $492m. That $492m was a quarter-year profit. What conclusion could anybody draw about the credibility of Kodak Australia's claim for assistance and the Hawke Government's response?

Another industry area receiving substantial bounty assistance is the Australian computer industry. The critics of this scheme appear greatly to outnumber its supporters. My own reading of the industry situation suggests that despite the bounty scheme-or indeed because of it-significant areas of that industry are in decline, robot manufacturing being perhaps the best example.

I could give further examples, and they add up to clear evidence of unsuccessful special sector policies. That failure has its origins in the Australian Labor Party's 1982 election manifesto. Its manufacturing industry policy noted that:

Industrial renewal will require Government intervention.

It set, as its objectives, to-and I quote:

. . . create a strong integrated manufacturing economy, and develop an export sector . . . (directed) particularly at developing countries in the region.

Mr Hand —What about the rural sector?

Mr MacKELLAR —The policy document also made reference to the need for special assistance for certain industries which are large employers of regional significance.

Mr Smith interjecting--

Mr SPEAKER —The Minister for Immigration, Local Government and Ethnic Affairs will cease interjecting, as will the honourable member for Bass.

Mr MacKELLAR —I think the Minister has suffered significant setbacks in his political career in recent times. He is obviously feeling a little bit worn about that situation, Mr Speaker.

Mr SPEAKER —I will have difficulty protecting the honourable member for Warringah if he continues to antagonise the Minister.

Mr Hand —I will get nasty!

Mr MacKELLAR —As a general statement of intention, there can be no denying the fact, even by the Minister, that the Government's manufacturing industries policy has not met its objectives. We have not seen, and thankfully so, the promised levels of government intervention. A strong and integrated manufacturing industry has certainly not been created, and the Hawke Government's failure to develop an export-oriented industry, whether to the Pacific region or beyond, is one of the principal explanations for this country's present current account difficulties, rampant foreign debt and vulnerability to future economic downturns.

For the information of the Minister, this failure is confirmed by an impeccable source, no less than the Minister for Industry, Technology and Commerce, Senator Button, who is the Minister responsible for manufacturing industry policies. On 10 July 1989 Senator Button publicly admitted that after six years in the job, he had got the Government's industry policies wrong and that he did not know where to go. This is the Minister for Industry, Technology and Commerce speaking. This remarkable admission was refreshing for its honesty but very disturbing in its implications.

The fact that the Government's policy has been wrong is serious enough in itself, but more disturbing is the fact that it took the Minister six years to come to an understanding of his failure. The tragedy for Australia is that for most of those years, the Minister and the Hawke Government sat idly by, apparently ignoring the mounting evidence that their industry policies were not achieving their objectives.

The reason why the Minister allowed this to happen is almost certainly explained by his admission that he does not know where to go. I believe him because despite his confession, no new policy direction has been forthcoming. In fact, we have had to wait six months for even a glimmer of hope.

In February this year, the Australian Financial Review reported that the Hawke Government was developing a fourth term industry policy agenda. But it was only a glimmer and now, in September 1990, we still wait with bated breath.

Mr Speaker, I turn to a more detailed consideration of the nature of and the reasons for the Government's failed special sector industry policies. A very good case study is offered by the steel industry, which receives special assistance from the Government, and does so, presumably, because it met the 1983 policy criteria of being a large employer of labour with special regional significance.

The steel industry plan was announced on 11 August 1983 and operated from 1= January 1984 until 31 December 1988. Its history and progress is well documented in annual and special reports of the Steel Industry Authority. In the early 1980s, the world's steel industry was in recession and was characterised by excess capacity, high protection, substantial government assistance for exports and highly competitive production from newly developed countries.

For the Australian industry, demand for raw steel fell from a peak of 7 million tonnes in 1980-81 to about 4.6 million tonnes in 1982-83. The share obtained by Broken Hill Proprietary Co. Ltd (BHP) of that declining local demand was also in decline. In other words, imports were increasing. As well, exports of raw steel had been in steady decline since 1976-77.

A BHP submission to an Industries Assistance Commission (IAC) inquiry in December 1982 sought government assistance for a 10-year period. In return for an investment plan totalling $2.8 billion over 10 years to construct new steel making facilities, BHP sought as a minimum a guaranteed 85 per cent of the domestic market and full and immediate tax deductibility for all capital expenditure. In presenting this case, BHP said that the protection and assistance requirements were the minimum necessary to allow the company to survive. As well, it was subsequently reported to the Steel Industry Authority that at the time of the IAC inquiry, BHP had threatened that without that minimum protection and assistance, it would close its Newcastle and Whyalla plants and even consider a complete withdrawal from the domestic steel industry.

The Government responded in August 1983 with a five-year steel industry plan. Its principal objectives were to establish a viable and internationally competitive steel industry in Australia, to provide competitively priced steel to domestic users, and to provide job security for the industry's employees. We have to ask, of course, whether these objectives were achieved. Let us have a look at them.

Labour productivity at BHP steel plants was at an unacceptably low figure in 1983 of 191 tonnes per employee per annum, a figure which compared badly with about double that in Canada and even higher figures in modern Japanese, British and American plants. BHP initially sought to achieve a labour productivity level of 250 tonnes per employee per annum. This was achieved during 1984 and the target was increased to 350 tonnes per employee per annum by December 1988. In fact, the highest average level of productivity which I have been able to establish over the life of the plan was 294 tonnes per employee per annum at December 1985, with the highest specific level achieved being 322 tonnes per employee per annum at the Newcastle plant. At that time, for the sake of comparison, the Kimitsu plant in Japan was achieving 374 tonnes per employee per annum; Bethlehem Steel in the United States of America was achieving 388 tonnes per employee per annum, and British Steel's Port Talbot plant achieved 389 tonnes per employee per annum. To put it plainly, the best that the steel industry plan could achieve was productivity of about 80 per cent of that in comparable overseas plants.

In 1982 BHP formally submitted to the IAC that the survival and development of the industry would require a $2.8 billion investment outlay over 10 years. Yet one year later under the steel industry plan, BHP was able to commit itself to a capital program of only $800m over the first four years of the plan. It did exceed that target, but as the Bureau of Industry Economics has reported in a submission to the Steel Industry Authority, it is estimated that BHP already had plans in 1982, under its $2.8 billion proposal, to expend $712m on capital over the period 1983-87.

Given BHP's known capital stock situation in 1983, $400m per annum was needed merely for replacement purposes. In its submission, the Bureau of Industry Economics stated:

BHP's . . . total investment over the period of steel plan . . . may have been barely sufficient to recover the real replacement cost of the economic decay of existing capital assets.

The Steel Industry Authority report for the year to June 1988 makes two particularly telling observations. It states:

Investment by BHP in steel production during the 1970s was allowed to fall behind that which was necessary to keep pace with international trends in steel making technology and its Steel Division was, therefore, ill-equipped to deal with the recession in steel in the early 1980s and with the increased competitive pressure from overseas.

The report continued:

It is unclear to what extent the plant itself was responsible for this level of investment.

BHP's 1988-89 annual report shows a $664m capital expenditure during that year and a commitment to a further $1.1 billion future outlay. Given the assessment of the Steel Industry Authority in 1983 that BHP needed a $400m outlay per annum just to maintain the existing capital stock, I believe that an indexing of that figure would suggest that BHP's 1988-89 outlay provides for negligible real growth.

The attainment of a harmonious and constructive industrial relations climate was critical to the success of the steel industry plan and to the future viability of an Australian steel industry. This is something, of course, that the Government always prides itself on, particularly the Minister. Under the plan, the Australian Council of Trade Unions (ACTU) and BHP committed themselves to an agreed disputes settlement procedure. The man hours lost in the industry due to industrial disputation over the life of the plan speak for themselves. In 1981, 845,000 man hours were lost and in 1982, 550,000 man hours were lost. The figure fell to about 100,000 in 1984 and 1985. Then, the figure starts to increase again, with 233,000 man hours lost in 1986 and 376,000 man hours lost in 1987.

The Steel Industry Authority stated in a subsequent annual report that the dispute settlement procedures failed and that `clearly, poor industrial relations, particularly at Port Kembla, are inimical to the future growth and viability of Australia's basic steel industry'. Why then did the industrial relations commitment fail, particularly as it was so strongly supported by the Government? We turn again to the Steel Industry Authority. The Authority tells us that there was `a lack of union support to commitments'; that `no serious attempt appears to have been made by the ACTU to either explain to members the commitments made on their behalf'-that would be pretty right-`or to ensure that the commitments were honoured'-that would be even more right; and that `despite repeated invitations, Mr Kelty did not personally attend any of the Authority's meetings with BHP and the unions to discuss industrial relations issues'. Here was an unelected member of Cabinet not even turning up, not even going along to talk on these things.

Attention to improved quality was another cornerstone of the steel industry plans, both in terms of the product itself and the servicing of customer requirements. It had been expected that the steel industry plan would bring about a considerable improvement in this service. However, the Authority's report for 1987-88 stated that it found continuing evidence of a high level of dissatisfaction. The Steel Industry Authority cited considerable evidence of BHP's unreliability and attitudes causing either interference with or cancellation of export sales.

BHP would undoubtedly defend itself by, amongst other things, pointing to its recent export performance, including its Price Waterhouse Business Award as an export achiever. It is true that exports of iron and steel products were $710m in 1989-90, an increase of 42 per cent over 1988-89 exports of $498m. However, the 1988-89 figure was not only the lowest level of exports over the past five years, but exports have shown no real growth trend over at least the past 10 years. The only conclusion that can be drawn from this is that the 1990 export achievements simply reflect a reaction to surplus production being available from lowered domestic demand.

To give some substance to that claim, I notice that a recent media article cites BHP Steel's chief executive, John Prescott, as admitting that the recent export sales would seriously hit profits. Such a remark must imply that prices of overseas sales are less than those of domestic sales, with the ominous word `seriously' suggesting that those price reductions were probably very substantial. This is not indicative of a product which is competitive in overseas markets at viable prices. That viability is further questioned by Australia's imports of competitive iron and steel products. Since 1985, the value of those imports has almost doubled, and I make the observation that in 1983, when the steel industry plan began, we imported $115 worth of iron and steel products for every $100 worth of exports. In 1990 we are importing almost $150 worth of those products for every $100 worth exported.

Finally, in response to the difficulties of the 1980s, most steel companies around the world embarked on major restructuring programs to develop and install technologically improved facilities and processes. The major innovations have been improved blast furnace operations, continuous casting, improved rolling operations, and computerisation of production processes. BHP has been slow to adopt these new technologies, and all of the evidence at my disposal suggests that the Government steel industry plan, the industry itself and its work force failed to identify and achieve the real targets necessary to make BHP a viable operation by international standards.

Without a major change in government, management and trade union attitudes, it seems to me that the industry's viability is so fragile that its long term future in the face of anticipated technological change must be seriously in doubt. Today, some 14 months after the Minister's admission of failure, we are still waiting for the Hawke Government to bring in policies which will encourage the attitudinal changes in management and the trade unions that are so essential if Australia is ever to establish itself as a manufacturing nation of international standing.

Mr SPEAKER —Order! The honourable member's time has expired. Before I call the honourable member for Reid, I remind the House that this is the honourable member's maiden speech and I ask the House to extend to him the usual courtesies.