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Monday, 22 April 1985
Page: 1327

Senator SHORT(8.50) —The Bounty (Injection-moulding Equipment) Amendment Bill 1985 is, in itself, perhaps a relatively minor piece of legislation. It provides for the continuing payment of a bounty on the value-added components of locally produced injection-moulding equipment and parts thereof. The rate of bounty payment will be 20 per cent in each of the two years after 23 November 1984 and 10 per cent in each of the succeeding two years, concluding on 9 October 1988. The maximum amount to be paid by way of bounty in these four years is limited to $2m. The bounty will be paid almost exclusively to the Albury-based firm, Battenfeld (Aust.) Pty Ltd, which is a 100 per cent owned subsidiary of its German parent company.

Battenfeld is the only remaining producer of injection-moulding equipment. A decade ago there were about five such producers. Battenfeld was left the field to itself in 1983 when the then only other producer, Johns Consolidated Ltd, went into liquidation. Battenfeld also imports injection-moulding equipment from its parent company. In 1982-83, the last year for which I have statistics, 37 per cent of the value of Battenfeld's sales of injection-moulding equipment comprised the sale of imported equipment. Battenfeld appears to have less than 20 per cent of the Australian market. Imports, primarily from West Germany, Austria, Japan and Italy, comprise the other 80 per cent. Of course, part of that 80 per cent comprises machines imported by Battenfeld.

Battenfeld employs approximately 90 people of whom, as the Leader of the Opposition, Senator Chaney, has said, less than half are engaged in the production process. The rest are employed in administration, sales, distribution and servicing. Injection-moulding machines are used by the plastics processing industry. The industry also uses blow-moulding machines. There is a wide range of each of these types of machines. Each type and sub-type has a specific use. In passing I mention that any future inquiry into injection-moulding machines in Australia ought to look at the wider range of machines used in the plastics processing industry. That is the background to the industry, a small industry employing fewer than 100 people and about to enjoy a bounty, provided, of course, at the taxpayers' expense, of a further $2m over the next four years, in addition to a bounty of more than $5m received by the industry over the previous four to five years.

The bounty, although said to be very significant to Battenfeld is minuscule when one considers government spending as a whole. So why did this seemingly minor piece of legislation receive so much attention from the Opposition in the House of Representatives last week, in our Party room and, I might say with some interest, in the Press? It seems to me to have received this attention for two main reasons. The first is that, quite frankly, the Government has made what can only be judged to be an absurd decision in this matter. I will come back to that in some detail in a moment. The second reason is that the Opposition is using this Bill, as it will use similar opportunities, to make known its views on industry restructuring and on the policies it will adopt when it returns to government in 1988, 1987 or earlier if the Government's recent performances are any indication.

Before coming back to the specific substance of the matter before the Senate, I shall comment briefly on some of the media reporting of the matter that has occurred in recent days. Comments in respected newsletters such as Inside Canberra, in business journals such as the Business Review Weekly, and in daily newspapers such as the Australian Financial Review and the Australian today have given the impression that there has been some battle or division within the coalition parties on this issue, that somehow there has been a fight between the so-called dries and the so-called wets within the Opposition. Incidentally, such terms have no sensible meaning. They really should be discarded in the context of any professional analysis of different streams of thought within the coalition parties.

Senator Gareth Evans —Won't either group let you in?

Senator SHORT —Senator Gareth Evans would be a notable absentee from both groups. Media reports of a split in the Opposition parties on this bounty proposal are, in my view as a closely involved participant, being chairman of the Opposition's industry, technology and commerce committee, simply not correct. There was no opposition amongst coalition members to the view that the Government's decision to continue the bounty arrangement is a bad decision. There was no opposition to the view that if the coalition parties had been in government we would certainly not have made the same decision as the Labor Government has made. There was no opposition to the view that the coalition parties should not positively endorse the Government's decision.

There was debate on the question of how best to handle the Bill from a parliamentary point of view. We had two options. One was formally to oppose the Bill. The other was to allow its passage but to register our concern and use the occasion to draw attention to the stupidity of the specific decision and to some relevant broader issues. The coalition parties chose the second option for several reasons. Those reasons included considerations relating to the conduct of the Senate, the fact that the Bill relates only to the bounty element of the assistance provided to the industry and does not cover the 15 per cent tariff duty which also protects the industry, the relevance to this industry of the Industries Assistance Commission's still to be completed inquiry into the chemical and plastics industries and the fact that there is no precedent for defeating such a single-issue industry assistance measure as this. So the specific handling of this Bill in the Parliament was a matter of judgment. However, I repeat: There was no split on the correctness or otherwise of the Government's decision. We think it is a bad decision. We also doubt whether the recommendations of the IAC which the Government accepted were in line with the argumentation and logic contained in the IAC's own report.

I shall look now at the history of this industry and its treatment by government. I believe that it is a classic case of the application of protection to a new or infant industry which has continued over the years even though the infant has failed to grow up. It is a classic case of how not to go about the sensible and viable development of the Australian manufacturing sector. The industry has been the subject of five IAC inquiries and two Temporary Asistance Authority inquiries in the past 10 years-that is, seven inquiries in 10 years. Prior to 1973, the industry enjoyed tariff protection of 55 per cent. In July 1973 that figure was reduced to 41 per cent as a result of the Whitlam Government's 25 per cent across the board tariff cut. However, in July 1975 the tariff was restored to 55 per cent following a TAA inquiry. Later in 1975 the IAC recommended a reduction in the tariff to 25 per cent, phased in over four years. The Government, however, rejected that recommendation and retained the duty at 55 per cent.

In 1979 the IAC recommended that the tariff be reduced to 15 per cent but that a 45 per cent bounty be introduced, which bounty should reduce by 10 per cent each year to 5 per cent in 1983 and to nil in May 1984, leaving thereafter only the tariff assistance of 15 per cent. The then Government accepted this recommendation. In 1982, however, the industry, which then totalled only two firms-Johns Consolidated and Battenfeld-sought additional temporary assistance. In January 1983 the TAA recommended that additional temporary assistance was not justified, but the Government rejected this advice and in June 1980 granted an additional temporary bounty of 20 per cent, making a total bounty of 25 per cent because the industry still had the previous long term 5 per cent bounty. It had that bounty in addition to the 15 per cent tariff, pending the outcome of the full IAC inquiry to follow.

The IAC inquiry was completed in 1984. It recommended that the 15 per cent tariff be retained and that a 20 per cent bounty apply for each of the next two years, reducing to 10 per cent for each of the subsequent two years and terminating completely in October 1988. The Government accepted this recommendation, and it is the bounty element of the Government's decision which is the subject of the Bill we are now debating. So what the Government is doing in this Bill is to maintain the additional temporary bounty granted in 1983 but at a slightly lower level for the next two years-20 per cent compared with 25 per cent-before reducing it to 10 per cent in 1987 and 1988.

The bounty is now scheduled to terminate in October 1988 rather than in May 1984, as was envisaged in the earlier 1979 government decision. In other words, this decision represents a considerable increase in the long term protection afforded the industry between 1983 and 1988 despite the fact that most of that protection will terminate on that date. One would be entitled to assume that there are good arguments for such a generous decision, but search as I might, I can find none. The main argument advanced by the IAC seems to be that the sole remaining producer, Battenfeld, will be able to achieve sufficient market share over the next three or so years to be able to compete effectively with imports by the end of 1988 with the assistance of only a 15 per cent tariff and that therefore the bounty assistance is justified in the interim. Where is the evidence to support this optimism? I find it difficult to see any. Battenfeld is looking to achieve a market share of 40 per cent. That would require more than a doubling of its present market share, a share which has declined progressively over the past several years. So a 40 per cent market share is extremely unlikely. Even if Battenfeld did double its output, on its own evidence, its costs would fall by only 13 per cent. That is hardly dramatic.

In 1974 when there were still several local producers, they argued for short term assistance on the grounds that it would allow them to implement rationalisation plans and to become more competitive. It did not happen. In 1975 they argued that higher long term protection was justified to enable them to undertake necessary re-organisation. It did not happen. In 1978 the IAC accepted that continuing high assistance was justified because the then two remaining producers said they were rationalising their activities to become more competitive with imports at a lower level of assistance. They cited specific details of planned research and development production and export programs. These did not happen; on the contrary, one of the two firms, Johns, went broke in 1983 and the remaining firm, Battenfeld, ceased exporting in 1981.

Battenfeld has been struggling to survive even with the generous assistance provided by users and by the general taxpayer. In recent years the company's profitability, even with this assistance, has been about one-fifth of the average for manufacturing industry in Australia. In other words, the highly generous assistance provided to this industry over many years has not improved its relative competitiveness-its market share has been progressively eroded-nor has it assisted employment in the industry. Employment has fallen progressively for more than a decade. Battenfeld acknowledged at the IAC inquiry that it has limited prospects of utilising latest technologies and no scope for introducing the latest computerised numerically controlled machine tools with robotic handling systems. The IAC in its latest report on the industry stated:

. . . there appears to be little scope for further improvement to the structure of the industry.

There is virtually no prospect of developing an export market, with the possible exception of New Zealand. Perhaps the most damning paragraph in the IAC's latest report, which the Government has accepted, is to be found on page 17. It states:

In evidence to previous inquiries, local producers claimed that they had restructuring and developmental plans in train that would enable local manufacture to become competitive with imports at more moderate levels of assistance. Battenfeld now claims, however, that it needs assistance of the same order as recommended in the Commission's 1978 report for a further period of five years commencing 1984, ''to achieve the aims envisaged by the 1979 decision of the Government''.

Surely, the above facts provide very strong evidence that this bounty proposal to give Battenfeld a further $2m of taxpayers' money over the next four years-that is about $28,000 per person employed by the company-is simply a classic case of throwing good money after bad. But there are other facts which should be brought out too. In the past few days I have spoken with three plastic processing firms which, collectively, were large users of Battenfeld injection moulding machines. One of the three firms, Fallshaw Holdings Pty Ltd, was willing to have its name mentioned by me this evening. The other two preferred to remain unidentified. All three had the same story to tell independently of each other. In summary, they said that, firstly, they would never buy a Battenfeld machine again. They would not do so for three main reasons, the first being that in many cases the machines were overpriced; the second, that in most cases the machines were inferior in quality to imported machines; and, the third and most important reason was that Battenfeld's maintenance and servicing facilities were totally unsatisfactory in quality of servicing, due partly to demarcation disputes amongst unionised service employees from different unions and, partly, to the lack of skills of those employees. There were also delays in obtaining emergency spare parts because of Battenfeld's policies on holding stocks in Australia. Two of the three firms said: 'Battenfeld has gone backwards as a company over the past two years'. Machine reliability is of critical importance to users. All three firms now consider that they have this reliability, which they did not have with Battenfeld.

Another consideration which should be taken into account is the very real need in Australia to avoid taxing the inputs to user industries in the form of raw materials and intermediate goods. The plastics industry in Australia suffers from very high raw material costs because of the protection afforded local manufacturers. New Zealand plastics manufacturers, for example, pay 50 per cent less than Australian manufacturers for their raw materials because the New Zealanders can buy on the world market. Injection-moulding machines, to which the 15 per cent tariff applies, are another added cost burden, yet the plastics industry in Australia employs 30,000 to 33,000 people, compared with fewer than 100 in the injection-moulding machine industry.

The tremendous wage and wage-related costs experienced by Australian manufacturers, including Battenfeld, of course, as a result of the failure of the Government to do anything to tackle the iniquitous wage rigidities that confront Australian producers, are another major cost obstacle for our manufacturing sector. Unless the Government starts to adopt a coherent approach towards its overall economic management and industry policies-I take Senator Chaney's point that it should include not just assistance policies-and unless it takes a firm approach to its wages and industrial relations policies, no amount of the fine talk or rhetoric that we have become accustomed to hearing from Government Ministers will do one jot towards restructuring industry in Australia to put it on a viable, internationally competitive base. I say to the Government that it is time to stop the fine talk and get on with some action. When the Government does take action, I hope it is more logical and reasoned than the action envisaged in this Bill.

Senator Chaney said earlier that the Opposition looks forward to continuing to participate in debates of this nature on industry policy in Australia. There are few more serious and important issues facing this country. We will obviously have our differences of view as to the best way of tackling the problems that lie ahead, but the encouraging start we have made in recent weeks in opening up the debate, in this chamber and elsewhere, is a good sign, and I hope we will be able to continue in the vein in which we have commenced.