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STANDING COMMITTEE ON INFRASTRUCTURE, TRANSPORT, REGIONAL DEVELOPMENT AND LOCAL GOVERNMENT
23/04/2009
Impact of the global financial crisis on regional Australia

CHAIR —The committee has set aside the next period for members of the public to make brief statements. I have ‘three minutes’ written here in brackets; I might be a little more lenient than that. I would remind presenters that the committee is not able to investigate individual cases, and statements should focus on one or more aspects of the committee’s terms of reference. Although the committee does not require witnesses to give evidence under oath I should advise that the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. That being said, you are most welcome to provide evidence to the committee’s inquiry into the impact of the global financial crisis on regional areas.

Mr Carthew —Thank you for the opportunity to have a few words. In response to the first term of reference, the encouragement of economic development and employment, I will read this statement. My main point in being here is to ask a simple question of the government: do we want basic manufacturing jobs in Australia? Obviously that is a complex question but I would like to see it answered at some stage. I watch other countries protect manufacturing while we continue to remove what little tariffs and barriers we have. I have retrenched staff and watched them line up at Centrelink to collect benefits. Would it not be better to invest—ensuring that we have a place to work, socially engage and learn—instead of giving out handouts?

Living in a small city like Ararat allows us to see more clearly the impact of stripping away manufacturing, however obviously this issue goes right across the country. If you in the government or we as a team bravely wish to strip away the protection from and barriers to low-labour-cost countries then we should also strip away the barriers to a level playing field: superannuation, work cover, payroll tax, OH&S responsibilities and a long list that our competitors do not have to bear. The one I focus on mostly is the payroll tax. The government is asking us to hold and protect jobs—I alone have retrenched 77 people over the last few months as a result of the slow down and other factors—yet we continue to tax the employing of people. If we want economic development and employment in our region then we need to bring back the jobs.

I have spent quite a large proportion of my life in Ararat and I have watched it go from 10,000 back to 5,000 and then claw its way back to about 7,500 people. What is behind that? We have lost many jobs, both government and manufacturing. We need to learn from the fast-growing economies and regions. We need to build a strategy to bring manufacturing jobs out into our region, which will cause population growth and subsequent service improvements—transport, medical, dental, education, communication, social et cetera. Everyone is screaming out for these things but we have to have a basic look at it to see what we need to put in place first. I have lots of examples of these sorts of companies—like Kenworth Trucks in Bayswater—and what brought them to the area. What drove that was face to face communication and seeding these manufacturing or other opportunities in certain areas and certain places.

I will jump to the second point—there are two terms of reference—and refer back to what I have already said. By attracting significant employment—let’s look at trucks and buses; some niche manufacturing opportunities—we will bring the people back to where they need to be, to where we strategically want to grow our population. That then will drag in the essential services and social infrastructure that I talked about in my opening statement. They will also be attainable and sustainable because they will be used. There will be a purpose, instead of dragging things out here. I have watched us put bus routes in place. The buses drive past my house with one person on them. There are lots of things like that that do not make sense. We need to get the jobs here first and then build the infrastructure around them so that we are not wasting our country’s hard-earned tax. The zero growth that we have experienced in this region—I talk of the whole region, not just Ararat—and the further forecast of zero growth will never allow us to attract any attention or any significant investment.

To summarise, my main point is we have to have a look at models that are being used by China and the surging nations, have a look at the very basics of them, go and get the opportunity and seed it where it needs to be. So thanks for the opportunity.

CHAIR —Thank you very much for that evidence. Your sector, you are in car componentry is that right?

Mr Carthew —It is more niche. I would like to direct it away from automobiles.

CHAIR —So what do you make?

Mr Carthew —We make all the wiring for Kenworth Trucks, Iveco Trucks, Mack Trucks. We also do aircraft, buses, motorcycles, farm machinery and some really good niche areas.

CHAIR —I have some transport sector industries in my own electorate. Has it been particularly in the transport sector that you have noticed a decline in your orders or is it across-the-board?

Mr Carthew —It is across-the-board. Defence is looking good at the moment as there are some long-term orders for the Bushmaster and things like that. Buses are looking strong in this environment; Volgren and companies like that are doing very well. There is a strong need to build factories in New South Wales and we are supporting that need. But, generally, things are slowing and the truck side has more than halved.

CHAIR —Have you had the local AusIndustry representative, John Finch, out to your company?

Mr Carthew —I have met John and also the ICN and many people. It is quite hard to access some of that support; it is not easy.

CHAIR —In terms of the government grants themselves, are there barriers for you to access those or is it difficult to get access to the people to tell you about them?

Mr Carthew —I go and meet the people but it seems awfully hard. We have invested $1.6 million in machinery over the last few years. I have had business trips to Switzerland to source it and bring it back. Each time I go I say, ‘There is possibly some support available here.’ But it generally just seems too hard to get. We just go on about our business and get the job done. In the past we have applied for some training grants and we have been successful a few times.

As an educated tradesman with a bachelor degree and so forth, it is beyond me that you can grow a business successfully and on one side of a $5 million payroll you do not have to pay this extra burden, but then all of a sudden because you have done a good job and grown a successful business you have this huge tax. We are paying between $300,000 and $500,000 a year in payroll tax. We are in a very small town, we are the biggest employer in this region and yet we are risking all of that. If I can add, from a passionate point of view, my young brother and myself are months away from the succession process and buying the business from the family.

I would really like to know the answer to these questions: do you want us to be here in Ararat? Do you want us to move forward, and, if so, how can we remove some of these burdens, payroll tax being the first one? We could put that back into employment, investment, better systems and so forth.

CHAIR —Thank you.

Mr SULLIVAN —As you are probably aware, the position of your company came up in a couple of presentations that we had earlier on today and there was a suggestion that there is some pressure for your company to go offshore for its manufacturing process. Is that locally generated, generated as a consequence of all of those issues that you just mentioned that you have to pay as an Australian employer or generated from someone making approaches to you?

Mr Carthew —We have not easily been able to pass labour increases and the other increases that we have incurred over the last five to 10 years back down the supply chain, so our margins have been diminished. Yesterday we had meetings with a major customer who has people in China looking to replace our input. It is real; it is coming from our major customers and it is pressure for us to go offshore.

I have travelled in Malaysia, Mexico, China and all over the world looking for options but we are trapped in this funny position with the niche market. The volume does not seem to be there to go offshore nor the will. We are a family business. I have got my brother, I have two children and I would like us to be here for 30 years offering an opportunity but there is massive pressure against that.

I might add that one of the options I have been looking at for the last few years is turning some of the civil jobs into jobs in the prison system. I do not particularly want to do it. I would rather employ persons who are not imprisoned—

Mr SULLIVAN —Uncaught criminals!

Mr Carthew —Yes, there are probably a few amongst us! If I need to protect some of those positions by pushing other positions into the prison system maybe we have to do that. That will not look very good in the eyes of the public, but we may be forced to go down that road.

Mr SULLIVAN —You asked a question at the outset about whether we want a manufacturing industry. I think you need to take some heart from what was the Prime Minister’s second public pronouncement after he was elevated to the leadership of the then opposition. He said that he did not want to be Prime Minister of a country that did not make things any more. He did not define ‘things’—whether they were things for which we fought to drive down wages and conditions in our workforce in order to compete with the low-wage shores or whether he was talking about things that we could sell in niche markets overseas at a premium price, where wages and wage on-costs do not matter. I can give you an example of that privately afterwards if you like. But we do seriously want a manufacturing industry in this country.

You talked about your payroll tax being $300,000 to $500,000. What is that as a percentage of your business turnover?

Mr Carthew —I will let you do the maths for me. As a percentage of profits it ranged between 15 and 21 per cent the last time we did it. The numbers are significant. We are a highly labour-intensive business. This year we will probably turn over around $27 million with 220 employees. So we have got a lot of people to generate a fairly small number. Therefore, that tax as a percentage is massive.

Mr SULLIVAN —You do appreciate of course that payroll tax is a state tax that we have no coercive power over.

Mr Carthew —I fully understand that but I thought it was important that we got the message out there. I do not want to take the decision in a few months time to take this business offshore or shut it down. They are our options. If we cannot generate a reasonable return from it, it ceases to exist. It would be a huge shock to this community. To lose 220 positions would be terrible.

Mr SULLIVAN —You would have to leave town.

Mr Carthew —Almost certainly. I would be one of the ones leaving because I would not be able to live here.

CHAIR —Thank you for your evidence, Mr Carthew. As a government member I can assure you that the government is aware of the pressure that is currently being faced by manufacturing. The examination is for how we actually manage that in the short and long term. Certainly, a number of us have been raising these concerns consistently. You will receive a proof copy of the Hansard transcript of today’s proceedings and we invite you to advise us of any changes you would recommend.

Ms Rank and Mr Paterson, would either or both of you like to make a statement?

Ms Rank —Yes, I wanted to inform you about what we are doing in the south-west to overcome the economic crisis. The Committee for Portland was developed by businesses, industries, local government and people from the community coming together to create a membership to work on a number of projects. We find that networking in our region is extremely important because we have a lot of businesses and a lot of middle to high management who find that they need to go elsewhere for their stimulation and their training. The networking is an important aspect that we deliver.

Another role is to advocate for key issues that come up from time to time, such as transport—high vehicle productivity is one that we are supporting, as well as support for Essendon and Avalon airports. The other role is for us to roll out projects. That is where our opportunity is to make a difference. That is where we have come from.

We applaud nation-building initiatives that have recently been announced, including the plans for broadband coverage. We also applaud the government’s initiatives to build road, rail and port transport. But we also encourage the bigger businesses to come to our region. To do that, and to keep the partners and families in our region, we have to provide training.

The issue that we have with health care in our area is a shortage of medical staff. Recently most of our births have occurred in Warrnambool, not in Portland. There are areas in which we could help our healthcare system.

Even though there have been big improvements in our education system in terms of upgrading buildings, we believe that the tertiary and higher education systems need support because they are the engine room for skills and future innovation, and we support them. We support the trade training centres. We would like to help them because we have big businesses that support that concept. As was mentioned before, Keppel Prince are one of those. Portland Aluminium are another big supporter of that concept. We welcome the Jobs Fund that has just been released. We will tap into that to try to roll out projects that will support small business. We see that there is a need to run training in our region because no training is provided. We also want to provide business management programs, and we could do that through our TAFE system. That is where we need support there.

To highlight what is happening in our region, tourism is a growth industry. Tourism in our region is increasing, probably through our fishing industry. We have had a boom fishing season. We are becoming the most popular deep-sea fishing destination in the south-east of Australia, which provides us with a big tourism opportunity. Local government are developing a third boat ramp. We find that from weekend to weekend 200 to 300 boats come from across Australia to fish in our region. Of course, that causes great economic growth in our region.

We need the government to support Portland Aluminium. As Scott mentioned, they employ locally 600 employees and 200 contractors, and create a range of indirect jobs. Even though the government needs to be sensitive with the environment, they also need to support our key industry, Portland Aluminium.

Local government is supporting and has applied for funding to upgrade our airport as well. That is a key driver for our region because it is one of the quickest and most efficient ways in and out. Our links to Essendon and Avalon are extremely important there. Any funding that could be directed towards that master plan would be extremely beneficial.

As I said, the role of the Committee for Portland is to deliver projects to small businesses and individuals to upskill them. We find that people go to Melbourne for their training or are educated here and move away, and it is hard to bring them back. So, if we can keep people here by upskilling them, that will be beneficial to our region.

The Committee for Portland believes that, despite the current global economic turmoil, our region with its large and unique industry base and deepwater port is well placed to capitalise on the outstanding growth potential in the timber, agriculture, mineral sands and renewable energy sectors, which we probably have not talked about a lot today. We encourage the federal government to provide funding for projects that will stimulate economic development and employment in our region.

CHAIR —Thank you. Mr Paterson, did you wish to add anything?

Mr Paterson —At a higher level, if I might. The local economy of Portland and the Glenelg Shire, which we represent, is very dependent on direct employment, direct employment from industries that are heavily exposed to international markets. We have spoken, through the presentation from the Port of Portland, about a number of those industries and how they may be tracking.

We do not have a strong or very large domestic economy per se and we do not have the cafe culture type of thing. Therefore, I think a lot of domestic stimulus packages, although gratefully received, will not have the multiplier impact in a town like Portland or a region like Glenelg, or in Ararat, for that matter, that they might have in, say, downtown Melbourne. So the comment that the industry would like to make to this hearing is very much that we are exposed. Although we are impacted in Australia by the global financial crisis, I strongly believe Australia is very well placed; however, the markets that a lot of our industries are dealing with—Japan, the Asian markets, the North American markets et cetera—are heavily impacted. We probably do not see that as much domestically as we might well do.

CHAIR —Thank you. We chose different areas to go to for this inquiry so I am conscious that, while we may be in Ararat, having Portland represented here does provide us with a different picture, as you have just stated in terms of what your economy is reliant on. That has been really important evidence for us to hear today, because different regions are experiencing different things, depending on the mix of their economy. It has been very helpful.

Mr NEVILLE —What is the ask on the airport—how many million dollars to upgrade it?

Mr Paterson —I do not think it even gets to a million.

Ms Rank —No.

Mr NEVILLE —It does not get to a million?

Ms Rank —No.

Mr NEVILLE —Everyone else is talking in tens.

Ms Rank —Yes. We would be easily satisfied.

Mr NEVILLE —What aircraft do you have servicing the airport?

Mr Paterson —We have a private airline, Sharp, and they fly Metroliners—19-seaters.

Mr NEVILLE —You say you want the link with Avalon. Why Avalon?

Mr Paterson —The major link for Avalon is with the smelter.

Mr NEVILLE —Fly-in fly-out?

Mr Paterson —Yes. They transfer people back and forth between the two smelters.

Mr NEVILLE —Do you have a daily service from Melbourne?

Mr Paterson —Yes, we have more than one flight; we have two a day, each way.

Mr NEVILLE —Can the public buy tickets on those aircraft?

Mr Paterson —Yes. It is a very good service and it is underwritten by industry.

Mr NEVILLE —They are all Metroliners?

Mr Paterson —Yes.

Mr NEVILLE —How long since Qantas or TAA or Ansett were in there?

Ms Rank —Rex was in there last year. They have focused in other regions.

Mr Paterson —Rex pulled out in early 2007.

Mr SULLIVAN —Why did Rex withdraw?

Mr Paterson —Economics, I would have thought.

Mr SULLIVAN —They did not have the same underwriting from industry that the new operator has?

Mr Paterson —I was very new to the region at that stage but my perception is that when Rex withdrew, industry rallied round to make sure that the incumbent—there were two operators—survived. With competition in that sort of market you would end up with both parties going bust, unfortunately.

Mr NEVILLE —Yes.

Mr SULLIVAN —And it only links to Melbourne, not to Mount Gambier and on to Adelaide?

Mr Paterson —It is about to.

Ms Rank —He is trialling that service.

Mr SULLIVAN —It makes sense.

CHAIR —As there are no further questions, thank you very much for attending the hearing today. You will receive a proof transcript of your evidence for any corrections. Thanks for taking the time to present before us. Thank you to Hansard.

Is it the wish of the committee that we receive the submission from Grampians Tourism as a submission to the inquiry? There being no objection, it is so ordered.

Resolved (on motion by Mr Neville):

That this committee authorises publication of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 3.09 pm