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Wednesday, 17 November 2004
Page: 63

Senator LUNDY (1:00 PM) —I rise in this debate on matters of public interest to reflect upon information technology policy. I will use this opportunity to continue the comments I made in my reply to the Governor-General's address. Information technology remains one of the most important change agents in our society, culture and economy. I am very pleased to see the portfolio ascend to shadow cabinet in the capable hands of Senator Conroy. Labor have a lot to be proud of with respect to our IT policies as presented during the election just past. Of course, it is of great regret that there will not be the opportunity to implement them—not in the forthcoming three years, anyway.

The principles and motivation underpinning our IT industry policies relate directly to increasing the competitiveness and capacity of the information and communication technology industries in Australia. This economic aspiration is guided by a strong belief in the ability of this sector to be one of the best in the world. Labor has always understood the importance of strategic industry policy that helps sectors with strong export potential to grow. The creation of new enterprises born of good ideas and their development into sustainable, employment creating, export oriented businesses is essential for Australia's economic health now and in the future. This is also an area of great distinction between the Labor Party and the coalition government. Under the government's watch, Australia's performance in IT manufactures has actually worsened. Whilst services have grown, they have not kept pace with increasing imports. This has led to a trade deficit in information and communication technologies that has grown unacceptably fast. In fact, it has grown at a rate of 7.4 per cent per annum since about 1994-95. It now stands at around $14.4 billion, which represents imports of some $19.7 billion offset by about $5.3 billion of exports. This deficit has become the symbol of the Howard government's failure to promote and support the development of the local ICT industry to become necessarily more competitive globally.

One of the key measures of competitiveness is an Australian firm's ability to demonstrate performance to potential export markets and overseas clients. Labor learnt very early by listening to successful local IT companies how important the presence of a reference site created by a large contract is in their endeavours to sell their services and products overseas. Given the nature of the Australian market, it is not surprising that government contracts, which represent the largest ICT opportunities in Australia, have become critically important in the ability of our local firms to establish those reference sites they need to establish their export credentials. But the coalition government have never understood this. They have been blinded by an ideology that says we must outsource in whatever way we can. Ironically, the coalition's allegation that Labor's concerns about government IT outsourcing are based on ideology is absolutely unfounded. The reverse is true.

There are many good proven reasons to keep strategic control of IT outsourcing in house. It makes sense: managers need to know what they are doing with technology in order to have the service delivery and quality control they require to effectively manage. But it is not possible to have much of the equipment sourced and many of the services performed in house, and they are necessarily and appropriately outsourced. But this head-in-the-sand approach has rendered the coalition deaf and blind to the folly of their failed IT outsourcing debacle. A high price was paid by local industry, which lost work opportunities, as well as by agencies and departments who suffered the fiscal and technical consequences of the IT outsourcing program for many years. Many, I have to say, are still paying a very high price for that mistake.

In contrast, Labor's approach rejected what we consider active discrimination against demonstrably capable and competitive local companies. I am perhaps proudest of our commitment, in our policies leading up to the election, to remove this active discrimination against local companies participating in government contracts. To remove this would resolve a great injustice that has denied many deserving enterprises the chance not just to innovate here in Australia and to build their businesses but also to build the scale they need to expand into export markets. While government contracts constitute a crucial export credential not just in IT, the latter is important given the value and synergy of having a strong local industry combined with strong usage of ICT providers. The contribution of those two things to not only our economic wellbeing but also our social and cultural wellbeing into the future is crucial.

As a final note on this issue: what happens next under the coalition government? The issue of barriers to government contracts is well known and well articulated. It should be well understood. Indeed, the new minister for IT, Senator Coonan, followed Labor's lead and conceded that action was required to remove onerous insurance barriers that have prevented local companies from tendering. Therefore, the big question is: will the minister follow up or will this be another non-core promise? I fear the latter, as some two days after the election result we saw that the responsibility for IT outsourcing will be transferring from the new minister's department—that is, the Department of Communications, Information Technology and the Arts—back to the department of finance. This is quite an extraordinary outcome. There have been many comments, debates and issues about the operation of the Australian Government Information Management Office during the campaign and over the last year, but not for one second did the Howard government allude to the fact that they were planning to move that whole unit out of that department and put it back into the department of finance.

This is the worst-case scenario. As any commentator, journalist or stakeholder in the industry will know—or, indeed, as any public servant with just a little knowledge of the history of the former IT outsourcing debacle will know—it started because the contracting out of IT in government was based within the department of finance. The department of finance, from 1996 through to the year 2000, was responsible for the chronic mishandling of IT outsourcing contracts within the Howard government, not least because it sought as a third party to negotiate the contracts that would exist between the private vendors—the companies providing the IT services—and agencies and departments themselves.

So now under the Howard government we have a back to the future time warp to 1996. This does not augur well for many of the challenges that sit before those in the industry who continue their fearsome advocacy for the removal of discrimination against their ability to tender. Indeed, it is hypocrisy on the part of the Howard government, which likes to talk about economic responsibility but which fails to realise that its mishandling of these areas stifles competition and is likely to produce a worse outcome with respect to the expenditure of taxpayers' money, not least because it is excluding a critical sector of the market from even competing for government tenders.

There is another whole range of arguments as to the downward effect this has on innovation, competitive pressures and pricing. Why on earth would you continue with this methodology when it has been so ridiculed and has not been proven in the public debate? It is not economically responsible to persist with this approach. It will be interesting to see now which minister has responsibility for all of these issues. Will it be Senator Coonan? Will it be Mr Hockey in his new role as Minister for Human Services? Will it be Senator Minchin in his role as finance minister? It is now very unclear, and that is not good news for small businesses seeking to have that discrimination against them removed.

It is also interesting to follow the pattern in government outsourcing. One of the areas that I mentioned where they have really squandered an opportunity is innovation. The very big contracts that are pitched to them on the basis of some economies of scale and price have the very demonstrable effect of suppressing innovation—to the point where open source software, which has the potential not only to compete on its merits but also to provide a very important competitive pressure or tension within that market of government IT work, is likely to be prevented from having the opportunity to compete. Again, the government have paid a great deal of lip service to this area, but there has not been any real movement. It remains one of the immediate challenges for the Howard government to open the doors to allow greater competition within the sector competing for government work.

This takes me to the issue of broader industry development. My comments have been focused around the opportunity that access to government work provides. But that really sits as a subset of the bigger question. Labor policies provide a very comprehensive 10-year vision for the development of the sector. We at least understand that it is the synergy of our status as an advanced user of information and communication technologies and our capacity to be early adopters both in industry and in the community of information and communication technologies combined with our capacity to produce in this sector that offers the best opportunity for productivity growth and therefore economic growth in Australia. It is the combined strength of both these factors that therefore constitutes the economically responsible path for Australia's future in these sectors.

Multifactor productivity has been for many years now a crucial measure in the current and future economic health of a nation. If the Howard government had any economic credibility it would have translated this into some sharp policies that understood the necessity for strong usage of ICT, which has always been lauded—and from the coalition's perspective there is an absence of any understanding of the synergistic benefits of having a stronger capacity in the production area of ICT. The OECD can demonstrate through their analysis that it is a combination of these two strengths that really gives the economy of a given nation the grunt it needs to maximise the return from productivity growth.

The coalition government have never acknowledged this. Their chronic neglect of investment in the foundations where these skills and opportunities come from, the stripping of billions of dollars from higher education, the cutting back of research and development through the crucial years in the late nineties—and that neglect continues—and their absolute ignorance in dealing with the perennial missing link in Australia's innovation landscape, that of commercialisation, is culminating in an area of fundamental neglect, which is the production and manufacture of ICT in Australia. It is on that basis that I approach my new portfolio responsibilities with such anticipation.