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

The Productivity Commission is an independent Australian government agency that provides advice on economic, social, and environmental issues. Its role is to conduct research and inquiries and provide recommendations to the government and the public on ways to improve productivity and efficiency in various sectors of the economy.

In recent times, the Australian government has announced plans to subsidize local manufacturing industries as part of its economic recovery strategy from the COVID-19 pandemic. The aim is to boost domestic production and reduce reliance on imports, particularly in key sectors such as medical supplies and critical minerals.

However, according to Productivity Commission Chair Danielle Wood, this approach could create a two-tiered business system, with some companies becoming overly reliant on government handouts rather than focusing on their own productivity and competitiveness. In her view, such a situation could hinder the long-term growth and sustainability of these industries.

Wood expressed her concerns during a speech at the National Press Club in Canberra in late 2021. She argued that while some level of government support may be necessary for certain industries during times of crisis or transition, excessive reliance on subsidies could lead to a "perverse incentive" for companies to focus more on securing funding than on improving their own productivity and competitiveness.

She also highlighted the potential for such a system to create an unfair advantage for subsidized companies over their competitors, both domestic and international. This could stifle innovation and competition in the long run and ultimately harm consumers and taxpayers.

Wood emphasized the importance of a level playing field for all businesses and called for a focus on structural reforms and productivity improvements rather than just short-term subsidies. She suggested that the government should consider measures such as investing in skills development, reducing regulatory barriers, and improving infrastructure to help all businesses thrive and compete in a globalized economy.

It is important to note that the Productivity Commission's role is to provide advice and recommendations, and it does not have the power to implement policy changes itself. The ultimate decision on how to proceed with the manufacturing subsidy plan rests with the government. However, the commission's concerns add to the ongoing debate about the role of government support in fostering a competitive and productive economy.