President Obama must be now pondering whether to send Julia Gillard a thank you note. I jest, but the US stands to be a beneficiary from Australia’s so-called jobs package – although Europe will also try hard to get a share of the spoils.
Although well intentioned, Gillard may have set a dangerous precedent in her package. It may cost jobs not create them because, unlike the US, the current Australian government has not woken up to the fact that the global game has changed.
A few years ago Australia was a low-cost wonderful place to undertake research and it attracted majors and this was a huge driver for our largest corporate research spender CSL.
But CSL last year sounded an ominous warning – it's now much cheaper to do research in the US and Europe because of bigger grants, the high Australian dollar and Australian pay rates.
CSL believed they would be hit but this morning the government confirmed that they would only target companies with turnover of above $20 billion. CSL’s turnover is only $5 billion, so it is safe.
However, everyone is on edge because the amount of research conducted by major multinationals in Australia is small, limiting the revenue effect. Miners are investing in R&D to increase their productivity but the government will be hard pressed to fund the innovation programs by attacking mining research.
Despite the $20 billion cap, the Gillard message heard in Australian boardrooms was that large corporate research is not wanted in Australia – that 'we want unionised blue collar jobs and venture capitalists' – good Labor supporters.
I emphasise that Gillard does not have that view nor did she say that but that’s how she comes across to large corporate directors spending vast sums on Australian research. Over in the US, Obama realises that research is what drives innovation and manufacturing. Even if CSL is below the cap, his top people will target CSL to get them to move their research out of Gillard’s hometown of Melbourne.
The US will point out to CSL that already it provides most of its raw material and CSL’s rival Baxter has a big advantage over CSL because it receives the benefits of doing research in the US. However, Switzerland already has a large, low-cost CSL research base and will want to grab the massive CSL Australian research.
It’s all very well to spray money around in precincts but you need to be globally competitive. When research in Australia is slashed our science graduates must go to the US or elsewhere.
When it comes to minerals Australia has become one of the highest cost places in the world to start a new LNG plant or mine. Bad management at places like Gorgon and the Queensland shale gas developments has caused a lot of that cost rise, but the government’s industrial relations legislation and militant unions also created big cost rises.
Now for new projects we are to have a new layer of complexity – local product sourcing. To revive mining capital projects we need to start with Baillieu style building contract rules not extra costs. Until that happens most new projects will be mothballed. I think there was scope for more Australian content but the game now is about getting projects not trying to make them more difficult.
For the big miners, who benefitted from defraying the MRRT with their huge capital outlays, it looks like now it’s payback time.
This is an amended version of the article. Previously, CSL was believed to be hit by the tax cut but it is now understood it falls under the threshold.
Gillard to corporates: We don't want your money here
Labor's innovation and jobs plan fails to account for seismic shifts in the global environment, and sends a strong message that business should spend its research dollars elsewhere.
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