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The 2013 Federal Election and Australian industries

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As election day approaches, IBISWorld weighs in on key Labor and Coalition policies, and the industries they will affect.

IBISWorld’s August report covers the positions taken by the two Labor and Coalition parties on major issues impacting Australian industry including workplace reform, energy, resources, broadband network, transport infrastructure, manufacturing and education.

The 2013 Federal Government election will be dominated by concerns about the economy. The end of the mining investment boom and the continued decline of the manufacturing sector have set a pessimistic tone among Australian businesses. The Labor Government has taken a ‘glass half full’ approach, pointing out Australia’s strong economic position relative to other advanced economies and successful economic guidance during the global financial crisis. In contrast, the Coalition points out a widening Federal Budget deficit, a declining economic growth rate, low business confidence and a weak economic performance relative to neighbouring countries. 

The winner of the election will have to balance the government’s role to provide fiscal stimulus and counter-cyclical spending with budget responsibility and a plan to reduce government debt. 

The Productivity Commission has estimated that there are $12 billion worth of cost-cutting and efficiency savings available to the Federal Government. The Coalition has backed away from providing a date for a return to surplus, but asserts it will be sooner than a Labor surplus. 

Labor forecasts a return to budget surplus in 2016-17, driven by savings made during 2015-16 and 2016-17 when the economy is expected to be in a healthier state than it is presently. 

Workplace reform 

Labor plans to have a hands-on approach in the labour market, actively helping to create jobs, especially in the manufacturing sector. Subsidies to the automotive industry and regulating work for Australian businesses in large projects form the core of Labor’s policy. The Coalition will do the opposite, reducing subsidies for uncompetitive industries such as the automotive industry, and reforming workplace regulations to encourage hiring. The Coalition’s repeal of the carbon tax will directly and indirectly reduce a wide range of costs for Australian firms, allowing them to be more competitive internationally. 

Though Labor’s policy is likely to have a more immediate effect on employment, in the long run, these policies might create inefficiencies in the Australian economy and discourage foreign investment. 

Energy 

The two major policies that will affect the performance of the electricity supply sector are changes to the Clean Energy Future Plan and the treatment of the Renewable Energy Target (RET). 

The current RET compels large energy users to invest in renewable energy, to the benefit of industries such as wind and, to an extent, hydro-electricity generation. The RET introduces more capacity into electricity markets and pushes down wholesale electricity prices, which challenges fossil fuel electricity generators. Changes to the RET will affect these industries directly and their upstream industries, such as oil and gas extraction, brown coal mining and black coal mining, indirectly. 

Labor is committed to a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, and an 80% reduction on 2000 levels by 2050. Labor has announced an early transition from the carbon tax to an emissions trading scheme in July 2014, rather than 2015, which means that carbon dioxide equivalent would have a floating price linked to the prices of the European Union’s emissions trading scheme. Under such a policy, the per tonne price for carbon dioxide equivalent emissions is likely to be much lower. The impact of an earlier move to a trading scheme on the industry assistance packages included within the Clean Energy Future Plan is uncertain. The tax cuts given to consumers will remain in place. 

Labor supports the current 20% RET and has made a commitment to not review the target until 2016. The Coalition is committed to a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, and will review this commitment in 2015. The Coalition intends to wind back many of the provisions of the Clean Energy Future Plan including abolishing the carbon price and disbanding the Clean Energy Finance Corporation, the Climate Change Authority, the Climate Commission and the Energy Security Fund. The Coalition supports a 20% RET, which it will review in 2014, and also intends to expand the existing Emissions Reduction Fund to introduce a buyback. There are also plans to expand the Carbon Farming Initiative to achieve emissions reductions in the absence of an explicit carbon price. 

Changes to the Clean Energy Future Plan will create new winners and losers across energy-intensive industries. Labor’s changes maintain a pricing mechanism as a strategy to reduce carbon dioxide equivalent emissions. The Coalition’s plans to meet emissions commitments will be more disruptive to electricity supply industries and their downstream industries. 

Resources 

The future of the Minerals Resource Rent Tax (MRRT) and gas policy are the largest issues at stake for the mining sector at the election. The issue of gas reservation for domestic consumption has been raised by large gas users on the eastern seaboard. Currently gas reservation polices are only in place in Western Australia, where they were one of the conditions of approval for the North West Shelf Project. As domestic gas prices are lower than world gas prices, expansion of gas reservation policies could deter future investment in the industry. Conversely, sudden increases in energy costs could affect a range of energy-intensive manufacturing industries. 

Labor supports the MRRT and the Petroleum Resource Rent Tax (PRRT). The MRRT is a 22.5% tax on profit that applies to iron ore and coal projects once the minimum profit threshold of $75 million is reached. The MRRT includes a 40% PRRT, which applies to all onshore and offshore oil and gas projects. Coal seam gas developments are supported by the party, subject to approvals, as are oil shale developments. Labor does not support gas reservation polices. 

The Coalition intends to get rid of the MRRT but keep the expanded PRRT in place. Reflecting the position of the National Party, the Coalition supports coal seam gas developments, subject to approvals. The Coalition also supports oil shale developments. It does not support the retrospective application of gas reservation polices, but may introduce them for future developments. 

There is bipartisan support from the major parties for the following: the use of Enterprise Migration Agreements in the mining sector, uranium mining, the creation of a nuclear waste dump in Muckaty Station in the Northern Territory and mining in Tasmania’s Tarkine region. Both parties support the development of gas reserves in the Bowen Basin in the Kimberley, subject to approvals. 

The removal of the MRRT would improve industry profitability, in the absence of changes to state-based royalty schemes. 

Broadband network 

One of the backdrops to the 2013 election is each party’s stance on the controversial National Broadband Network. While download speeds, costs, technology and design are key differences between the Labor and Coalition plans, the parties agree that broadband speed and availability can be greatly improved across Australia. The Labor Government has already begun to build the NBN, with rollouts commencing in key metropolitan and rural areas. Full completion is expected in 2021. The NBN is priced at $44.1 billion by Labor, and is expected to allow potential download speeds of up to one gigabit per second, with full utilisation of fibre to connect homes, businesses and rural properties to network cabinets. Under Labor, the NBN is planned to be distributed through universal pricing under a government-owned monopoly wholesale network. 

Conversely, the Coalition has vehemently promoted its own version of the NBN following a spate of rollout difficulties and connection issues suffered under Labor. Under the Coalition’s proposal, the NBN is expected to be priced at just $29.5 billion and take two years less to build. Maximum speeds of 100 megabits per second are anticipated through utilising a fibre-to-the-node approach, connecting fibre to neighbourhood cabinets and using copper to connect homes and businesses. Under the Coalition’s plan, competition will be encouraged, with wholesale prices determined by the ACCC. 

Transport infrastructure 

Both Labor and the Coalition have pledged support for many substantial infrastructure projects across Australia, which is highly dependent on road and rail transport. The largest item on the agenda is the flood- and accident-prone Bruce Highway in north Queensland, with the Coalition pledging $6.7 billion over 10 years, which is $2.6 billion more than Labor. However, Labor is expected to commit an extra $300 million to Sydney’s WestConnex project to link the M4 and M5 motorways on the condition that an extra link to the CBD is created. 

Other projects include the Gateway Motorway in Queensland, F3/M2 link in New South Wales, South Road in South Australia and Midland Highway in Tasmania, all of which are expected to receive similar funding pledges from both parties. In terms of rail, Labor has argued the Federal Government should contribute to urban rail systems while the Coalition maintains that state and region-based urban rail systems are not the responsibility of the Federal Government. Also on the agenda for both parties is the proposal of a high-speed rail network across Australia. 

Manufacturing 

Australia’s manufacturing sector is always a significant issue on the election agenda. Both parties are concerned about the diminishing health of manufacturing in Australia, but their policies on how to revive the sector differ. Debates tend to be approached from four vantage points: anti-dumping, industrial relations, regulation and access to energy and resources. Labor has established the Anti-Dumping Commission, while the Coalition aims to make changes to the Customs Amendment Bill 2013 and impose Australian standards on imported goods, designed to further protect the local manufacturing industries. 

Regulation of the sector is also under the spotlight with both parties agreeing to cut down the red tape associated with manufacturing. The Coalition has promised to cut corporate tax by 1.5% if elected, and also reverse the cuts made to R&D tax concessions for businesses with revenue of over $20 billion. Both parties aim to increase the participation level of domestic manufacturers in local projects. Labor plans to introduce a policy whereby government projects in excess of $500 million will have to demonstrate that they gave local companies a chance to bid for tenders. Additionally, international companies with projects over $2 billion will have to include domestic suppliers in their operations. The Coalition aims to introduce an approach that is based more on tender, hoping to encourage small business participation. 

Australia’s automotive industry will be the focal point of policy debate concerning the manufacturing sector during the lead-up to the election. Both major parties support at least some level of subsidies for automotive manufacturers. Labor has pledged to increase the level of subsidies but to make changes to Fringe Benefits Tax advantages for company cars. These changes will have an adverse effect on the domestic automotive industry, but Labor plans to compensate the industry with a further $200 million worth of subsidies, bringing total automotive industry subsidies to $2.7 billion. 

The Coalition plans to cut subsidies to the automotive industry by $500 million, reducing the total subsidies to $2 billion between 2011 and 2020. However, the Coalition will not change the Fringe Benefits Tax for company cars. 

Education 

The key education policy of the election is the Better Schools Plan, otherwise known as the Gonski reforms, which will affect private and government schools. Commissioned in 2010, the Gonski review found that under existing funding arrangements, some schools and students were missing out on necessary resources. While Australia’s schools rank highly compared with other developed countries, overall standards have been gradually declining over the past decade. 

In response to the recommendations outlined in the Gonski review, the Labor Government developed the Better Schools Plan, which will be implemented in 2014. Funding will be based on a benchmark amount per student with a base amount of $9,271 per primary school student and $12,193 per high school student. In an attempt to combat rising inequality, additional funding will be provided for students from low socioeconomic backgrounds, indigenous students, students with limited English skills and students with a disability. The plan aims to improve the results of all Australian schools and students, particularly in reading, maths and science. While New South Wales, the Australian Capital Territory, South Australia, Tasmania and Victoria have signed up to the education reforms, the government was unable to reach an agreement with Western Australia, Queensland and the Northern Territory before calling the election. 

Regardless of which political party is voted into power, the jurisdictions that have agreed to the Better Schools Plan will receive 65% of funding from the Federal Government, with the remaining 35% to be provided by the participating states and territories. 

However, if Labor is re-elected, the states and territory that have refused to sign up to the reforms will not receive the extra funding allocated to the Better Schools Plan, and will instead be funded under the old system. The Coalition has pledged to provide funding to jurisdictions regardless of whether they have agreed to the plan, and these states will not be required to contribute funds of their own. 

Labor has committed $9.8 billion in Federal Government funding towards the Better Schools Plan over six years, with an additional $5.1 billion to be provided by the states and territories. Despite initially opposing changes to the Australian school funding system, the Coalition has largely agreed to support the plan, but has proposed to honour the Gonski agreements for only four years, instead of six, and has committed to investing just $2.8 billion to the reforms. 

If Labor wins the election, private and government schools combined will stand to benefit from nearly $10 billion in additional funding from the Federal Government. The Coalition plans to invest $3 billion in the Better Schools Plan. 

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