Buy Australian not worth the risk to our economy
You will all be aware of current demands for Australian Government procurement policies to include a “buy Australian” bias. The Government does not support such proposals. We remain resolutely committed to a non-discriminatory purchasing policy.
Australia is a signatory to numerous international agreements that seriously inhibit our ability to use discriminatory procurement policies. We have been vocal in international forums warning against the serious threat any upsurge in protectionism poses to the world economy. If we introduce protectionist measures like discriminatory procurement policies we will invite retaliation from other countries. As a trading nation, Australia stands to lose a great deal in any global outbreak of protectionism.
The notion that there are big gains for Australian companies and workers to be won from discriminatory procurement policies is essentially a mirage. Research by my Department that I am releasing today shows that the possible benefits are very modest.
In 2007-08, the Australian Government awarded $23.7 billion in procurement contracts. In broad terms, based on our research, some $16.5 billion or 69 per cent was directed at Australian produced goods and services. Of the remaining $7.2 billion, $7 billion was spent on imported goods.
More than half of that, $3.9 billion was spent on imported transport equipment, typically specialised equipment for the Defence forces. The Defence Department has arrangements in place that assist Australian participation in many major defence contracts, but it is unlikely that Australia will become a manufacturer of helicopters or fighter jets.
A further $1.6 billion was spent on imported information and communications technology, typically computer equipment. It is reasonable to assume that the bulk of these items had to be imported because they aren’t produced in Australia.
Similarly, almost $500 million was spent on security equipment such as guns, ammunition, body armour and weapons systems.
In other words, once the items that have to be imported are subtracted from the total of $7 billion of imported goods, it would appear that the total of imported items that could have been purchased in Australia may be little more than $1 billion. That sounds a lot, but it’s less than five per cent of total procurement and less than 0.1 per cent of Australia’s annual GDP. And although some of the items in the categories I’ve just referred to may have Australian equivalents, the obverse applies in those categories of imports that I’m assuming could have been purchased locally. Presumably there are some furniture items we can’t buy locally for example.
The conclusion is simple. Although the data is admittedly fairly general and rough, it is pretty obvious that the introduction of discrimination in favour of Australian producers would have a very modest impact. Given that price discrimination would certainly not cause all imports of items that are produced in Australia to cease, the net shift could be as little as a few hundred million dollars of purchasing.
The downsides to such a strategy would overwhelm any benefits it delivers. If Australia takes such a protectionist stance, the adverse international implication would be very serious. And there’d be a domestic cost. We’d be paying more for the same things.
In simple terms introducing local price discrimination into our procurement policy isn’t worth the candle.
That doesn’t mean that we simply leave Australian companies to their own devices. There are certainly things we can do to make it easier for Australian companies to compete for Government business.
At the heart of our procurement reform agenda is better information. At present we at the centre of government don’t know enough about what is happening across a couple of hundred agencies and thousands upon thousands of contracts.
The lack of across-government information and communication systems is also a big problem for Australian suppliers. If an Australian furniture manufacturer came to me and asked for advice about how to break into the government market, I wouldn’t have much to say in reply.
We intend to fix this problem. I propose to establish a Procurement Coordinator in my department. The primary function of this position will be the collection and dissemination of information. Instead of wandering around in a fog, Australian producers will have a much better idea of where new opportunities may lie.
And to improve their chances of competing seriously, I intend to reform the existing requirement for annual procurement plans. Better advance warning of potential procurement opportunities will improve their prospects for competing too.
Procurement policy involves many complex challenges. The Australian Government is a huge enterprise comprising a very diverse range of agencies and arrangements. The factors governing, for example, a Defence contract for new helicopters are very different from those relating to a new fit-out of a Department of Finance and Deregulation building.
We are gradually building a new framework, one that delivers better outcomes across the board. We’re making good progress, but there is still much to be done. I look forward to continuing constructive engagement as we develop a more sophisticated approach to supplying the diverse needs of the Australian Government in partnership with our suppliers.
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