Senate debates

Thursday, 15 September 2016

Motions

Commonwealth Procurement

4:14 pm

Photo of Skye Kakoschke-MooreSkye Kakoschke-Moore (SA, Nick Xenophon Team) Share this | | Hansard source

I, and also on behalf of Senators Xenophon, Griff and Rhiannon, move:

That the Senate—

(a) notes that:

  (i) the value of Commonwealth Government procurement contracts in the 2014-2015 financial year was more than $59 billion,

  (ii) the current Commonwealth Procurement Rules fail to take into account the social and economic effects of buying and procuring Australian made goods and local services,

  (iii) asbestos has been found in building products imported into Australia as part of projects funded by governments, and

  (iv) it was disclosed this week, that in April 2015, the Department of Defence awarded a $9 million contract for non-combat uniforms for the Australian Defence Force to a company that will have the uniforms made overseas rather than Australia; and

(b) calls on the Government to amend the Commonwealth Procurement Rules, in order to take into account:

  (i) the economic, social and environmental effects of local procurement, including employment outcomes, tax receipts and economic growth,

  (ii) the need for Australian Standards to be complied with in any procurement decision, and

  (iii) whole of life benefits of a local procurement.

This is not my first speech. Today, I welcome the opportunity to talk about a significant matter that is of critical importance to the sustainability of South Australian industry and, indeed, for domestic industries across all states and territories. I wish to talk about the government's approach to its procurement processes and how these processes in their current form are failing Australian companies and Australian people.

Australia's existing government procurement policies have a very narrow definition regarding value for money, and this is at the expense of broader industry development and economic goals. Specifically, contract costs are seen as the dominant factor when deciding on procurement outcomes. There is scant consideration given to how these procurement policies affect jobs, skills and industry capability. We have seen how the government's policy on procurement has been out of step with the expectations of normal, everyday Australians.

How can it be that we have awarded the contract for non-combat uniforms for our Defence Force members to a company that will make these uniforms overseas? Why is it that the government insists on purchasing steel from overseas companies while at the same time allowing the massive Australian steelmaker Arrium, once a vibrant and major industry in South Australia, to be on the verge of collapse and dependent on state government assistance? Arrium is more than $4 billion in debt, and, as it is under administration, thousands of jobs are under a cloud. If Arrium goes under, it will devastate Whyalla, and the flow-on effects will lead to social dislocation, widespread unemployment and the demise of a famous industrial centre in South Australia. It should not be that hard to do the right thing by Australian manufacturers and Australian jobs.

Today, I and my parliamentary colleagues—Senator Xenophon, Senator Griff and our member for Mayo, Rebekha Sharkie—are calling for change, but not a radical change by any means. We call on the government to reconsider its policy on purchasing and procurement decisions and to implement a policy that would first ensure preference for local procurement for all government contracts. We are not talking about a few Commonwealth vehicles and desktop computers here. Last financial year, the Commonwealth spent a total of $59.4 billion on 69,236 contracts. We need to change the rules of the game so that Australia benefits as a whole. Of course the government should act in accordance with the principles of value for money, but it should give just as much consideration to the social and economic impacts of supporting domestic industries.

In an increasingly competitive global marketplace, we are competing with nations who have a plentiful lower paid workforce or whose domestic industries are underpinned by government subsidies which make it practically impossible for Australian industries to compete on a level playing field. Successive governments have taken a strictly literal approach to the many free trade agreements that we have signed up to. This dogmatic, inflexible and unwavering adherence to international free trade agreements is clearly taking precedence over providing support for Australian jobs, and this is damaging Australia's industry. Instead of the government making purchases by looking at narrow contract specifications, the government must give consideration to the significant social and economic flow-on effects as a result of supporting Australian companies. In short, the Australian government's current procurement policies are stacked against local manufacturers and suppliers. They are fighting in a highly competitive global marketplace with one hand tied behind their backs.

Australian manufacturing is in crisis. Manufacturing is portrayed by the government as an old, vanishing industry and something that Australia should not worry about. Well, manufacturing is not an old industry. Manufactured goods account for over two-thirds of world merchandise trade. In fact, manufacturing is the most innovation-intensive sector in the whole economy, and no country can be innovative without the ability to apply innovation in manufacturing. In Australia, over 200,000 manufacturing jobs have disappeared since 2008, and the rate of job loss is accelerating. Manufacturing employment fell six per cent in 2015 alone. The government must focus on supporting manufacturing, particularly advanced manufacturing, because, as a South Australian, this is an important part of our growing advanced economy. What we are witnessing is driven by the policy decisions of successive governments. The decline in Australian manufacturing output and employment is not typical of other industrial countries. Australia is well behind our counterparts and now has the smallest share of manufacturing in total employment of any OECD country.

It is disappointing that, despite the widespread support for buying Australian, there remains little desire on the part of the Commonwealth to take similar steps to strengthen our local manufacturing industry. One of our closest trade partners is a relevant example. The United States's approach to free trade agreements contrasts sharply with Australia's. The US supports local manufacturers. The United States government has legislation that ensures their government buys American-made products before buying abroad. This legislation, called the Buy American Act, has been enshrined in law since President Hoover was in office in 1933. There is also more recent legislation that requires flags on US government buildings and Defense establishments to be made in the United States. No such legislation exists under Australian law. It seems that those in the United States are prepared to do what is in their national interest first and foremost, but Australia does not.

There is a widespread perception amongst many Australian manufacturers and workers that successive federal governments have literally tripped over themselves to get brownie points at world trade forums, to the nation's detriment. All successful manufacturing nations—South Korea, Germany, the United States, Japan and others—have negotiated free trade agreements that have expanded the terms of their national trade, but, still, they are able to use government procurement and other vigorous government policies to develop globally competitive domestic manufacturing industries without breaching their free trade agreements. The government has negotiated poorly with our free trade partners. It has stuck to its free trade dogma and conceded far too much. It seems that the government will strike free trade deals at any cost, going for quantity, not quality. But, even if it costs a little more, we must think about the multiplier effects of keeping local jobs and the significant flow-on effects of these employees spending their wages and profits in the local communities in which they live and work. Buying Australian is an obvious decision for most of us given the high quality of our products and the flow-on benefits to the community, but, for some reason, it is not obvious to the government.

Australian industries are facing significant difficulties in being able to survive. We must recognise the benefits to the Australian government of buying Australian. Are we so dedicated to our free trade partners that we will sacrifice our manufacturing industry at the expense of Aussies at home?

When will the government get the message? The mums and dads in the suburbs and towns understand what is happening. They know too well the devastation that comes as more factories close and more workers lose their jobs. The current state of play regarding Commonwealth procurement is deplorable and cannot be allowed to continue. There must be political will to tackle this issue.

A couple of years ago an example of this ardent commitment to looking at cost only in contract procurement negotiations occurred in South Australia. In 2014 the Defence Materiel Organisation rejected a tender for up to 100,000 pairs of work boots over five years from Rossi Boots of Adelaide, a company that has employed generations of Australians in South Australia since it opened its doors in 1910. It eventuated—we know as a result of the debriefing process with the DMO—that the ultimate decision was made on the basis of cost, and the contract to supply members of the Australian Defence Force with sturdy work boots was awarded to a foreign importer.

The Rossi case is symbolic of much of what is wrong with government procurement and encapsulates the economic philosophy of the coalition government. The Rossi Boots chief executive said that all he wanted was a fair go and said that the procurement system is almost designed to make Australian businesses and manufacturers disadvantaged in comparison to overseas suppliers. While Rossi's price may have been marginally higher than that of the winning tenderer, does this justify the government's decision to favour other manufacturers? Rossi could have delivered substantial benefits to the Commonwealth and to Australia had it been chosen to fulfil this procurement contract. In addition to factors such as quality, boot durability and whole-of-life customer support, Rossi would have employed more Australians and supported Australian families and the economy. Tax receipts would have increased by tax payments by the company and employees, and intangible benefits such as meeting Australian standards for employment conditions, the environment, OH&S and industrial relations would have been realised.

We have not looked after the national interest and we have sacrificed good manufacturing jobs—many tens of thousands of jobs—on the altar of free trade fundamentalism. I want the Australian government to adopt a much more hard-headed approach to trade and industry policy. We must have greater parliamentary scrutiny of our trade negotiations. We must ensure there is an assessment by independent review bodies of the costs and benefits of buying Australian first. We must overhaul government procurement laws to ensure that Commonwealth, state and local governments take into account the social and economic benefits of local procurement, and we must push the Australian government to look at the wider national interest in supporting a diverse economy in our trade negotiations.

4:24 pm

Photo of Kim CarrKim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | | Hansard source

I commend Senator Kakoschke-Moore for her speech on Commonwealth procurement. I am very pleased that she has been able to bring her perspective to the Senate on these matters. I share her concerns about the development of procurement policies in this country. These matters are of such concern that we actually took to the last election a series of revised proposals with regard to procurement issues, particularly relating to Australian industry capability.

I note the contrast—in terms of the dynamics of Australian politics—between the parties on this issue. Those that say there is no difference between the Labor Party and the conservative parties in this country should look to this area, because it highlights the very substantial difference of approach. The Prime Minister, during the last election, spoke at length about the prospect of jobs and growth. It is a less audible proposition since that time. And of course we saw in recent days in this chamber the discussion about the purchase of Australian Army uniforms, through a contract entered into just last year by this government, when the Minister for Defence was the senior minister in the portfolio. The contract was awarded to a company that was manufacturing in China. The government announced the Australian dress uniform with great fanfare, with a display on this issue in Paris. It did so in a manner which immediately aroused my concern, because there was no mention of where this uniform was being made—this brand-new uniform the government said was such an important improvement.

When I pursued this matter with the minister, she said this was a question of value for money. It was an answer we have heard all too often in this place and it fundamentally highlights a misunderstanding of what that principle involves, because it is not just a question of the price of the uniform; it is a question of what 'value for money' actually means in these circumstances. For taxpayers to receive value for money in the awarding of procurement contracts, we should take into account the whole-of-life costs of a contract. That is the Labor Party's position. The whole-of-life costs need to be considered here. It is not simply a matter of the immediate cost of a product when a contract is awarded to a low-wage offshore manufacturer. Domestic manufacturers employ Australians, who pay Australian taxes and spend their wages in Australian shops and on other Australian products. They contribute to their local communities in a myriad of ways. They buy homes, they pay rates and they send their kids to Australian schools.

By doing these jobs, Australian workers maintain and extend the capability of Australian industry, they increase the capacity of the enterprises in which they work to tender for other contracts and they make Australian businesses more competitive in global markets. In doing these things, workers and the businesses that employ them are able to contribute to the growth of the Australian economy. The purchase of Chinese products for the Australian Army, for our soldiers, strikes me to be in contravention of those principles. It is a position which essentially sees the offshoring of Australian jobs. A suggestion by the minister that this could be defended on the basis of value for money is risible, because it delivers jobs and growth not to Australia but to another country.

The minister asserted it was all about 'value for money', as I say. It would appear that the government did not even consider exemptions to ensure Australian production, as the Labor government did when it came to the combat uniform and the slouch hat. And it strikes me that this is a case that demonstrates a negligence, that these matters are not put forward, to ensure that there is a national interest test that applies.

The problem here is that it is a habit of thought that develops in procurement officers, who pass it on to others, and it goes up the chain, to the point where nobody actually takes notice of the consequences of procurement, particularly for our defence products—and we are talking here about the uniforms for our soldiers—in a proposition which sends the production of these offshore. This is described as 'value for money'. It is a perverse undermining of the meaning of that term.

It is stated, 'Well of course those are our obligations under international trade treaties.' That is not the case. Most of our trade agreements have explicit exemptions for defence and for small business. The government has the capacity, if it chooses to exercise it, to ensure that procurement policy is actually in Australia's interests and that that becomes a crucial element of our industry policy in this country.

I note that the motion points out that Commonwealth procurement is in the range of $59 billion—and that is in just one year. With an economy with a diverse industrial base that is capable of generating high-skill, high-wage jobs, the question of where the Commonwealth places its contracts is critical to the industrial development of the nation. And, in an economy which is seeing increasing casualisation of employment and increasing numbers of people dependent upon the vagaries of the commodity market, is it any wonder that Australians are so concerned when Australian taxpayers' dollars for the defence industries are being used in this way?

So, despite all the talk about 'innovation' and 'creativity', which of course marked the transfer between Mr Abbott and Mr Turnbull—a point that we acknowledge this week—the preference, in fact, when it comes to procurement, is not for a creative, innovative or agile Australia. It is for an Australia with narrow, blinkered vision—a little Australia, in which the government refuses to use its purchasing power to build the economic capabilities of the nation.

This is a clear case of ideology prevailing over the reality of economics as ordinary Australians experience it. So it is vital that the procurement guidelines for our government agencies prevent that kind of blinkered thinking when it comes to the determination of the spending of public money on public contracts. Agencies should be required, of course, to take into account the proper use of public money at all times. But value for money involves a process that ensures that we get genuine value for the use of the Australian dollar. We cannot have money spent on inferior products, and higher maintenance and replacement costs. The procurement guidelines need to ensure that agencies are required to consider all direct and indirect costs—the whole-of-life costs of products.

Let me quote directly from the Labor Party's National platform on this. It says that:

Labor will adhere to a national interest test for government procurement policy by considering whole-of-life costs, rather than purchase prices alone, and ensure procurement policies take into account the direct and indirect economic benefits of buying locally, including estimated taxation revenues, employment opportunities and industrial capability.

That is the kind of assessment we need to apply when it comes to issues like the ADF uniform.

Workers in Bendigo at Australian Defence Apparel were told by this minister that the new defence industry strategy would give particular emphasis to local capabilities. This is when she knew that the contract had already been issued to produce the uniforms not in that factory, which of course is where they normally would have been produced, but in China, and that that decision had been taken a year before she appeared before those workers. That was kept secret, and was recently revealed only because the government sought to make a show in Paris about a new uniform.

The Australian government needs to ensure that we are able to develop capabilities, whether those be in the textile industry, the steel industry, or electronics. Wherever it is necessary for us to procure products and where there is a local capability that is competitively priced, there ought to be an emphasis in the Australian government procurement arrangements, as we say, on ensuring that Australian industry capability is actually advanced.

We say there needs to be a national procurement coordinator to oversee the Commonwealth procurement practices. We say that they must stipulate that contracts worth $20 million or more should be subject to an Australian Industry Participation plan. In fact, at the last election, we proposed that that be reduced to $10 million. The measures were intended to increase the opportunity for small and medium-sized enterprises to supply goods and services for the Australian government. We also say that we must be able to ensure that tender specifications are not written in such a way as to actually exclude Australian suppliers.

This is not about shielding Australian firms from competitive pressures. On the contrary: it is about ensuring that we do get some competitive pressures put into the system so that we can build the capabilities in Australia and ensure that the competitive process is fair. It is designed not to exclude people but to include people. Of course it is not a matter of standing aside and letting the market rip. We know that if you apply that policy the market will determine an outcome all right, but it will not be in Australia's favour.

That is why Labor in a government had the policy Buy Australian at Home and Abroad—a policy with a suite of measures to ensure that Australian producers got a fair go when it came to supporting domestic work through government contracts. It included such things as supplier advocates for major projects. It ensured that we properly used the Industry Capability Network so that we knew what Australia could do and the proponents for contracts understood that—this is not just in the public sector but in the private sector as well—and companies that were trying to build products for use in this country knew what capabilities this country could provide.

We also had improvements in the Enhanced Project By-Law Scheme so that, if people wanted a tariff concession when importing material for a project in Australia, they had to have undertaken a proper study of what work could be done locally. We also advocated that there needed to be proper management assistance by building management capabilities through Enterprise Connect. We argued that supplier advocates across a range of sectors needed to be put in place to assist small- and medium-sized enterprises to secure new contracts. Frankly, in this world arrangements are put in place that make it very difficult for local suppliers to bid for work. There needs to be assistance provided to local companies so that they can be properly trained and put in the right position to tender for work on a competitive basis.

Under our $1 billion Plan for Australian Jobs, which we introduced in 2013, these measures, which were intended to promote Australian industry participation, were strengthened. We are continually working on these principles. This area is a bit like tax avoidance—no sooner do you put in place propositions to improve the integrity of the administrative arrangements and some smartie comes along and finds a way to get around them. So you cannot stand still. Programs like this need to be adjusted to meet changes in economic conditions. Previous Australian industry participation was set at a time when there were much higher rates of private investment in mining and resource projects. That is why we said at the last election the change in circumstances means that the threshold for private projects needs to be lowered so that we can put in place support arrangements so a project of $250 million rather than $500 million can have these measures applied. That is why we said that, in the public sector, the threshold need to be lowered from $20 million to $10 million. It is an essential strategy and it requires governments to change attitudes about not only what is the role of government when it comes to the spending of public money on government contracts but also what is the role of government in ensuring that large international firms who want to build in this country the very large projects that we have seen in recent times use local suppliers where they are available and where they have the capability to perform work properly.

This is a government that says, basically, let the market roll. They have a hands-off attitude. They take the view that if we have to get a defence uniform made in China that is no big deal. They take the view that if the jobs are lost in Bendigo, that is not a problem. Anyone who looks at what is happening with full-time employment in this country, particularly in manufacturing, knows how foolhardy that attitude is. The fact that we cannot even put uniforms made in Australia on the backs of members of our defence forces strikes me as quite bizarre. The government's attitude is that that circumstances is okay. The government has the capacity to say, 'We want to ensure proper prices, competitive prices, whole of life costings, so these projects can be built in Australia.' The idea that we cannot even make in Australia a uniform for our soldiers demonstrates the foolhardy attitude of this government—that the free market is the solution to our problems. We will rue the day over this attitude. If it is good enough to have our combat uniforms made here, it is good enough to ensure that the uniforms that our soldiers wear in other circumstances are made here as well. It is particularly serious when it comes to the question of ensuring future competitive tenders—you undermine the capacity of our industry to compete by making sure the work goes offshore so that when the next contract comes along the firm is not there to compete. Of course, then we are told, 'There is no-one here who can do the work.' There are a whole series of other contracts, for uniforms in the Navy and the Air Force. I will be pursuing at estimates how it is that this contract has gone offshore, under what circumstances and why there was not a national interest test put in place to ensure that we keep the industrial capabilities so important to this country's future in Australia.

4:44 pm

Photo of Ian MacdonaldIan Macdonald (Queensland, Liberal Party) Share this | | Hansard source

We have heard another typical Labor speech—do not worry about the cost; do not worry about the budget blow-out. It is populism, an appeal to the lowest common denominator in the country. It is always useful in these sorts of debates to look at some of the facts. It is a bit like foreign land ownership—everyone was saying how outrageous it was, but when we got the results we found that the amount of foreign land ownership in Australia is a very, very small percentage of the total and most of that is owned by United Kingdom investors.

To get back to the facts, which Senator Carr would do well to understand, Australian suppliers got approximately 94 per cent of all Commonwealth procurement contracts in 2015-16. I will repeat that for Senator Carr's benefit: 94 per cent of all Commonwealth procurement contracts in 2015-16 were awarded to suppliers in Australia. Ninety-four per cent is not a bad number, but, if you had listened to Senator Carr and believed him, you would think that figure had been grossly inflated. But I repeat: 94 per cent of all Commonwealth procurement contracts in 2015-16 were awarded to suppliers in Australia.

Senator Carr would also have benefited if he had understood some of the facts about the Army's service dress jacket. Approximately 70 per cent by value of the service dress uniform ensemble is manufactured in Australia, and it includes these items: the slouch hat, by Akubra, is made in south Kempsey; the chinstraps and puggarees are made by Mountcastle in Yeronga in Queensland; the Sam Brownes are made by Larosa Leathergoods in Thomastown, Victoria; the socks are made by Humphrey Law in Heathmont and Wilderness Wear in Preston in Victoria; and the ADF parade boots are made by R.M. Williams in Salisbury, South Australia. Again, if anyone had listened to Senator Carr they would have thought most of the cost of that uniform was going to China. But I repeat: 70 per cent by value of the service dress uniform ensemble is manufactured in Australia.

In addition to that, I alert Senator Carr to the fact—as I am advised—that no tenderer offered a complete, made-in-Australia supply solution when the tender was conducted in 2014 for the manufacture of Navy, Army and Air Force non-combat clothing. That included the service dress jacket. When that tender was called in May 2014, no tenderer offered a complete, made-in-Australia supply solution. Again, for all the bluff and bluster that we heard from Senator Carr, no tenderer could deliver a complete made-in-Australia article.

The tenderer that was selected had a price that resulted in a saving of about 18 per cent over other prices at that time, and my advice is that Australian Defence Apparel, who won the tender, estimated that manufacturing the service dress uniform in Australia would be triple the cost. Hence my comment at the beginning of my presentation that Senator Carr's speech was typical of Labor—do not worry about the money; do not worry where the money is coming from. Just spend, spend, spend, and when you do not have it just borrow, borrow, borrow from overseas lenders, so we end up paying $45 million a week in interest to foreign lenders. It is always useful in these debates to have a bit of fact. At the risk of repeating myself, I will again emphasise those two figures: 94 per cent of all Commonwealth procurement contracts were awarded to suppliers in Australia; and, regarding the service dress uniform, which Senator Carr mentioned often, some 70 per cent by value is made in Australia.

Commonwealth procurement rules require that potential suppliers be treated equitably based on their commercial, legal, technical and financial abilities and that they not be discriminated against due to their size, degree of foreign affiliation, ownership location or origin of their goods and services. This is an important principle that our exporting businesses also rely on when supplying goods and services to overseas markets. Senator Carr was indicating, if not saying it directly, that the government is doing this to hurt Australian manufactures just for the fun of it—let's do this just for the fun of it. But there is a reason for this—that is, Australia needs to trade to exist. I always say, in relation to primary products, that without good trading abilities what we produce in Australia far exceeds what we can consume in this tiny country. Most of the sugar we produce in Australia is sold overseas, most of the wheat and grain crops we produce in Australia are sold overseas, most of our beef production is sold overseas—and so it goes on. We have to trade, and we expect other countries to have similar rules when looking at buying Australian products. We do not want other countries to say, 'Well, we could buy these goods or services from Australia at this very competitive price, but what we will do is subsidise some inefficient production in our own country and support our own industry.' That is why we enter into these free trade agreements. That is why we are members of the World Trade Organization.

Sure, dumping goes on, but we are trying to address those particular issues of dumping, and the coalition government has made it much easier to bring a case for dumping. Whilst I acknowledge that some countries still embark upon that, most of the countries we deal with and with whom we have free trade agreements abide by the same rules that we do. That is why you have these Commonwealth procurement debates and these rules that I am talking about where potential suppliers have to be treated:

… equitably based on their commercial, legal, technical and financial abilities and not be discriminated against due to their size, degree of foreign affiliation or ownership, location, or the origin of their goods and services.

These rules are in our various export agreements, and they ensure that Australian suppliers are not disadvantaged when tendering for procurement in countries with which we have such agreements in place. So the rules that we apply to Australian suppliers and manufacturers and to government purchases are the same as those that apply in other countries with whom we have these trade agreements. Any proposals to take into account the secondary economic benefits of local preferencing would require officials to consider many uncertain variables in each procurement evaluation, and this would demand very specific expertise and impose significant time and compliance costs for the country. Preferencing or providing weighting to a supplier based on their location would be contrary to the national treatment and nondiscrimination requirements in all of Australia's international agreements.

But there are exemptions. Our international trade agreements do provide a number of exemptions that enable the government to engage directly with Australian industry as long as the principal of achieving value for money is met. The exemptions include procurements relating to property or accommodation, motor vehicles, suppliers that primarily exist to provide services to persons with a disability, suppliers that are small to medium enterprises with at least 50 per cent Indigenous ownership and agreements that relate to essential security in Australia. So there are some exemptions contained in our trade agreements, and they are exemptions that we can use in Australia. There are also exemptions that other countries with whom we trade can apply in their own circumstances.

The whole purpose of free trade is to ensure that Australian exporters, be they of services, goods or primary production, have a fair go at markets overseas and are not stymied by other countries doing what Senator Carr would like Australia to do in certain circumstances. We would come out second best. If we start that sort of trade war with our much bigger neighbours we would lose out, because, I repeat, Australia has to export. We have to trade to continue to exist as the productive and wealthy nation that we are.

The results of modelling of the three new North Asian free trade agreements the coalition government has entered into recently show that they will be worth $24.4 billion in total additional income to Australia between 2016 and 2035, and they will result in an annual boost to the economy of $2.4 billion after 20 years of operation. Australia's exports of goods and services to these North Asian countries—China, Japan and Korea—are forecast to be 11 per cent higher by 2035 as a result of these free trade agreements. That is wealth for the nation. We can export our goods, our services, our expertise and our brains and make money for Australia. We have been doing that for a long while, and that is why we are the fortunate country. We are one of the wealthiest countries in the world. We have one of the best standards of living in the world. Why? It is because we have gained that wealth through trade and through exports.

The modelling that has been done in relation to those free trade agreements confirms the overwhelming benefits of freer trade for the Australian economy. Real wages will be 0.5 per cent higher by 2035, and the terms of trade will be 1.3 per cent higher by the same year. Increased exports and cheaper imports will allow Australian businesses to hire more workers. The annual net jobs increase will be about 8,000 this year, and it will peak at 15,000 in 2020.

In addition, consumers are benefiting under the Australia-Japan free trade agreement, with Toyota's executive director of sales and marketing saying that the Australian dollar prices of Toyotas would fall from the start of 2015, with the cheapest cars falling in price by about $800 and the most expensive cars falling by about $7,500. That means Australians can buy cheaper cars, which means they have got more money to spend on their kids or on education or on holidays, and it contributes to the wealth of this nation and to our standard of living.

The Australian economy grew by five per cent in the June quarter to be 3.3 per cent higher through the year. Net exports contributed the lion's share of that growth through the year—2.2 per cent out of the 3.3 per cent growth. That is what trade has done to our economy, to our way of life and to our wealth as a nation. For 25 years there has been uninterrupted annual economic expansion. The only OECD countries able to claim that sort of annual economic expansion are Australia and, would you believe, Poland. So we have done pretty well. Australia's continuing growth success is all the more extraordinary when considering the challenging external environment, including slowdowns in global trade, investment and economic growth across the world.

I repeat: trade is essential for Australia. We produce much more than we can ever consume ourselves. So we have to make sure that the people with whom we are trading do not put unnatural impediments in our way. If we want them to play the game and do the fair thing then we have to have the same rules in our own economy—hence, the issue that Senator Carr mainly spoke about, the service dress uniform.

I want to conclude by again emphasising that, of Commonwealth government procurement in 2015-16, 94 per cent of those contracts were awarded to suppliers in Australia and, of the value of that service uniform that Senator Carr spent so long talking about, 70 per cent consisted of articles made in Australia. When we have these debates it is easy to get on Facebook and it is easy to be someone like Bob Katter who can get up and say anything to scare people about these sorts of things. But, if you actually look at the facts, you will see that trade is essential for us. We do pretty well out of it, and it has led to that remarkable 3.3 per cent growth that no other countries apart from Poland can claim over the last 25 years. So it is a good news story. These procurement rules are not something only coalition governments have abided by; they are rules that have been applied by all governments for decades. I hope that providing some facts to the debate may assist senators as they consider these issues.

5:03 pm

Photo of Lee RhiannonLee Rhiannon (NSW, Australian Greens) Share this | | Hansard source

In the global financial crisis 125,000 manufacturing jobs were lost. Imagine the hardship that that brought on an individual, a family and at a community level. Then think of the spin-off from that in terms of the implications for society and the hopes of young people about where they can find a job—hopes that are fading for so many. It is a reminder of the obligation that we have to address this issue. Australia can have a strong manufacturing future but it needs a hands-on approach by government. It needs a commitment by government to address this issue.

This idea of leaving it up to the marketplace—which is basically how you could sum up Senator Macdonald's speech, and we could have saved ourselves 20 minutes—is where the government are stuck. A strong manufacturing future will not be achieved if that is the current approach of the government. There is, however, a logical solution. Much of that solution comes if we can commit to local procurement policies at all levels of government: local state and federal. This is where we can deliver local jobs, a healthy future for manufacturing and the obvious economic boost that will go with that. Imagine the local jobs that would be created. I understand that the purchasing power at a federal level is about $40 billion. So, if we got behind local procurement, the benefits here would be huge. Imagine the jobs that could be created within the steel industry, in paper manufacturing and in materials for the defence forces. When you think of all the government departments, there are so many areas where a local procurement policy could deliver.

We have some challenges, though. I cannot see the coalition immediately changing, but there are also challenges with how Labor is addressing this. I will come to what happened in the federal election—it gave quite an insight into issues to do with Mr Shorten and even his leadership on it—shortly. It looks like this is an area where Labor is captured by some of the big trade negotiators, corporate interests et cetera, rather than getting back to how we ensure that we are getting jobs growth linked to local procurement. We heard a very interesting and a very useful contribution from Senator Carr just now, detailing Labor policy. That Labor policy gave you the impression of a commitment from Labor to procurement. I imagine that it was probably a very good debate at the national conference of Labor about this all-important issue. But you have to ask: is it going to be adopted here? Is it going to become the policy of Labor, because we know that Labor MPs in this place are not bound to follow their own policy. It is an interesting one.

Going back to April this year, there was much debate then and during the election, about the future of the steel industry in both Port Kembla and Whyalla—a very serious situation. When I visited Port Kembla, when I talked to my colleagues in South Australia, many people were constantly concerned that we might wake up one morning and see on the front of the local paper that the steel industry had closed, so it was getting a lot of attention. Opposition leader Bill Shorten gave a commitment that really had all the hallmarks of a commitment to mandated procurement for steel, but what we saw a few days later was that that position was reversed.

Mandated procurement on all government projects backed by stringent antidumping and quality control rules would provide a viable survival plan for the steel industry. That is certainly the position being advanced by local unions and local union industry bodies such as the South Coast Labour Council. This position is also backed by the Greens. It was in mid-April that Mr Shorten made a similar statement, but then a few days later that position was reversed. I would argue that the people of the Illawarra and the people of Whyalla should be informed why that position was the reverse of the announcement that he had made just the previous week. We know that a steel industry rescue plan would give security to the current industries and would then start to protect thousands of jobs.

What is interesting in New South Wales is that New South Wales Labor is not following what federal Labor is doing—federal Labor seems to be all over the place on this issue. New South Wales Labor came on board with the Greens' steel protection bill. That was voted on and agreed to when it came before the New South Wales upper house. This is a very significant breakthrough, and you would have to say it is a step forward when we see that Labor is recognising that the steel industry needs government intervention to survive. That is how I would sum up the decision in New South Wales, and that is now what we are calling on Labor to recognise and get behind—solid procurement policies at the federal level. The industry needs procurement and guaranteed support, and that is what we got. The proper name of the New South Wales bill—I would urge people following this debate to look at this bill because it is a breakthrough for Australia—is the Steel Industry Protection Bill 2016. That is the one that passed the New South Wales parliament.

I would also congratulate the South Coast Labour Council, the Australian Workers Union and Port Kembla for the considerable work they have done in driving this campaign, and also the Illawarra Greens. They put in a very useful submission to the inquiry that we had on this very issue. Some of the proposals that they put forward called for: a mandate of 100 per cent structural steel procurement for all projects across all three tiers of government; more effective antidumping measures; and a stringent quality assurance regime for steel used in all building and construction works, public and private, in Australia. Outlined in the Australian Steel Institute's submission to the inquiry was investment, including public sector co-investment, for a transition to technologies in manufacturing and the use of renewable power supplies to reduce greenhouse gas initiatives. So there is comprehensive work being done in this area. I acknowledge there are many challenges, but, again, we need to catch up at the federal level with what is happening at local and state levels. Also, let us remember how urgent this is, because people's jobs are in the balance, local economies are under pressure and we need to give certainty to these industries.

The Greens do stand with steelworkers in calling for the Commonwealth and all state and territories to make it mandatory to use Australian steel in all publicly funded infrastructure projects. Surely we should be able to get behind that? We are talking about Australian steel in publicly funded infrastructure projects. You can really argue that it is not about disadvantaging the private sector; we are looking after jobs—we are boosting jobs—we are bringing certainty and we are addressing the all-important issue of how we can ensure that there is a viable future for the steel industry.

Again, to emphasise, we are keen to work with Labor on this issue. I know many of the unions who regularly come here and lobby us on this issue are certainly keen to see a repeat of what happened in New South Wales. It took time, but it happened—where the Greens, Labor and the unions worked together to protect the steel industry and took that campaign into parliament and got it into law. Now we need to achieve that at a federal level.

I also want to emphasise the vulnerability of so many of the workers in this industry. I have toured the steelworks at Port Kembla. They are only a shadow of their former self, but they still employ workers and still are very much part of the community. We did the Senate inquiry there, and when I visited and met with the workers directly so many people said to me—workers in the industry, those who lived in the area but were not associated with industry—that they could not imagine the Illawarra without a steel industry. It is on the minds of so many people, what will happen to this area. They know that they are vulnerable due to the downturn in global steel prices and the dumping of below-cost steel into the Australian market. These are the conversations that I am having with local people. They are following what is happening with the price of steel overseas, they are feeling under pressure and it is, again, a real reminder that we have a responsibility here.

There has been some useful work undertaken by BIS Shrapnel that was commissioned by the unions on the south coast of New South Wales. That showed that a significant proportion of steel imported by Australia is reputed to be dumped at prices which are below the cost of production. That means it ends up that there is a loss for the Chinese and the Asian producers; however, for what they see as benefits in other ways they are willing to take that loss and dump it on the Australian market so that they can gain more long-term control.

There is a solution here, and, as I said, that solution lies in looking at the domestic market. Clearly we can have a big impact on the domestic market, and that is what we are proposing. But any further loss of market share will force even more domestic product into the unprofitable export markets for the steel industry, and that is where we are arguing that this federal parliament needs to give close attention to this issue. Looking at the state of domestic production, currently it supplies less than half of the steel used in public-sector construction. I will repeat that: less than half of the steel used in public sector construction comes from the domestic market. Again, I am emphasising this as a reminder that this is not hard; there is a very logical, readily available solution to ensuring that we retain the steel industry. We need to work on cleaning up that industry, but we need a steel industry for jobs growth, for the economy and for growth in many industries, one obviously being the renewable sector.

I have just mentioned some of the problems with Labor's contradictions in grappling with this. One thing I often find is that they hide behind statements like, 'Well, the trade agreements don't allow us to do that.' Either that is an excuse or they are out of touch, because a number of countries have negotiated to be able to have local procurement. Many states in the USA have done that, Canada has done that and our own state of Victoria has enacted its own local procurement policy. Victoria is an interesting case in point. Its policy has been successful with the local content proportion, averaging 86 per cent over the decade to 2013-14. This has led to an estimated $7 billion worth of import replacement. Again, it is a reminder: here is Victoria, with a local procurement policy in place—something we could do at a federal level—that has displaced $7 billion of imports. Obviously there is a real spin-off locally.

And we know that there is a big cost advantage here. I again quote from BIS Shrapnel:

BIS Shrapnel estimates that a local content policy achieving a 90% local steel content:

Will cost an average of $61 to $80 million annually in extra costs to the public sector …

That represents an average of only 0.2 per cent of total construction costs for public projects, so it is not a big cost burden. The work has been done here. We can see the economic burden, and any of these scare tactics which I have heard in some of the comments from coalition senators today about how it is financially irresponsible do not stack up; they do not stack up at all. The extra cost is based on the assumption that the price of locally sourced steel is 10 per cent higher than the equivalent imported product. So, you can see that it is a very responsible assessment of how this could work.

I do congratulate the unions involved here and in South Australia and around the country in giving so much attention to this issue of local steel procurement. The ones I have worked closest with are in my own state: the South Coast Labor Council and the Australian Workers Union—the Port Kembla branch in particular—who have really gone into this in-depth, have really driven and given leadership on this issue. It is time we ensured that when we are spending public money we get value for that money. Those figures I have just shared with you show how extensive that value can be, and that should be where we take things.

When I started this speech I mentioned the figure of 120,000 manufacturing jobs having been lost since the global financial crisis. Another area that could benefit from local procurement has been particularly hard-hit by these job losses. About 10,000 jobs have gone from the pulp and paper section, which is about half of the total workforce. This is another area where, if governments would turn to Australian suppliers for the use of paper products by federal departments, the spin-off would be enormous. I do congratulate the CFMEU for the work they have done in this area—again, effectively doing the work of government. Any decent government would have grappled with this already, would have recognised the financial and employment benefits and just got on and done what really is the job of government: to work out how we are going to address the changing nature of work, which is causing so many challenges for our society.

The issue of pulp and paper is an area where we need to address how we get Australian made paper into government departments. As I said, this is a top priority for the CFMEU. So we support the use of Australian made paper, but we do ask the union to take on board that it also needs to be FSC certified paper, not sourced from native forests. We need to ensure that we are having wins for jobs, a win for the economy and a win for the environment. That is certainly possible, and that aspect needs to be built into a procurement policy around pulp and paper. Departments should audit their existing purchases to examine what imported products are being purchased or are due to be purchased and determine whether there is an Australian made alternative that provides better value for money. That is something the Greens support, with the provisos about products being manufactured here while also having that environmental protection in place.

We need to ensure that current Commonwealth supported building and construction projects are sourcing local products. That is also set out in the CFMEU campaign, which expands the work I have been talking about. They set it out thus:

Maintain and strengthen Australian Industry Participation requirements by mandating a "Look Local First" emphasis for new purchasing of building products for taxpayer supported infrastructure or construction projects.

That is a good way to phrase it. We need to be changing the culture of how governments go about their work, and a 'look local first' emphasis would help to achieve that. I think there is a great benefit in that.

I understand that the government has a purchasing power of about $40 billion, as I said earlier. Essentially, what we are saying is: let's put that to good use so that we are promoting and increasing Australian jobs and doing more to protect the environment, and the economic benefits will be fantastic. Again, to my mind, this should be the core part of government work.

Life changes, the nature of work changes and the nature of economies are changing, sometimes with great rapidity. We are in the middle of such a time at the moment. I imagine most people here have read some quite disturbing articles about the levels of unemployment that could be coming down the track. We need to address that, and procurement at all levels of government—local, state and federal—is one way to achieve that. I commend that, and I thank the Nick Xenophon Team for bringing this motion before the chamber.

5:23 pm

Rod Culleton (WA, Pauline Hanson's One Nation Party) Share this | | Hansard source

Mr Acting Deputy President Whish-Wilson, I should say this is not my first speech.

In speaking to support this amendment of the government procurement rules, I find it astounding that anyone in this chamber could argue against such a self-evident amendment to the Commonwealth government procurement contracts. If products do not meet Australian standards, they should not be imported at all, let alone procured by the Commonwealth government. Given the historic evidence supporting the usage of local products and/or, at the very least, ensuring local standards, it is essential that the same criteria are used to evaluate the suppliers of any contract and the product they would supply. Using the parameters of the triple bottom line, these amendments pass with flying colours and they put Australian products on the level playing field that this government claims to endorse.

In effect, the result will mean that Australian products will compete for procurement contracts on an equal footing with imports, as they should. And they will win, hands down. It means buying the best, and buying local is the best. Even the environment benefits from buying local—no transport emissions from freighting goods across the oceans, goods are produced under Australian workplace safety, and ethical work standards and quality standards are unquestionable. Even the Greens cannot turn their backs and walk away from that reasoning.

A constituent, Gordon Miller, wrote to me about this very matter just days ago. Mr Miller is ex-Army and appalled, as I am, that our military are dressed in Chinese made uniforms, allegedly to save money. I recall the incident back in 2012 when our recently returned soldiers marched in the Anzac Day parades while their imported shoes lost their soles. Those soldiers marched on and showed up our government leaders' procurement guidelines as a national disgrace. They are not a money saver at all but a total waste of money and a shameful indictment of those guidelines. Those military boots are now made in Australia by RM Williams—which I am happen to be a very good advocate for—and there have been no complaints or incidents since.

As a listed and registered Australian inventor and as a primary producer I fully understand and appreciate, through the concept that I created of a world-leading feed delivery system, how important it is to allow Australian product to compete on the same quality requirements as any imported goods.

Senators need to understand that they are doing favours for the Australians employed to meet these contracts—quite the reverse. This nation's workers and businesses are providing the Commonwealth government with goods and services of the standard that this government has set. World-class standards and world-class products are the result. For them to accept goods of any lesser standard is to demean and repudiate the very legislation and standards this chamber has set for our nation.

If the government were to use the accepted framework for establishing guidelines to evaluate their choice of supplier in procurement contracts—that is, the triple bottom line of social, environmental and financial factors—it is clear that they would create benefits in all three.

Further, I wish to alert this chamber of my intention to write to the former members of the Parliamentary Joint Committee on Corporations and Financial Services about their inquiry into the impairment of customer loans, to alert them to purported evidence given by the ANZ bank and others which was misleading and inaccurate. Proof of that inaccuracy and deception is contained in this document that I hold, my 'book of truth', which I proudly presented to that inquiry when I was asked to give evidence.

5:27 pm

Photo of Gavin MarshallGavin Marshall (Victoria, Deputy-President) Share this | | Hansard source

In Senator Carr's contribution, he made the important point that those who think there may be no difference between the conservatives and Labor on matters of procurement, trade and industry policy need only look at this important issue to see how stark the difference can be. I invite people to compare Senator Macdonald's contribution to that of Senator Carr, as that actually demonstrates how far apart the different parties are on these issues. If people ignore Senator Macdonald's repackaging and opinion of what Senator Carr said and merely look at the facts about where parties stand on these matters, they will see that the Labor Party and the conservatives bring very different approaches to these matters.

I think people are getting more and more concerned about where jobs and the quality of jobs in this country are going. They are getting more and more concerned that governments seem to be abandoning industry intervention and policies that support jobs and good quality jobs in this country.

I think Senator Rhiannon made an important point when she said that a lot of these issues were canvassed with working people and their families through the election campaign. I had a number of firsthand experiences of this. To my surprise, my elderly parents, when I was assisting them with their postal votes, asked me how they could vote for 'that nice Mr Xenophon'. I was a little bit disappointed! I explained that I knew 'that nice Mr Xenophon' and that, if they had actually met him themselves, they might not want to vote for him! Luckily, they were unable to vote for him because they live in Victoria. I pressed them on why they wanted to vote for 'that nice Mr Xenophon', and it was 'because he stands up for Australian jobs'. The Labor Party stands up for Australian jobs, but I think it is pretty obvious that our message is being lost. Senator Rhiannon made the important point that it gets lost because it also gets mixed in with free trade and trade agreements.

The one thing that Senator Macdonald was right about is that we do need trade. We are a trading nation. I am certainly not antitrade, but I think governments need to do more to ensure that the jobs and the quality of the jobs of Australians are protected. It is no good having lots of jobs if they are not skilled jobs and they all pay very low wages. It is not good to see a manufacturing base decimated by free trade agreements or industry policy put in by governments which leave people out of work and businesses without capacity to tender for works into the future. When factories go, they are gone and can no longer participate in the economy of this country.

People are getting more and more concerned, particularly people who have seen their children have a better standard of living, a better quality of life and better jobs than they did; they are now worried that their grandchildren will have lesser quality jobs and a lesser standard of living than their own children had. I think people see that in the move to casualisation, in the move to part-time work and in the move to contracting out work. They even see it in the teaching profession, where teachers are being employed by the public sector from the beginning of the school year to the end of the school year. So they miss out on holidays, they miss out on permanency and they then have to re-apply for jobs. That is happening across the board, and people are becoming more and more concerned about that.

During the election campaign I talked to a lot of traditional Labor voters I assumed would be voting for us again and, to my astonishment, I found that some were not. Some were voting for One Nation, and I asked them why. It was not because of some of the immigration policies or other matters like that. Again, it was because they saw people standing up for jobs, talking about protections and talking about Australian values. Though One Nation does not have any of the answers to any of those problems, this identified for me that we have not talked about these issues enough and we have not explained our policies well enough. We need to be very clear about that with the Australian population.

It is important that we protect high-skilled, high-paid, good-quality jobs, and one of the ways we can do that is through government procurement. As Senator Carr pointed out, that is not to say that that should just be automatic and there should be no competition and no efficiencies in that. But it does not have to be just the lowest cost; in fact, the lowest cost is often not best value. I think that is a concept that we really need to grapple with. Senator Macdonald made the point several times that it is just about cost—that cost is king and the market will deliver to us if we allow the lowest cost to prevail. But the best value is not always the lowest cost. I want to give a couple of examples of that. I want to give an example that actually happened on our watch when we were in government. It was not a government decision; it was a Defence decision for soldiers to have Chinese-made dress boots. I refer to a report on ABC News in May 2012. It says:

The Australian Defence Force has admitted that the rubber soles are falling off the Chinese-made dress boots that soldiers are expected to wear for official parades.

Photo of Gavin MarshallGavin Marshall (Victoria, Deputy-President) Share this | | Hansard source

'Sole less', says Senator Xenophon. It continues:

Defence officials have told Senate estimates the problems began in 2008 when the tender to make the boots was won by a Chinese company. Defence had sent the boots back to the manufacturer for extra stitching and nails to try and hold them together. But officials say the glue is still failing in hot conditions.

On a number of parades, especially in northern Australia, soldiers were marching and the soles were falling off their boots. That was not a good value contract. It was certainly the lowest cost contract, but it was not a good value contract.

We were in government then, and a lesson was learnt by Defence at that time and a new contract was awarded to R. M. Williams. R. M. Williams were very happy to receive that contract. Back in 2013, Chief of Army, Lieutenant General David Morrison AO, said:

The Army is proud to be partnering with the Australian brand.

With the Australian Army’s 112 year history, it is fitting that we will now also carry over 80 years of Australian tradition in our boots.

That is an example of where the lowest cost was not the best value. We now have the best value, because we look at a long-term quality product and we look at the workers who actually make that product—workers who pay taxes in Australia; workers who do not receive unemployment benefits, because they are employed; workers who have families and buy houses; workers who buy food, put food on the table; workers who have children and send their children to our schools; workers who contribute to every facet of our economy, working because we took a best-value approach to that particular contract.

If we apply that across the board to the $59 billion worth of government procurement every year, we can assist the economy. We can best value-add to our economy by ensuring that Australian manufacturers are best positioned to compete for that work and ensuring a system that allows the full value of the tendering process to be taken into consideration. Other countries do it. We know the United States do it. They have 'buy American' policies and they sometimes have some absolute restrictions on foreign companies tendering for some of those products.

Government procurement certainly has the huge and important purchasing power of the government. It is an immense part of our nation's industry and of our economic policy. We must ensure that this money, this $59 billion, is spent in the best interest of our economy, and not someone else's. We should use that spending to drive a diverse industrial base capable of generating those skilled and well-paid jobs that I talked about earlier, the ones that are so essential to the future of our economy. Decisions such as the recent Australian Defence Force dress uniforms contract revealed that the current government has made a poor choice. Just going back to the example I used earlier: we thought that Defence had learnt their lesson with their parade shoes, but I suspect that they have not. Lessons only seem to be learnt for periods of a government and do not continue past that.

Commonwealth decision-making must take into account all the factors which flow from its procurement. It is not simply a matter of obtaining a product by handing less money to a low-wage manufacturer in another country. Domestic manufacturers are part of the Australian economy, and we want that money to assist there. A product's quality and capability and whether it is fit for purpose are all issues which need to be tested before the value-for-money test is applied. Time and time again we have seen examples of state, territory and Commonwealth purchases putting the price tag before the purpose. For instance, I am aware of an example in Victoria where one of the fire authorities bought some cheap firetrucks from Eastern Europe. When the ladders were extended there were huge gaps in the ladders. They were really cheap, but they were not fit for purpose. We have seen firetrucks purchased that did not fit into the fire stations. They were not fit for purpose—they simply went for the lowest cost without making sure that the purchases were fit for what we were spending the money on.

The wrong product can be picked if the proper requirements are not set. Everything in Commonwealth purchases must have met the exacting Australian standards for what we needed to do. We also know that there are many examples where substandard material and product is coming in, and much of that is purchased by the Commonwealth government. We have examples where asbestos—something that took years and years of campaigning to get out of this country—is now being imported into this country, sometimes with 'asbestos free' labelled on it. We ought not just rely on low standards from some overseas countries with a stamp saying there is no asbestos when there is no ability for us to ensure that. We have seen bridges made with the wrong gauge steel, and the hollow parts of the bridges, from overseas, were filled with water to ensure that they weighed more. They would trick the receiver of the goods into thinking that the right gauge steel had been used, because they had secretly added weight. Again, we find that many of those things are not fit for purpose.

In this country we need a consistent, straightforward and thorough approach to procurement. Commonwealth agencies should not be required to choose the cheapest supplier, whether at home or abroad, and they should be able to consider any detrimental environmental and social effects when making their purchasing decisions. Any government which was committed to providing for a growing and thriving Australian industry would commit itself to responsible domestic procurement and not simply look only at the purchase price in competitive tenders.

I want to spend a bit of time drilling down into what value for money actually is. The question of value for money goes to the very heart of this motion. It was examined in great detail in the 2014 report of the Senate Finance and Public Administration References Committee inquiry into Commonwealth procurement procedures. The committee went to considerable length to explain what value for money really means. This is what the committee came up with, and it is a very clear definition:

At a basic level, obtaining value for money for each procurement action requires a comparative analysis of all the relevant costs and benefits of each supplier's proposal throughout the procurement cycle, and is not determined by price alone. It should also consider the whole-of-life costs of the procurement and include consideration of quality and overall fitness for purpose.

If we apply that test we will have many, many different outcomes. We will see that the value of the taxpayer's dollar for government procurement is invested back into our economy, supporting Australian jobs, Australian industry and the Australian economy. I think it is time that we had a very hard look at these arrangements. We need to have a very hard look at how free trade agreements work their way into some of these decisions. We need to ensure that Australian industry and jobs in this country are supported. Given that we are getting close to time and Senator Xenophon has indicated that he would like to speak to conclude this debate or take it through to 6 o'clock plus, I will now allow him to do that.

5:43 pm

Photo of Nick XenophonNick Xenophon (SA, Independent) Share this | | Hansard source

I am grateful to Senator Marshall for giving me some time to speak on this very important issue. This is a motion that I have instigated along with my fellow senators, senators Griff and Skye Kakoschke-Moore, as well as Senator Rhiannon from the Australian Greens co-sponsoring this motion. To paraphrase Oscar Wilde, our current procurement rules seem to know the price of everything but the value of nothing, because we have a situation in this country where we have lost our way when it comes to our procurement rules. The effect on our economy and social fabric is fundamental.

We have a situation where the Commonwealth government spends $59 billion a year—and the state governments, between them, would spend tens of billions of dollars more each year—on procuring goods and services, but our rules are broken. Our rules are broken at a state level; the New South Wales government decided to spend $2.3 billion on rail cars from South Korea and it decided to spend millions of dollars for 100 kilometres of steel rail lines from a Spanish company at the very time that Arrium, the steelworks in Whyalla, is struggling for survival. That decision by the New South Wales government was a disgrace. I mention it, notwithstanding the terms of this motion, because the federal government funds so many of these infrastructure projects. It is about time the federal government tied those grants, those infrastructure funds, to a requirement for a robust and fair procurement policy.

We have a crisis of manufacturing in this country. Over the last 10 years, we have slid dramatically from 12 per cent of our GDP being based on manufacturing to just 6.2 per cent. We are just bumping along with Botswana at six per cent and Rwanda at five per cent. I have nothing against Botswana and Rwanda, but I mention them because, unlike Australia, they have never had a strong and firm industrial base. We have a situation in this country where, as Senator Rhiannon alluded to, over 120,000 jobs—in fact, some economists say it is more like 150,000 jobs—have been lost in manufacturing since the GFC. We know that we are facing a cliff. We are at the precipice.

At the end of 2017, the motor vehicle manufacturing sector in this country will shut down. Once it shuts down, something like 200,000 jobs are at risk—not according to me, but according to the Bracks review for the Victorian government several years ago and a more recent review by Professor John Spoehr of the University of Adelaide. That 200,000 figure indicates that, of the 45,000 direct jobs in automotive manufacturing and in the supply chain, there is a multiplier effect. In the UK they say it could be four or five. Taking a conservative multiplier of three or four, you are looking at a risk to 200,000 jobs in the economy. There will be a spike in unemployment, particularly in Victoria and South Australia, where automotive manufacturing is based.

There does not seem to be a plan from the government to deal with that. There is an underspending in the Automotive Transformation Scheme of $750 million. We need to divert some of those funds—which will not be spent because the scheme is effectively being shut down—to allow companies to be able to make other things and diversify into the global automotive supply chain or into other forms of manufacturing, just as Precision Components does in Adelaide, making heliostats for renewable energy.

But in respect of the whole issue of procurement, we can tackle those job losses—that cliff we are facing. We can tackle extraordinarily high unemployment rates. The unemployment figures came out today and, as I understand it, they have gone up for South Australia, which still has one of the highest rates in the country.

Photo of Deborah O'NeillDeborah O'Neill (NSW, Australian Labor Party) Share this | | Hansard source

Part-time!

Photo of Nick XenophonNick Xenophon (SA, Independent) Share this | | Hansard source

Senator O'Neill points out more and more people are working part-time. You cannot buy a home on a part-time income. You cannot plan your future on a casual wage. That is why these procurement rules are so important. Why is it that the Australian government recklessly continues to pursue a procurement policy that does not take into account the social and economic benefits of ensuring that any purchases with our money are focused on social and economic benefit. There are huge benefits for the economy in respect of that.

Senator Marshall referred to the 'sole-destroying' boots—literally—made in another country, which fell apart on parade because the glue did not stick. It happened on Labor's watch, and Senator Marshall readily and graciously acknowledged that, but what happened in 2014? I am wearing my Rossi boots. I will not incur your ire, Mr Acting Deputy President, by taking my boots off and slapping them on the table Khrushchev-style. But I will say this: Rossi boots have been around since 1910. They have been making boots for our troops since World War I—and year after year after that. In 2014 they missed out on a contract, a tender, to make up to 100,000 pairs of workboots over five years for the ADF. They missed out to another country because they were supposed to give so-called value for money.

After asking the former Minister for Defence, Senator Johnston, it was established that the price differential was only 10 to 15 per cent. I do not think Senator Johnston was too happy about it either, to be fair to him. I do not think he actually knew what had occurred and I think he was privately quite furious about it. By applying these asinine Commonwealth procurement rules of so-called best value for money, all that work, that multi-million dollar contract, went off to another country—Indonesia, in this case. I have nothing against Indonesia. In fact, it happens to be—and Senator Hanson is in the chamber—not only the world's biggest Muslim country but also one of the most robust democracies in our region, with a strong free press. But that contract went to Indonesia for a lousy 10 to 15 per cent price differential.

Imagine, as Senator Marshall has alluded to, what the difference would have been if Rossi Boots had been able to employ more people and to give them more overtime, if those workers had been able to spend their money in the local economy in South Australia and if Rossi Boots been able to pay more corporate tax at 30 cents in the dollar—all with huge multiplier effects. The butcher, the baker, the candlestick maker—all of those people would have had the benefit of that extra money being pumped into the economy. Instead, what did we do? We exported those jobs overseas and we did so with a degree of recklessness.

We can fix our Commonwealth procurement rules and we must fix our Commonwealth procurement rules. But it seems that the whole debate, from the point of view of the coalition, is tied up in the free trade mantra. In some way, if we have stronger Commonwealth procurement rules, if we stood up for our national interest in the way the Americans do, the Canadians do, the Europeans do and the Brits do we would be much better off. I need to refute some of the matters that Senator Macdonald raised. I am grateful for his thoughtful contribution but he is wrong. We need to take into account these free trade deals. I mention them because it seems that the Commonwealth government, this government and indeed previous governments, have taken the view that we cannot have Commonwealth procurement rules that are about buying Australian made because that might offend the WTO and all these trade agreements we enter into. It might throw a spanner in the works when we are negotiating these free trade deals.

I know I have been criticised in the Australian Financial Review by Alan Oxley, who gave a perfect exposition on 8 June this year of the fundamentals of free trade orthodoxy. I know that I have been criticised by Paul Kelly in The Australian as the most dangerous protectionist politician in the parliament for decades. I take that as a compliment, I think, even though I am not a protectionist and, Mr Acting Deputy President Whish-Wilson, you are a little bit jealous that you have not been attacked in the same way.

Let's look at the outcomes of some of these deals. The Australian National University studies of the outcomes of the Australia-US Free Trade Agreement after 10 years shows that the preferential agreement diverted trade away from other countries. Australia and United States have reduced their trade by US$53 billion or A$71 billion with the rest of the world and are worse off than they would have been without the agreement. The coalition says that Australia's FTAs with Japan, South Korea and China will lead to tens of thousands of additional jobs yet the government's own economic modelling by the Canberra based Centre for International Economics estimates that, by 2035, those three FTAs will have produced a total of the only 5,400 additional jobs. Guess what? We are going to be losing tens of thousand of jobs because of this free trade orthodoxy by the end of next year. How do we counteract that? We need to have viable, strong, clear Commonwealth procurement rules to take into account the social and economic effects—'smart procurement', as Professor John Spoehr from South Australia says.

We need to have these Commonwealth procurement rules as a matter of urgency. I can foreshadow that I, along with Senator Griff and Senator Kakoschke-Moore, will be introducing legislation to amend the current Commonwealth procurement rules framework to take the rules out of where they are, where they are not in legislation and put them firmly in legislation where these factors are taken into account. I look forward to working with all my colleagues. I acknowledge Senator Carr—and I hope this is not the kiss of death politically to say nice things about Senator Carr. We have a good working relationship in respect of industry policy because he gets it; he knows what needs to be done.

Let's put these procurement rules in context We have a situation now where Arrium, the steelworks in Whyalla, are on the brink. They are on the brink in part because of Commonwealth procurement rules, because state and federal governments have not been buying enough of Australian made steel. Arrium falling over is not something that we can contemplate although I do have a lot of confidence in Mark Mentha, the administrator of Arrium. If Arrium falls over, we will lose structural steel making in this country. It will put enormous pressure on BlueScope, the rolling steel maker in Wollongong, and it will mean the end or the compromising of thousands of steel fabrication businesses in this country. That is the domino effect you get if you do not have a clear policy framework for Commonwealth procurement rules.

The Commonwealth government can turbocharge our manufacturing sector, can save many of those jobs that will be lost when auto making shuts down it has have a clearheaded, far-sighted policy of procurement in this country. We need to change these Commonwealth procurement rules sooner rather than later because the effect on the economies of Victoria, South Australia and indeed the rest of the country will be enormous. When those workers at GMH, Ford and Toyota run out of their redundancy packages, you will not want to see what that will do to unemployment figures in this country. It might be after the next election but the impact will be enormous.

We need to reform these rules because so many sectors of our economy are suffering. Let me give you one emblematic example of how sick these rules are—and I know young people say 'sick' in the positive sense but I mean it in the old fashioned sense. At the last election, when we cast our ballots on 2 July, many Australians would not realise that probably up to a couple of million ballot papers were produced or came from paper that came from other countries—from China, from Indonesia and from Thailand—even though Australian paper manufacturers were ready, willing and able to supply that paper here from forests that comply with forestry standards—quite different from the standards that may apply in other countries. It is extraordinary that the very paper that we decide who will govern our nation on may have come from another country because of our broken procurement rules. The irony is not lost on me nor on a number of my colleagues here. That is the absurdity of these rules.

I know Senator Macdonald tried to defend what was happening with the Australian Defence Force uniforms. I would have thought that when the men and women of the Australian Defence Force are on parade or at official functions representing our country as part of the Australian Defence Force that they would be displaying uniforms that made in Australia. We need to drill down and find out whether or not those assertions of triple the cost are actually true and what the economic benefits would have been otherwise.

This is an issue that will not go away. There must be amendments to the Public Governance, Performance and Accountability Act to ensure that we do achieve real value for money in procurement. And achieving real value for money in procurement means buying Australian by taking into account the social and economic benefits of local procurement.

Debate interrupted.