Productivity Commission boss Michael Brennan warns ALP on industry

Outgoing Productivity Commission boss Michael Brennan has warned of an economic penalty from boosting manufacturing in response to the Inflation Reduction Act.

Outgoing Productivity Commission chair Michael Brennan at the National Press Club in Canberra on Wednesday.

Outgoing Productivity Commission chair Michael Brennan has warned Labor it is not a “logical and rational” plan to increase manufacturing as a share of the economy in response to the Inflation Reduction Act.

In an address to the National Press Club in Canberra, Mr Brennan said it was right to “think very hard about what the IRA means for us”. But he warned that diverting resources to new industries that did not represent a “higher value use” of labour would see the nation paying an economic price.

He also urged governments to lift their own productivity performance. Mr Brennan warned the expanding government services in health, education, aged care and disability were “too big to be exempt from potential future productivity gains” and a new approach was needed.

Indigenous Australians had most acutely felt the “limitations and inefficiencies” of government, highlighting the need for public sector business models to become more flexible.

Challenging the Albanese government’s approach to industry policy, Mr Brennan said the economic consequences of boosting manufacturing should be clearly spelt out by advocates – including “what it is that you want us to be doing less of?” and “what are the industries that should shrink?”

“I find it difficult to come to the conclusion that the main logical and rational response to the IRA going on in the US is that Australia should have a higher relative share of its economy in manufacturing. That just doesn’t seem to compute to me,” he said.

In a speech to the American Chamber of Commerce in Australia on Wednesday, Industry Minister Ed Husic said it was time to change industry policy with a “goal of more Australian workers making more things in Australia using Australian know-how and Australian resources.”

Taking aim at the Productivity Commission position, Mr Husic warned there were “those who criticise this new dynamic approach” and that critics of Labor’s industry policy were clinging to economic ideas “that were in fashion in the 80s.”

They say things like “why have a battery industry in Australia, let’s just focus on what we’ve always done best, raw materials production.

“It seems that if you can chop it, dig it, grow it and then ship it then that’s enough … But guess what, we can do both.”

Mr Husic argued that, over the past decade, national manufacturing output had “declined by more than 4 per cent, compared with a 26 per cent rise in the broader economy” and that Australia had the “highest dependency on manufactured imports and the lowest level of manufacturing self-sufficiency of any OECD country.”

But Mr Brennan warned that there was a “tendency in the industry policy debate to grab hold of the most exciting new venture, the most exciting new sector that’s on the horizon, (but) often that’s the very sector where the real price … is about to fall dramatically.”

“It’s not always clear that it’s a really good bet for a country to adopt unless you are going to be the very best at it.”