2 June 2016

2nd Reading Speech

The Hon. ADAM SEARLE ( 10:57 ): The Opposition supports the Steel Industry Protection Bill 2016 but will move amendments in the Committee stage to improve and expand its scope by mandating the use of Australian-made steel in projects paid for by the New South Wales Government and by local councils. Our proposed amendments will provide for a tough cop on the beat to ensure adequate compliance with Australian standards, and other matters to which I will refer.

The future of steel-making jobs in the Illawarra and elsewhere, and for those dependent on the steel industry, is a matter of prime concern. It is a matter of public record that there is a full-blown crisis in the Australian steel industry . Having heard the response from the Governm ent , it is unfortunate that it does not appear to understand the gravity of that crisis or the need for resolute action by all levels of government . We must ensure that this strategic industry is given the best chance of a secure future, not only because o f the thousands of jobs it supports directly and indirectly and the effect that has on our economic and social f abric, but also because of the impact it will have on supply chains in New South Wales and elsewhere .

On Monday this week in the Illawarra the shadow Treasurer and shadow Minister for the Illawarra, Ryan Park, and I announced Labor’s comprehensive Secure and Sustainable Steel Jobs package of measures proposing substantial changes to the State’s procurement policy, which will for the first time explicitly consider a whole-of-life assessment of steel use in major infrastructure projects. The package includes a review of the State’s infrastructure plan, which will provide indicative future demand for Australian-made steel and infrastructure projects and set up a known pipeline of projects so that Australian steel producers can plan for the demand. A steel industry advocate would also be appointed to ensure that new Australian standards and certification for Australian-made steel use is monitored and complied with and it will be based in the Illawarra. Those matters will be the subject of Labor’s amendments. 

Our amendments will stop different classifications of steel and low-quality imported steel from being used in publicly funded State infrastructure. The steel industry advocate will also be tasked with undertaking a major New South Wales steel and fabrication sector review, focusing on the supply chain capability of the sector, coordination of innovation, research and development, and investment in plant and equipment. Labor’s steel and jobs policy follows extensive consultation with a range of steel unions, workforces and steel industry stakeholders after threats to the continued production of steel at BlueScope Steel last year. 

New South Wales Labor supported the State Government’s payroll tax concessions for BlueScope Steel last year. We did not seek to play politics because we recognised that supporting the Government’s offering was in the public interest. It is a shame that the Government has not reciprocated on this steel plan initiative. It is critical that no further measures have been implemented to support a sustainable future for the steel industry and jobs in that industry. A BIS Shrapnel report published in August 2015 confirmed that if the steel industry stopped steel production in the Illawarra it would wipe $3 billion from the value of the region’s economy and up to 10,000 jobs would be lost. 

The damage would go even further. Many businesses and communities supply goods and services to the steel industry. A large number of them are located in Sydney’s west and south-west and in the Hunter. The closure of the steel industry in the Illawarra would impact the supply chains of other industries and potentially do immeasurable damage to our economy. This is a case not of protectionism but of sensible recalibration of government policy. I note that the Minister’s first desperate port of call was to say that this would somehow violate our free trade agreements. I will come to that because it is worth noting that many of the countries with which we have free trade agreements are in the process of imposing tariffs to protect their domestic steel industries. 

The Hon. Daniel Mookhey: Like the United States.

The Hon. ADAM SEARLE: I acknowledge that interjection.

Mr David Shoebridge: Like Illinois.

The Hon. ADAM SEARLE: Yes, tariffs are being imposed at a state level in America. Some countries are also taking other measures. We do not think this would violate any of Australia’s free trade obligations because we are not seeking to mandate this policy for industry generally. This goes to the choice of the customer, being the New South Wales Government and taxpayers through councils.

Mr David Shoebridge: The biggest single customer for infrastructure in the country.

The Hon. ADAM SEARLE: I acknowledge that interjection as well. Our policy simply lays down a marker saying that we as a purchaser will take a certain approach. Customers are allowed to do that. There is nothing in the free trade agreements mandating that customers must somehow divvy up their purchases domestically and internationally.

Mr David Shoebridge: It’s about ideology.

The Hon. ADAM SEARLE: The Government’s response is about ideology. To place this matter in context, BlueScope Steel is the major flat steel producer for the domestic Australian, New Zealand and United States markets from New South Wales. It is a leading international supplier of steel products. Over the years, the high Australian dollar, weakening product demand and oversupply of cheap international steel being dumped onto the domestic market has led to BlueScope facing significant financial trouble.

The long-term stability and sustainability of the BlueScope steelworks is at risk, which is creating substantial job uncertainty in the Illawarra and, as a consequence, for those who work in businesses providing supplies to the steel industry in areas including south-western Sydney and the Hunter, as I indicated. Of course, it will also affect Illawarra industries. Taking all of those pay packets out of the local area and away from the supermarkets and other industries will cause a death spiral for the Illawarra community and economy. Like throwing a rock into a body of water, those effects will ripple outwards across the New South Wales economy. 

In 2015 BlueScope Steel sought government assistance for payroll tax relief. The New South Wales Government eventually provided assistance to BlueScope, which includes $60 million in deferred payroll tax payments over three years from 2016 to 2018. While payroll tax concessions are an important step towards improving BlueScope’s financial position, the ultimate solution will be increasing the demand for Australian steel. That is the only real solution to ensuring the company’s ongoing sustainability and—more importantly than the fate of any one company and its workers—the continued production of steel in New South Wales. 

The steel industry employs more 100,000 people in Australia. However, it should be noted that New South Wales is the heartland of the steel industry. The construction sector makes up 80 per cent of demand; however, private demand has contracted and is expect to continue to contract over the next three to four years. Domestic production now supplies less than half of the steel used in public infrastructure projects, having contracted by 5 per cent of market share since 2010. That is a very important factor which no doubt has led to this bill and to Labor’s comprehensive steel jobs plan that we will seek to add to the bill through amendments. 

The proposals contained in the bill and our amendments are not novel or out of left field. Labor governments in South Australia and Victoria have implemented procurement policies which assist the sustainable production of steel in regional areas. The South Australian Government is focusing on measures that recognise the economic benefit from procurement through labour, capital investment and supply inputs via small- and medium-sized enterprises in the steel value chain as well as mandating supply to Australian standards and third party compliance to lift the quality of government projects. 

Mr David Shoebridge: And federally they do it on subs.

The Hon. ADAM SEARLE: I will come to that. While the Victorian Government has also developed procurement practices that recognise the economic value through the value chain, it has strengthened this through a focus on strategic projects such as the East West Link having 90 per cent local content rules for steel and the level crossings work requiring 100 per cent local steel content. The Australian Government has recently announced new duties of up to $4 million penalising the dumping of steel on the Australian market. The Prime Minister recently announced that the 600-kilometre rail line operated by the Australian Rail Track Corporation would be built with steel produced from Arrium in Whyalla—without any tender process taking place. The Prime Minister also indicated that the submarines that were the subject of a hotly contested procurement tender process in South Australia would be built with Australian steel. There was no tender and no talk about a mix of Australian and international steel. The Prime Minister just waved the wand then issued a fiat that Australian submarines and the Australian Rail Track Corporation rail line will be built using Australian steel.

Staring down the barrel of judgement at an election, the Prime Minister knows which side the community is on. He knows that when an industry as big and important as steel is in crisis governments have to not only put their shoulders to the wheel through getting the best trade deals but also put their money on the table. They have to say the government as a customer will prioritise the use of Australian steel for important Australian infrastructure projects. Overseas governments are taking similar approaches. For example, the British Government has already put in place regulations that allow producers to consider environmental and social criteria including employment and supply chain activity when vetting contracts for construction and infrastructure projects. In addition to recognising the value to the supply chain, they also include a whole-of-life assessment for infrastructure projects using steel. 

Mr David Shoebridge: That would be a Tory government.

The Hon. ADAM SEARLE: That is in fact a Tory government—not a coalition Tory government but a Tory government. The approach means assessing projects and tenders beyond just the up-front construction and implementation costs to take account of whole-of-life costs such as maintenance and repairs. I draw the attention of members to the Australian Steel Institute submission to the Legislative Assembly Committee on Transport and Infrastructure Inquiry into the Procurement of NSW Government Infrastructure Projects. It is definitely worth a read and would educate members opposite on a rational economic response to the crisis in the Australian steel industry rather than an ideologically blinkered approach.

The approach of the British Government also means looking at the economic benefits of better engaging with local industry. Interestingly, the Cameron Government in the United Kingdom has responded to the steel crisis and domestic pressure to save their steel industry by announcing the part-nationalisation of their steel industry. That is not a course of action that Labor recommends but it indicates the flavour of what is happening internationally and what governments of all stripes and persuasions are doing to save their domestic steel industries. They are not only important economically but they have amazing important strategic value for those countries and Australia. How can we take a lesser approach than that of David Cameron’s Tory Government in the United Kingdom?

The Australian Senate is currently conducting a public inquiry into the Australian steel industry. All major submissions to the inquiry have called for a change to procurement policy by Federal, State and Territory governments, including 90 per cent mandating of Australian steel use in all publicly funded infrastructure projects. While Australia has obligations under existing free trade agreements, which restrict procurement policy changes on the grounds of competition, I do not believe that this legislation or the policies it would embody, including the amendments that we propose, would breach those free trade agreements. Article 15 of the Australia—United States Free Trade Agreement [AUSFTA] provides for government procurement preferences in certain circumstances. It should be noted that the AUSFTA exempts the United States steel industry and large sections of government procurement. This agreement was due for a 10-year review in May last, which provides a great opportunity for Australia to seek to exempt our steel sector generally as well. I repeat, I do not believe that this legislation or our amendments would breach the free trade agreements because we are not seeking to put this stamp on all players and all projects in the steel industry everywhere, only on those paid for and acquired by the New South Wales State Government and its instrumentalities and local government.

The Hon. Robert Brown: You mean by the New South Wales taxpayer.

The Hon. ADAM SEARLE: I acknowledge that interjection. We are simply saying that as a customer we would take a certain approach, which we are allowed to do. The claims by the State Government that Australia is constrained and may face retaliation if Australian governments favour local steel is highly questionable—for example, the China-Australia Free Trade Agreement [ChAFTA] does not contain an agreement on government procurement. I have already referred to statements by the current Prime Minister regarding the new submarines to be built with Australian steel and the Australian Rail Track Authority’s approach to building its track. The United States has gone as far as imposing 260 per cent tariffs or duties on certain product groups and is proceeding to strengthen domestic procurement requirements, particularly at a state level, and a number of states such as Illinois have produced what can only be described as old-fashioned protectionist measures to bolster and protect the American steel industry. We are not proposing those approaches at all. We are taking a much more cautious, sensible and balanced approach, mindful of things like free trade agreements.

It should be noted that the former New South Wales Labor Government introduced a limited preference for small and medium enterprises in its procurement policy in 2010-11, which was discontinued by the O’Farrell Government and changes to the NSW Procurement Policy were a key component of Labor’s 10 point Illawarra Jobs Plan launched in 2015. This builds on those earlier announcements and we will seek to go further with our amendments. There is also further scope for New South Wales to review the steel and fabrication sector regarding its supply chain capability and improve coordination, innovation, research and development, which we will seek to advance through our amendments. There is substantial criticism that the steel and fabrication sector is highly fragmented, its supply chain capability is compromised and investment in plant and equipment is declining. BIS Shrapnel has indicated that a local content policy achieving a 90 per cent local steel content for publicly funded projects would provide a substantial net benefit to the economy and lead to only marginal increases in total construction costs of 0.2 per cent. A local procurement policy of the kind proposed in the bill and in our amendments—

Mr David Shoebridge: Which we support.

The Hon. ADAM SEARLE: I acknowledge that interjection. A local procurement policy of the kind proposed in the bill and in our amendments will greatly strengthen certainty in the sector and provide a platform for investment growth, and even expansion, not only in steel making but throughout the supply chain—not only for the steel industry but for others as well. The benefits to the manufacturing sector will fan out from Port Kembla through the west and south-west of Sydney, the Hunter region and right across the great State of New South Wales. The reason for this is that fabricators and manufacturers that rely on steel inputs will be on a more level playing field than we see currently where overseas competitors use sub-cost and substandard steel to undercut competition for New South Wales Government and local council projects. This is a cost-effective policy change that will deliver gains much greater than any nominal increase in any ticketed price for steel.

The Australian Steel Institute states that maximising local content is of huge importance, estimating that for every $1 million of local manufacturing output gained or retained in New South Wales six full-time jobs are retained, $225,300 of tax revenue is generated, and nearly $65,000 worth of welfare benefits are saved. BIS Shrapnel estimates that the proposed 90 per cent local steel content would cost anywhere between $61 million and $80 million annually for Australia, which would translate to an impact for New South Wales of between $19 million and $24 million annually. We think this is an investment worth making when one considers the devastation of the loss of jobs to local economies and the increase in welfare, to say nothing of the additional pressures placed on families and society through marriage and other relationship breakdowns consequent upon economic—

The Hon. Paul Green: Social breakdown.

The Hon. ADAM SEARLE: I acknowledge that interjection. We want to invest a small amount of money to prevent this devastation.

The Hon. Paul Green: It is an investment, not a cost.

The Hon. ADAM SEARLE: That is absolutely right. This is not just a secure and sustainable industry for the Illawarra; it is a steel plan for all of New South Wales. The “whole-of-life” assessment focus will improve the integrity and longevity of every publicly funded infrastructure project in this State and provide better value for money—not only by looking at the up-front costs but also at the total cost over the lifecycle of a project. The plan will also provide confidence and secure the future for those companies that supply products and services to the steel industry in the Illawarra. Labor’s message is very clear: We support the steel and manufacturing base in the Illawarra and the tens of thousands of jobs that rely upon that industry remaining strong and focused. I repeat, not just for steel and the Illawarra but for all the supply chains and industries that depend upon it.

The Hon. Paul Green: Biofuels.

The Hon. ADAM SEARLE: Including biofuels. Labor will be supporting the second reading of this bill and I urge members to support our amendments.