Using a national network of Centres of Excellence to support industrial capability

While Australia’s defence industry has gone from strength to strength in a short period of time, relying solely on domestic consumption is a fateful trap that has previously hindered the sustainable development of Australia’s broader manufacturing industries. Avoiding this pitfall requires a dramatically different approach to the policies that have been used in the past, paired with a growing focus on leveraging the nation’s key economic and strategic partnerships.

The Defence Industrial Capability Plan released in 2018 identifies the government’s long-term vision to build and develop a robust, resilient and internationally competitive Australian defence industry base that is better able to help meet defence capability requirements.

This plan sets out a comprehensive plan for Australia’s defence industry. The government is investing in Australia’s defence industry and ensuring that it is positioned to support delivery of the Integrated Investment Program over the next decade.

The plan acknowledges that as Australia builds its Defence capability, we must also grow our defence industrial capability. By 2028, Australia will require a larger, more capable and prepared Australian defence industry that has the resident skills, expertise, technology, intellectual property and infrastructure to:

• Enable the conduct of ADF operations today
• Support the acquisition, operation and sustainment of future defence capability
• Provide the national support base for Defence to meet current needs and to surge if Australia’s strategic circumstances require it

Recognising the importance of the export market, the government established the Defence Export Strategy, which identifies that “Australian industry cannot sustain itself on the needs of the Australian Defence Force alone. New markets and opportunities to diversify are required to help unlock the full potential of Australian defence industry to grow, innovate and support Defence’s future needs”.

While the federal government has set the policy foundation with the Defence Industrial Capability Plan, the Defence Export Strategy and the creation of the Australian Defence Export Office, there is scope for enhancing the efficacy of these policies through closer collaboration and input from the various state and territory defence advocacy bodies around the nation. 

Recently, BAE Systems Australia and the NSW government have kicked off the next stage in developing an aerospace, space and advanced manufacturing research and development centre of excellence at the future Western Sydney Airport and Aerotropolis with the signing of a memorandum of understanding – providing an effective precedent for other state and territory governments to establish similar hubs around the country. 

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Expanding Australia’s advanced manufacturing capabilities 

The foundation established by the government’s Defence Export Strategy and the broader Defence Industrial Capability Plan provides a strong basis for supporting the early stage development of Australia’s sovereign industry capability. Looking forward, government will play a critical role in attracting additional industry partners through cohesive, long-term policy.

Supporting the next stage of industry development requires a unique policy approach, as well as combining the existing elements of Australia’s existing innovation and science agenda with a suite of grant allocation and targeted, contractual tax incentives (signed between the Commonwealth and the company as a memorandum of understanding) linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs – in specialised export-oriented industry clusters.

Developing centres of excellence supporting export growth in partnership with Australian and international primes can leverage the policy levers used to develop other national facilities and integration within global supply chains and programs to support the development and rehabilitation of local naval shipbuilding capabilities, with a focus on capitalising on the growing demand for warships in the Indo-Pacific and Middle East in particular.

Despite Australia’s widely recognised position as providing a world-leading research and development capacity – supported by both private and public sector research and development programs driven by organisations like the CSIRO – traditional areas of high wage costs and low productivity in Australia’s manufacturing industry, exemplified in the failure of Australia’s domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs, have characterised Australia’s reputation as a manufacturing economy.

This is done through a range of government-driven incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. Australia’s now firm commitment to develop a robust domestic defence capability requires innovative and adaptive thinking in order to expand the capabilities and competitiveness of the domestic industry.

COAG Industry incentives 

Unfortunately, the current paradigm of industry development policy is defined by the concept of “government shouldn’t be picking winners in industry”, a concept that has a great deal of merit and should be supported to the fullest. However, supporting and incentivising industry to establish centres of excellence and manufacturing capabilities locally is more appropriately viewed through the lens of “picking the dog with the least fleas” and provides avenues to enhancing Australia’s industrial capacity.

While industry largely provides the technological expertise, government policy provides the certainty for investment – particularly when supported by elements of Australia’s innovation and science agenda, combined with grant allocation and targeted, contractual tax incentives linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs, which are critical components that can be used to empower and enhance the overall competitiveness.

Supporting the development of both Australia’s defence industrial base and the broader manufacturing economy also requires the legislative power of government to counterbalance industry development policies of allied yet still competitor nations like South Korea – which leverages the industrial development policies of export-oriented industrialisation to develop its economy into a major economic and modern, advanced manufacturing powerhouse.

This is done through a range of government-driven incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. Australia’s now firm commitment to develop a robust domestic defence capability requires innovative and adaptive thinking in order to expand the capabilities and competitiveness of the domestic industry.  

Your thoughts

Establishing and implementing a cohesive, innovative and long-term vision for Australia’s sovereign defence industry capability can also serve as the basis for developing, and in some cases redeveloping, a robust, advanced manufacturing economy taking advantage of Australia’s unrivalled resource wealth – supporting the broader national security and interests in the Indo-Pacific.

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