22 Aug 2012

Australian manufacturers advised to move overseas

12:15 pm on 22 August 2012

Former Australian Treasury Secretary Ken Henry has told a forum the Australian dollar is unlikely to fall and manufacturers should consider moving production overseas to survive.

Like New Zealand, Australia's currency has been strong in recent years, leading to some manufacturers shutting operations, saying they're not competitive against their foreign rivals.

Dr Henry said on Monday that other Australian companies will need to follow suit, or concentrate on producing high-value products that can't be made elsewhere.

''Australian businesses need to learn from others," he says, "and that means that many businesses who once defined themselves as Australian must now begin, if they haven't already, looking at themselves as regional businesses - either through becoming part of regional supply chains, partnering with similar or complementary firms overseas, or even moving some components of their business to Asia.''

Dr Henry, who expects the Australian dollar to remain high for the foreseeable future, says keeping politically difficult reforms like a floating exchange rate and competition policy in place will be critical in the Asian century.

'Grimmer fiscal reality' forecast

The ABC reports Dr Henry also warned that Australians will eventually have to adjust to higher taxes if they want the current standard of public services, such as healthcare and education, to be maintained.

He says there needs to be a much broader understanding of the urgent need for reform.

"The Australian tax base simply will not deliver what people expect of it," he says. "At the moment it looks okay for the resource-rich states, and for the others it looks desperately bad.

''But even for the resource-rich states, at some stage the royalties will deliver less revenue than they're presently delivering. At some stage they're going to confront a grimmer fiscal reality as well."