Interview with Paul Howes, National Secretary, Australian Workers Union Sky News Australian Agenda program, 21st August 2011

Peter Van Onselen: Should we have an early election? That's what Tony Abbott wants; I'm not sure you're going to be of one mind with him about that?

Paul Howes: Oh well, Tony Abbott addressing a ragtag bunch of 200 or 300 people outside Parliament House isn't necessarily a groundswell for an early election. I've never seen such small rallies get such huge media attention. I remember organising much larger rallies as the union official against various stages of the Howard government's industrial relations reforms and getting very little media attention, but I think the government has a mandate to go through to 2013 and I'm sure that's what they're going to do.

Peter Van Onselen: Another area though that you are trying to have a bit of a rallying call was an article that was written in the Fairfax papers and you yourself have written a bit more about this general theme through the week – China floating its currency, the idea that Australia and the government should try and join forces in a sense with the US to make this happen. Why is that so important?

Paul Howes: Well, we've seen during the week some substantial announcements of job losses in the manufacturing sector. The next couple of weeks we are going to see huge amounts of jobs in the manufacturing sector go. This is one of the worst periods that Australian manufacturing has gone through since the Great Depression, and we are seeing a once in a generation or once in a lifetime shift in the Australian economy at the moment, primarily driven by the high Australian dollar. Now there's very little that the government can do in an open market to put downwards pressure on the Australian dollar, but one of the reasons why we floated the dollar back in 1983 was to join the open market currencies of the rest of the world. The most major currencies in the world are floated, the US dollar, the Euro, the pound sterling. But in 1983 China wasn't the economic powerhouse it is today, and so China having a fixed Yuan wasn't a huge issue. But at the moment most economists agree that the Yuan is undervalued in the order of up to 40%, which gives China a huge . . .

Peter Van Onselen: . . . But how can we convince them to change that? I mean they're just going to do what they want, aren't they, bottom line?

Paul Howes: If you're going to have a global marketplace, if you're going to have institutions like the WTO, if we are going to pursue agreements like the TPP agreement, then we should be, like the United States is, looking at putting pressure for having genuine open markets across the globe. And a part of open markets means open currencies, not artificially devalued currencies to give export markets a huge advantage, which is what's been happening in China over the last couple of years.

Paul Kelly: I appreciate the point you're making. But what do you do, what do you say if in fact China is not responsive to these arguments that you're putting? What do you ask the Gillard government to do then?

Paul Howes: Well we have the situation in the United States where Timothy Geithner has made it clear that the Obama administration will make the currency a huge priority for that government. Mitt Romney, the leading republican candidate at the moment, is saying that the currency issue and the Yuan will be a key plank of his election campaign. So it's clear that the United States will move on this issue. We have negotiations coming up on the transpacific partnership free trade agreement negotiations. We have mooted free trade agreement talks with China. This should be a key part of that platform. Now I'm not pretending that Australia on its own is going to be able to impact here, but there is very little the government can do to save these thousands of manufacturing jobs that we are losing out of the industry because it is simply based on currency. But this is one thing that they can do that doesn't cost them anything, that doesn't hurt the budget bottom line and actually adjoins with global pressure that needs to be placed on China to do the right thing and say if you want access to our markets, if you want to operate as a proper global citizen in the WTO through free trade agreements, then you'll also have to open up your markets and give a genuine value to the Yuan . . .

Paul Kelly: . . . Well let's just look at this issue of currency. How tenable is it for Australian manufacturing if we see this high dollar maintained? And there are some people in the Treasury and the Reserve Bank who believe that we've seen a quantum shift here, we're likely to see this high Australian dollar now for a number of years. How sustainable is that for manufacturing?

Paul Howes: We've seen throughout Australian history we've had six resources booms; this is the sixth. And every time we've had a resource boom we've had a high currency, whether it be the old pound or the dollar today. That has meaning that we are in terms of our export markets basically wiped out, and we haven't seen the effects of this yet, but we will over the coming weeks. We saw a preview last week, we're going to have some awful announcements this week and worse announcements in the weeks to come of substantive job losses in regions where there are not necessarily resources booms to mop up that surplus of labour. I believe that we are, like Treasury is saying, moving to a shift in the nature of our economy. But that doesn't mean that we can't do things to actually still have a viable value adding industry, still have an industry that value adds onto our natural resources, because whilst the construction phase of the resources boom does employ a lot of people, the production phase of the resources boom does not employ many people and is not a significant contributor to the labour market in the longer term.

Paul Kelly: But the thing that surprises me about your answers is that essentially what you're saying is that we should put pressure on China about the exchange rate and that's it. I mean surely you would expect the Gillard government to take more urgent and immediate action, give the sort of job losses you're talking about . . .

Paul Howes: . . . Paul, I have got many more answers and I was here to talk about the currency, but I can go through the other issues that need to be addressed. We need to look at the issue of innovation in Australian manufacturing. The problem with large parts of the manufacturing sector, say take for example the steel sector, the last restructure or wholesale investment of changes to the Australian steel industry was in 1983 with the Button steel plan. The Australian steel sector has remained exactly the same in terms of the quality and the product still that we are manufacturing since the 1980s. Now at that time we were the leading steel manufacturers in the world, we had the highest grade product, we had the most innovative products. We don't have that today. There are many things the government can do and at the moment my union, the Australian Workers Union, is working with other unions and organisations like the AI Group to put pressure on the government for a holistic response to how you save the manufacturing industry. One part of that though should be ensuring that we deal with the biggest issue, and the biggest issue addressing manufacturing today is the currency and the devaluation, the artificial devaluation of the Yuan by 40% is the biggest impact that's happening on the Australian dollar.

Simon Benson: One of the other issues that surely will impact on manufacturing industry is the carbon tax? In light of what's occurred over the recent weeks and the information that's coming out from overseas, are you in a position to now readjust or re-evaluate your support for the carbon tax?

Paul Howes: Well I was very concerned about the impact of the carbon tax on manufacturing, and that's why we pushed for and secured a substantive compensation package which will in essence shield the manufacturing industry from the impacts of carbon pricing in the short-term. The steel industry, we had an announcement last week by OneSteel of 400 jobs out of that industry. Now OneSteel isn't going to pay a cent in a carbon price, and tomorrow . . .

Peter Van Onselen: . . . But is shielding them in the short-term enough though, Mr. Howes?

Paul Howes: Well there's also built into that an automatic productivity review of compensation towards the end of that four year period, where if 70% of that section of the world economy isn't paying a comparable price on carbon, then compensation will be renewed. That was a very important part of that, and that's why you saw, when OneSteel made their announcement during the week, they made it very clear that the carbon tax had no impact on that. The same with Qantas, I mean I saw some pretty grubby commentators and some lowlifes in the Liberal Party trying to exploit this loss of jobs to make some petty political points, trying to say that somehow the carbon price had an impact here. Now Qantas International won't pay a carbon price. The job cuts that were announced by Alan Joyce were about Qantas International, so trying to link it there is just complete bunk . . .

Simon Benson: . . . But surely you'd agree-

Paul Howes: And in terms of manufacturing there is a wide range of measures built into that package of compensation for manufacturing which will not only assist them in shielding them from carbon pricing, but will also allow them to use government funding in co-investing models to generate new technologies that in the long-term will make Australian manufacturing cleaner, which actually is better for us in terms of our global competitiveness.

Paul Kelly: To what extent are you concerned about the advice that the Treasury and Reserve Bank are giving the government about this issue? Because when you look at what they're saying, essentially their message is that because of the resources boom, because of the investment in resources, we've got no option but to see other industries such as manufacturing contract to accommodate the resources sector. What's your response to that?

Paul Howes: I'm very concerned about Treasury's advice on this matter, because Treasury seems to think that, you know, if you lose one job here that automatically that person is going to be replaced over here. That isn't the case, and that's not our experience in Australia. Even in regions where you do have resources and manufacturing operating within the same region, you haven't seen the resources sector mop up job losses out of manufacturing. I don't accept that Australia can't have a viable manufacturing industry, even with a high dollar. We have to have a more innovative industry and we have to do more to boost domestic consumption of Australian made products. The chronic and scandalous lack of use of Australian content by the resources sector during this resources boom is a significant factor in the pain that Australian manufacturing is feeling at the moment. And a lot of that is due to pressure from foreign investors into using foreign products on those same projects. Now if we were acting like that, I'd be called a protectionist. If I was lobbying Australian companies to say when you invest in China make sure you're using Australian made materials and Australian labour, we'd be labelled as protectionists or luddites.

Paul Kelly: But what you're saying is you want the Australian government to bust up those sort of arrangements presumably?

Paul Howes: Well these are some pretty scandalous arrangements that are going on.

Paul Kelly: And you want the government to act on them?

Paul Howes: And the government should and must act on it, and so do state governments. You know, the WA state government has a lot to answer for in terms of the massive downturn that you're seeing in fabrication in Perth, when you've got a huge boom going on in the northwest.

Paul Kelly: I'd just like to ask you, to what extent are you concerned that the government actually doesn't talk at all about a crisis in manufacturing industry? I mean ministers don't talk this way. I mean you're talking this way today, but there's no sense of this at all in terms of the statements coming from the Gillard government. So do you want the government to reframe the issue and begin to talk about the extent to which manufacturing is facing a dire crisis?

Paul Howes: Paul, to be honest, this is the first time that I've said there is a crisis in manufacturing, and it's only after the end of last week and my conversations over the weekend that I've come to the view we are now facing a major crisis in Australian manufacturing. I'm confident that government within the next week will recognise that fact, and a lot of the announcements-

Paul Kelly: So you've spoken to them about this? You've spoken to them about your concerns?

Paul Howes: I've spoken with government over the last couple of days, but . . .

Paul Kelly: . . . And you expect a response from them?

Paul Howes: But the calls that are concerning me the most are the calls that I've had over the last three to four days from the CEOs of the major employers of the AWU's membership foreshadowing substantive announcements over the next couple of weeks and months, which will have a fundamental shift in the nature of Australia's manufacturing in . . .

Paul Kelly: . . . How many job losses do you think are coming up?

Paul Howes: I'm not sure yet and I don't want to put figures on it, but what I am saying, if we don't act, if we don't actually recognise that we are facing a substantive crisis in this sector which employs almost a million Australians, then our country and our nation will be far worse off in the decades after.

Simon Benson: Well if you can't put numbers on the jobs, what areas are you talking about?

Paul Howes: Well, as I made it clear, base metal manufacturing, downstream manufacturing, everything is under pressure at the moment, primarily and almost solely because of the dollar. You know, there are a few other factors on the sidelines that you can chuck into the mix, but when you get to the crux of the issue it's the dollar, it's the dollar, it's the dollar. And we've been dealing with this now for almost two years and, as Paul said before, most economists agree that whilst you can't predict the dollar, no-one is predicting a 75 cent level exchange rate in the foreseeable future. In fact, if you look at the history of the Australian dollar it's only since the float after 1983 that you had an average between 50 and 80 cents. The long-term history is a dollar sitting above $1.10, $1.50 in those ranges, and that's what scares me, because the Australian manufacturing sector, the Australian value adding sector is not geared to cope with a dollar at this level, and that's why we're going to have to seriously put our attention on this in the coming weeks, because if we don't we are going to see some substantive problems in major manufacturing regions across the country.

Peter Van Onselen: Alright, Paul Howes, head of the Australian Workers' Union, thanks for joining us on Australian Agenda.

Paul Howes: Thanks, Peter.

Peter Van Onselen: When we come back, we'll have the CEO of Qantas, Alan Joyce.