The Chamber of Commerce and Industry is recommending a reduction in business taxes to boost local manufacturing industries.

The Western Australia Chamber of Commerce and Industry's James Pearson says state and federal governments should look for innovative strategies to bolster the local sector in these turbulent economic times.

"The challenge facing a lot of local manufacturers is how to reduce the high cost of doing business, and one of the ways you can do that is with new technology and new work practices," he said.

"We need to make sure we reduce the cost of doing business, and that means cutting taxes, not coming up with new ones, and cutting red tape wherever possible."

Other business groups have warned governments about the challenge facing Australian manufacturers. Unions have warned that jobs will be scarce because West Australian manufacturing companies will continue to be overlooked because of cheaper alternatives in foreign goods and labor.

Treasury Secretary Martin Parkinson said the manufacturing sector will greatly benefit from more innovation. He also said that government handouts will not solve the problems local manufacturers face.

"You don't do that by handouts, you do that by investing in innovation, creating the sort of flexible markets they need and by bringing those kind of people, the innovative edge to the manufacturing community," he said.

Parkinson added that while small sectors of the economy are benefitting from the mining boom, forecasts show that outside the mining sector only 1 percent of the other three quarters of the economy is expected to grow in 2012 to 2013.

"A large proportion of the economy will record weak growth for at least the next two years. That's a direct consequence of the impact of the terms of trade on the exchange rate and competitiveness and the lingering after effects of the global financial crisis," he said.