Government and car industry like Robin Hood in reverse
The current package of subsidies for Australia's car industry should be their last. At what point can foreign-owned car companies be described as thieves for accepting taxpayer subsidies to 'protect' local workers while concurrently slashing jobs?
This week Ford said it was shedding 440 jobs. In April, Toyota sacked 350 workers. Holden cut its casual workforce in February. Meanwhile, the industry has collected billions of dollars under successive governments to help it stay afloat.
The Gillard government is doling out $5.4 billion of our tax dollars to help the sector until 2020, selling it on the promise that it will 'protect jobs'.
In providing tens of millions of dollars of support, the Baillieu Liberal and Weatherill Labor governments have mounted similar arguments. It was always a policy destined to fail.
The excuse for the lay-offs and falling profitability by local car manufacturers has been the high Australian dollar - it makes Australian exports less internationally competitive. But the far bigger factor is that the sector is wed to producing cars that no one wants in Australia and overseas. According to the government's own data between 2003 and 2010, the number of passenger motor vehicles sold in Australia has sat around 600,000 annually. In the same period imports purchased by Australians have gradually risen from 60 per cent to nearly 85 per cent. The trend began well before the dollar rose against other currencies.
With rising petrol prices, price-sensitive consumers are buying smaller, fuel efficient cars. Ford, for example, makes large cars. As a result of escalating subsidies the local industry has been insulated from the realities of the marketplace and hasn't built cars people want.
Since the 1980s, the industry has been forced to adapt as successive governments have progressively reduced tariff rates to make it more internationally competitive and outward looking. But that objective has been compromised. Governments have introduced and increased subsidies to reflect any loss by the industry with each successive tariff cut.
In his March speech to Wesley College, Paul Keating bemoaned how this process stopped economic adjustment. But the Australian car industry was always destined to fail because it was built off the back of artificial government protection. In a free market economy only an industry built off the level playing field of market forces can be sustainable. The government has also imposed unjustifiable Australian specific standards that foreign car companies love because they lock out competitor models without expensive adjustment.
Similarly, state and federal governments have preferential Australia-made car purchasing arrangements that provide an indirect subsidy and demand for vehicles. So long as an industry needs preferential trade, tax and regulatory arrangements to be sustained, it will always be unsustainable and turn to the government to be profitable. The perfect example is Holden in 2011, when it reported a profit of $89.7 million. That's the the same figure Holden collected in subsidies.
When big government and big business get together, taxpayers should protect their soon-to-be-raided wallets. And every dollar misdirected through tariffs and subsidies is a dollar lost towards creating and perpetuating sustainable industries. These are sustainable jobs that could employ former car industry workers. After helping workers move away from the sector, the most important thing for government to do is not repeat the mistakes of the past. But they are, by now tagging subsidies as ''co-investment''.
In the past, subsidies were designed to help the industry adjust to a lower tariff environment. Co-investment takes taxpayers' money and gives it to buttress the profits of multinational corporations. It's reverse Robin Hood stuff. Co-investment is also designed to perpetuate unsustainable business models. Politically, co-investment is a complete repudiation of the Hawke-Keating legacy of structural adjustment to get the government out of the heart of the economy.
In light of the recent job cuts, the Abbott opposition has announced if it comes to power it will review subsidies and introduce benchmarks. They are not enough. Both sides of politics should commit to this automatic industry subsidy package being the last.
Committing to an end to subsidies would send a powerful message to a new generation of workers not to gamble their futures on an unsustainable industry. Oh, and taxpayers win too.