Opinion & Commentary
Car subsidies blow good money out the exhaust
The only good thing to come out of the government’s New Car Plan is the commitment to maintaining the current schedule of tariff reductions to five per cent by 2010, resisting pressure from the car industry to slow the pace of tariff reduction.
The government says that ‘the future of the industry lies in innovation and global integration, not industry protection with old fashioned quotas and tariffs.’
But the government’s plan maintains protection for the Australian car industry via an expanded program of old fashioned subsidies, with a doubling in industry assistance to $6.2 billion.
The $1.3 billion Green Car Innovation Fund provides a fig-leaf of environmental respectability for what is old fashioned industry policy. Australia can have as many green cars as it wants, without having to manufacture them in Australia. Carmakers, both in Australia and overseas, are already responding to the consumer-led demand for greener and more fuel-efficient cars and the government’s proposed emissions trading scheme from 2010 will only add to this demand.
The car industry does not need additional incentives to respond to this demand. The government’s earlier provision of $35 million for Toyota to build a hybrid Camry in Melbourne proved to be largely redundant, with Toyota already well ahead of the government in its plans to build hybrids in Australia.
If the government’s intention is to lower carbon emissions from the nation’s vehicle fleet, then it should aim to provide consumers with access to low emissions vehicles at the cheapest possible price. Lower tariffs on imported hybrids achieves this objective at much lower cost than building cars locally.
The government maintains that its car plan ‘demonstrates the government’s commitment to modern manufacturing and to providing high-skill, high wage jobs for Australians.’
The Labor government has a long-standing and deeply-held manufacturing fetish. Kevin Rudd’s observation when opposition leader in 2006, that he wanted Australia to be ‘more than a mine for China and a beach for the Japanese’ suggests that this fetish is based on a caricature of the Australian economy.
The notion that only the car industry can provide high-skill and high-wage jobs is mistaken. As former Mitsubishi Australia boss Graham Spurling has been quoted as saying, making cars is ‘no big deal.’ The government argues that ‘only 15 countries can design, engineer and build a car from scratch.’ That may be a few countries too many in a global industry that is already oversupplied, along with much of global manufacturing.
The government says that it is ‘determined to maintain that capacity’ to build cars locally, but at what cost? The billions of dollars in assistance provided by successive Australian governments to the local car industry has come at the expense of local consumers and taxpayers, destroying jobs and income in other industries. This is the real, but largely unseen, cost of industry assistance that is never mentioned by the government.
At a time when the economy is facing a prospective downturn and the federal budget balance is already under stress, further assistance to the car industry at the expense of the rest of the economy is even harder to justify.
In the words of former car industry executive, Bob Manning, assistance to foreign car makers in Australia ‘will just go into the companies’ global accounts blender and be dressed up to look like it’s compliant with the endless guidelines that only Canberra can develop.’
The government thinks it can plan the future of the Australian car industry out to 2020.
Yet the rest of the world is struggling to work out what will happen with the car industry in the next few weeks, much less the next decade. The global automotive industry faces a period of unprecedented uncertainty, with the fate of the big US carmakers Ford and GM hanging in the balance.
While the US government may end up providing some form of assistance to Ford and GM, this only highlights the folly of the Australian government trying to compete with other governments in providing industry assistance.
Kevin Rudd says ‘the government is making a significant commitment to this industry and we expect commitment in return.’ Foreign carmakers have rarely kept to such commitments in the past, not least because they can no more predict the future course of the car industry than the federal government.
The new car plan is just the latest in a long line of support packages for the Australian car industry. The government argues that things will be different this time, with ‘a high level of support at the beginning eventually tapering down to zero.’ The Australian car industry has failed to benefit in the long-run from the efforts of previous Australian governments to support it, because such support invariably stifles the competitive pressures that are the best guarantee of a sustainable future.
Dr Stephen Kirchner is a Research Fellow Centre for Independent Studies.
