Ideas@TheCentre
Are tax concessions stepping stones towards smaller government?
The Productivity Commission’s 2010–11 Trade and Assistance Review highlights a contentious issue for those who want smaller government in Australia.
The review outlines in detail the various kinds of assistance the Australian government provides to industries – $17.7 billion in gross terms in one year. This figure includes $8.7 billion in tariff assistance, $3.6 billion in budgetary outlays, and $5.4 billion in tax concessions.
The point of contention is whether believers in small government should support tax concessions for selected industries because businesses get to keep more of the money they have earned. Or should we oppose tax concessions because they involve government giving preferential treatment to favoured sectors and picking winners. I think it is more a case of the latter than the former.
Take for example the $318.8 million received by the Motor Vehicle & Parts sector in tax concessions. This accounted for almost half of the $656.4 million received by the entire manufacturing industry in tax concessions, more than the $306.4 million received by the entire agricultural industry, and nearly more than the $331.8 million received by the entire mining industry.
The $318.8 million in tax concessions for the automotive industry should not be understood as evidence of a smaller and leaner government that is letting business get on with business, but rather as proof of a fat and bloated government providing preferential treatment to an industry rapping on death’s door.
We would also be naive to think that government will make the costly move to extend the tax concessions available to one industry to all other industries. Small government for one industry does not necessarily entail small government for all industries.
In an ideal world, tax concessions for selected industries are stepping stones towards smaller government. We do not live in that world. Tax concessions are better understood as evidence of government supporting politically important sectors of the Australian economy, and therefore, should be viewed sceptically by small government advocates..
Andrew Baker is a Policy Analyst at The Centre for Independent Studies.
