Ideas@TheCentre

Corporate welfare still milking government cash cows

The This week, with relatively minimal fanfare, the Productivity Commission released its latest report on corporate welfare, the Trade & Assistance Review 2011-12.

While there was some good news, such as the minor fall in the level of direct government assistance, the headline story remains troubling: The gross level of measured industry assistance in 2011-12 was $17.3 billion ($10.5 billion net).

This figure substantially understates the total level of corporate welfare as it excludes government procurement policies (potentially billions of dollars a year just in defence and automotive manufacturing) and state government assistance (likely to exceed $100 million a year across all states).

Approximately 40% of all industry assistance goes to just 3 industry groupings: metal and fabricated products; food, beverages and tobacco; and motor vehicles and parts. The total number of employees in these sectors is less than 5% of the workforce.

Every industry grouping in manufacturing receives some assistance. The manufacturing sector as a whole receives $7.35 billion from the taxpayer. This is the cost of being a nation that ‘makes things’.

Far too often, discussions about corporate welfare focus on the need for ‘fairness’ to manufacturers and the need to protect Australian jobs from foreigners.

Not only are such claims economically wrong, the current industry assistance scheme doesn’t even achieve those flawed goals.

As we have seen from the heavily protected automotive industry, billions of dollars in bailouts have not prevented thousands of jobs being lost over the last 18 months. Nor have they prevented Ford Australia from announcing their departure in 2016, having trousered more than a billion dollars from the taxpayer over the last 12 years.

Reducing the level of industry assistance will increase competition, foster innovation and lower prices, all of which directly benefit Australian consumers. Arguments that Australia should impose additional penalties on consumers because foreign governments do the same are nonsensical.

As any five year old gets reminded by their mum, just because Johnny jumped off the Brooklyn Bridge doesn’t mean you should too.

Simon Cowan is a Research Fellow at The Centre for Independent Studies.