Taxpayers pay billions for Govt’s car trip

Published on ABC online, 17 March 2009

When the Federal Government presented their New Car Plan for a Greener Future last November, promising $6.2 billion in subsidies over the coming decade, it did not make much sense even back then. And now, with the global car industry in decline, Holden’s US parent General Motors teetering on bankruptcy, and Ford also in trouble, the Rudd Government’s strong support to Australia’s car industry needs a radical rethink. Otherwise, it risks becoming an even more costly engagement for Australian taxpayers.

The Commonwealth’s car plan was built around three policy objectives: to strengthen Australia’s industrial base, help the environment, and support jobs. None of these arguments hold up to closer scrutiny. In fact, all that the Rudd Government’s car plan amounts to is an old-fashioned, protectionist industrial policy, neatly hidden behind a giant green smokescreen.

Let’s first deal with the myth that car manufacturing is something of a ‘national asset’. When launching the plan, Mr Rudd claimed that Australia was only one of 15 nations that could build a car from scratch. It’s a pity that the Prime Minister was confusing a few things here. Companies, not countries, build cars, and the car industry is one of the most globalised industries.

Then, there is no such thing as an Australian car. It may be manufactured here, but it is only part of a global production chain. Australia’s car manufacturers depend on parts made abroad, imported technologies, and internationally shared production platforms. Above all, our so-called ‘Australian’ car manufacturers are only subsidiaries to two American and one Japanese company. Whether subsidies paid to them effectively support Australian businesses or end up in Detroit or Tokyo is debatable.

That the Government’s support for the car industry could also pave the way to a green future can safely be discarded as political rhetoric. Why, you may ask, is the same Government exempting petrol from their much hailed emissions trading scheme? Wouldn’t that be a much more effective way to reduce fuel consumption and save carbon emissions?

Instead of implementing this simple and straightforward solution, the Government has decided to try reducing petrol consumption the difficult way. By paying Holden and Toyota to develop new, fuel-efficient engines, they hope to cut future petrol consumption. However, petrol could already be saved today if Australia simply imported more of those highly efficient cars already available in Europe and Japan. Instead, such cars face the double whammy of import tariffs and often also the luxury car tax – driving Australians towards cheaper but fuel-thirsty Australian-made cars.

To make matters worse, the billions of support for the car industry do not even create extra employment. Every job in the car industry will be subsidised to the tune of about $100,000 over the next 11 years. At such a level of support, it will not be difficult to keep jobs that would have otherwise disappeared. But while we can see the jobs in the car industry, what we cannot see are the jobs being destroyed by subsidising it.

Think of it this way: The $6.2 billion given to the car industry must come from other parts of the economy. It will come from the taxes that you and I pay. On top of that, car prices in Australia will continue to increase thanks to import tariffs levied on foreign-made cars. Taken together, Australians will pay billions of dollars as taxpayers and consumers to support their domestic car industry. But if they did not have to pay all this money, they could spend it on other things – and create jobs in other industries. For every job sustained in car manufacturing, a job elsewhere is not being created.

As if all this weren’t bad enough, the troubles of General Motors in the United States are likely to make the situation much worse. After the Rudd Government has put its political weight behind the car industry, after all the rhetoric from the Prime Minister about the importance of having Australian car manufacturers, they will not be able to watch Holden being liquidated when it finally comes to General Motors declaring insolvency.

No private investor will be willing to take over a car manufacturer at a time of massive global overcapacities in the sector, and this would leave the Government as the only possible purchaser of General Motors’ Australian operations. After the Rudd Bank, we are likely to see the Rudd Car before you can say Holden Commodore.

With its bold car plan, the Government has committed itself to supporting a part of Australia’s manufacturing sector which, in its current form, does not have a future. But it is not government support that could make it a viable industry. Australia’s car industry can only prosper and thrive if it stands on its own two feet to produce good quality and good value cars for which there is a market.

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