Is it really worth propping up the ailing car industry?
Australian governments have a long history of offering taxpayers’ money to private businesses in an effort to get them to come or stay. Liberal and Country League Premier Tom Playford elevated it to an art form after 1945 when he set out to build an industrial and manufacturing base in South Australia. Tax holidays, grants, cheap land, incentives, and cheap public housing for the industrial workforces through the Housing Trust.
In fact, the use of public money to convince car-makers goes back even further. My attention was drawn to a question asked in the South Australian Legislative Council on 14 August 1935. The LCL government was asked “what steps has the government taken to encourage General Motors Holdens Limited to remain in South Australia?” The answer: “The government is much concerned about the possibility of losing that industry and is doing everything possible to retain it”.
That question and answer could describe the current decision-making process concerning both GMH and Ford. The Federal, Victorian and South Australian governments are embroiled in trying to work out just how much taxpayer money will be needed to keep both functioning in Australia.
There is no evidence in Hansard on how much it cost in 1935. But the sums of money these days are massive.
Over the last ten years, the Australian taxpayer has donated more than $10 billion to carmakers, in tariffs and subsidies. The Howard government poured in over $4 billion. The Gillard government has given Ford $34 million; the input for GMH could be more than $200 million. It could cost Federal and State governments more than $500 million to ensure the continuation of the car industry for only the next decade.
Governments are willing to pay these massive amounts for two reasons. The manufacturing sector in Australia is in a parlous state. Losing the car industry would hammer it. More important, the closure of either Ford or GMH would create massive unemployment. Governments have put both in the forefront of their justifications for the use of public money to prop up private business.
In simple terms, are they just too big – in terms of the implications for employment and manufacturing - to be allowed to move out? But is this latest cash and support donation nothing else than a delay - a stay of execution?
When the terms of these agreements run out, how much more will be required for the next term? One question to be answered, then, is when does the required “donation” become simply too much?
Both car companies are in the box seat. They both know what the impact on Australia would be if they closed. Both can therefore expect to get what they want. But what the taxpayer should want, and demand, is real evidence that their money is being used in the best way.
An expert report, probably by the Productivity Commission could report on the viability of the car manufacturing industry, and a cost-benefit analysis might help.
There is an element of spin in the public announcements of both sides of the cash swap; both use the term “co-investment”. In a narrow definition, an investor is someone who expects a dividend for an investment. But profits from car manufacturers flow back to the private companies, not to the governments.
On the other hand, a looser definition of investment might apply. As my Oxford puts it: a thing worth buying because it may be useful in the future. That could apply to the car industry.
If so, the question still remains: what is the money level of the “investment” where the future benefits become too expensive? It would be handy to have an answer to that.
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