Thursday, May 30, 2013

Subsidies are unfair to the motor industry

Car industry workers need certainty and security about their future.  That's why the Gillard Government should declare the current $5.4 billion in automotive industry subsidies ending in 2020 will be the last.

Ford's closure of its Geelong and Broadmeadows facilities is devastating for those communities.  Workers, families and other businesses have built their lives around the plants continuing to operate.  For its part, the Government has thrown about $1 billion over the past decade to keep the facilities there and given false hope to those who rely on Ford staying put.  Subsidies are harming the situation, not helping.

Reports suggest the Gillard Government's Industry Minister, Greg Combet, signed off on Ford's most recent round of subsidies knowing they were likely to close in 2016.  He would have calculated it was better to pay the $34 million to Ford in the hope that the company's announcement would have been after the election.

That way it'd be the Liberal Party's fault, and not Labor's.

It shows how political interests dictate subsidies, not what is good for workers.  Most people wrongly think government protection of industries, such as subsidies, ''save jobs''.  They don't.

First, protection keeps inefficient industries alive and stops money being used to create jobs in sustainable, efficient industries.  Cars are the perfect example.  In the mid-1980s, the peak tax rate on imported cars hit 140 per cent.

As economist Henry Ergas argued that meant ''each $1 of value added in the (car) industry was costing the economy $1.40''.  That was $1.40 being taken from supporting sustainable jobs to support unsustainable ones.  We all lose.

Second, workers are the ones hardest hit by subsidies.  Workers may enjoy a short-term reprieve as factories temporarily stay open, but in the long-run they continue to develop their skill-base in an unsustainable industry.  When it goes bust, so do their futures.

Ford's Baby Boomer workforce is now being told that in October 2016 they're out and they will probably struggle to find a new job.

If Generation Y enters the car industry on the false security of subsidies, the government is equally complicit in the impact on them should the industry go belly-up.

We can't let another generation be harmed when the problems the industry faces are so well known.

According to the Productivity Commission, the industry has received about $10 billion in direct assistance between the mid-1990s and 2011.  If you add the $5.4 billion leading up to 2020 and the preferential government purchasing arrangements for locally produced cars, the support the industry receives is staggering.

But despite the support, the industry has had longer-term problems.  Between 2003 and 2010 the total sales of passenger vehicles has sat around 600,000.  But in that time the share of imports has risen from about 60 per cent to nearly 85 per cent.  The industry isn't selling the cars people want.

Ford has drawn a line in the sand of October 2016.  It's time the government did the same.  Announcing the end of subsidies in 2020 will give workers, communities and the industry certainty.  The industry will have seven years to assess their operations, adjust their business models and decide whether they can be competitive.  The businesses that supply car manufacturers will also have certainty and be able to manage the risk of supplying to existing manufacturers, finding new markets and diversifying.  Communities that rely on car manufacturing can also plan how they will develop new industries and pathways for workers.

But the big gain will be for workers.  Those looking to enter the workforce can choose whether they want to start in an industry with an uncertain future.  They'll also be able to decide about whether they need to retrain to keep alternative options open.

A subsidies deadline is fair on everyone, but most importantly the workers and communities that depend on the car industry for jobs.

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