THE unannounced, but perhaps the best, part of Prime Minister Kevin’s Rudd’s change to the carbon tax is that it will very likely put the Australian car industry out of its misery. That would also put Australian taxpayers out of a lot of misery – $19 billion worth of misery to be more precise.
That is how much the Australian Government has poured into subsidising the industry and giving it tariff protection over the past decade.
And it has done no good. The Australian car industry still keeps putting its hand out for more money. And the politicians wilt for fear of job losses in marginal electorates.
Well, they are expensive jobs and not very attractive. The workers would be better off doing something more useful and intelligent than making cars.
The story as to why Rudd’s changes will kill the car industry began in 1986 when the then Labor Minister for Industry, John Button, laid out a plan that he said would make the industry viable.
But how any industry on permanent government life-support can be called “viable” is beyond me.
As is so common in Australia, the tax system was used. Under the plan (which until Rudd’s announcement has remained in force) employers who give employees a locally produced car as part of a salary package, do not have to pay fringe-benefits tax on the value of the personal use – as distinct from business use — of the car.
It was an enormous prop to the local industry. Three-quarters of locally produced cars are bought by government and business.
Ordinary consumers, on the other hand, uninfluenced by the government freebie, go for value and quality for money and overwhelmingly buy foreign-made cars which usually rate better on environmental and safety grounds.
It is quite silly to prop up an industry which makes inferior product. But rationality has nothing to do with the politics of it.
Ever since Prime Minister Ben Chifley launched the first Holden off the assembly line on 29 November 1948 (pictured), Australian Governments have equated the car industry with national security, national pride and a feeling of coming of age in the industrial world.
It may have been true in 1948. But it is not true now. Making cars is not especially clever or sophisticated. They make them in Kenya, Morocco, Indonesia and Azerbaijan among about 50 countries.
Indeed, a cheap semi-skilled workforce is the hallmark of most car industries. Or dumb governments that get duped by the multi-mational companies that produce the cars.
They are quite skilled at extracting concessions from compliant governments.
On the other hand, quite a few countries in the top ten wealthiest countries (where Australia sits) do not have car industries – Norway, Switzerland, Singapore and Denmark.
And Sweden – noted for Saab and Volvo — is getting rid of its car industry. Volvo (excluding the trucks) is owned by the Chinese.
The trouble with subsidies and special tax arrangements is that they breed complacency. Without subsidies car makers would make sure they really were viable, or let other countries produce them and turn to something they are better at. That is why countries trade.
The benefits of the car industry ending in Australia would be saving the subsidies which could be spent on better things; improving the environmental and safety quality of the national car fleet; and enabling Australian industry to concentrate on things it does better than others around the world.
DOT DOT DOT
The special treatment of the car industry is a classic example of misuse of the tax system. Special arrangements like this are insidious. They develop an entitlement mentality and concentrate opposition to overall changes to the system that would be in the national interest.
Once the concession is given it is very difficult to take away. The incentive for recipients of special treatment to make political noise is enormous.
Politicians are so often asked: “Can you guarantee that no-one will be worse off?”
Whereas the real question should be: “Will the nation as a whole be better off?”
When the carbon tax was introduced, a raft of concessions were given to people on low incomes and to big polluters.
Well, if the tax on carbon is to fall from $25 a tonne to $6, those concessions should be taken away, especially the huge free-permit concessions under the misnamed Clean Energy Future policy.
Raw steel, cement clinker, and aluminium smelting got 94.5% of their carbon permits for free. Alumina, oil refining, liquefied natural gas and coal mining got up to 66% of their permits for free.
The rationale was to protect them against international competition that did not have such a high carbon price.
Well, is the carbon price is to fall, so should the concessions.
Moreover, more and more international competitors are now paying carbon taxes.
Now, it may well be that the tax system is a useful vehicle to help promote start-up industries; help discourage spending on undesirable things like cigarettes, alcohol and carbon; and to compensate people affected by things like the carbon tax while still discouraging the consumption of carbon.
But most of these special treatments should have sunset clauses, so politicians are not forced to answer idiotic “no-one-will be-worse-off” questions from the media. The concessions would just not be renewed. Moreover, subset clauses would remove the entitlement mentality.
In all, it is a shame that the price of keeping Tony Abbott out of the Lodge has been a weakening of Australia’s response to climate change, especially as people now realise that it was not such a big change anyway. Whyalla is still standing, contrary to Abbott’s prediction.
It is a bit like the GST – an excellent tax that should have been introduced with bipartisan support instead of being used as a political football. The GST – instead of standing for a great piece of reform – stands for a lesson that sensible tax reform is the path to great electoral cost.
This article first appeared in The Canberra Times on 20 July 2013.