Budget 'shock' for auto industry

Treasurer officially reveals further cuts to funding for local manufacturing industry

Update, May 14: The Federal Chamber of Automotive Industries has fired a salvo in the direction of the federal government just a day after treasurer Joe Hockey handed down the budget for 2014. According to the FCAI, the government's decision to end assistance for the local automotive industry will save $500 from the Automotive Transformation Scheme in the period 2015-17, and a further $400 million once the ATS is closed at the end of 2017. In total, the FCAI says, that's a saving of $900 million for the government.

But the saving comes at a cost, the FCAI's Chief Executive, Tony Weber stated in a press release issued this morning.

"After only eight months in office, the Government has vowed to cut $900 million of the $1.3 billion in funding that remains in the ATS from 2015. If this cut passes Parliament, it will intensify the financial pressure on the supply chain, which has already factored ATS funding into their long-term business and investment decision-making process.

"This 70 per cent cut sends a very poor message to the global business community. It tells global firms that Australia will not provide the policy certainty they need to confidently invest in Australia."

Tens of thousands of jobs are at risk, says Weber; as many as 45,000 staff employed directly and more than 100,000 staff indirectly employed in the local automotive industry.

"The FCAI has repeatedly advised the Government of the serious consequences significant cuts to the ATS could have on the automotive industry in Australia, at what is already a difficult time for manufacturing and supply chain workers," Weber said.

"I call on the Parliament of Australia to seriously consider the consequences a cut to the ATS will have on automotive workers and I encourage them to oppose this measure."

Federal Treasurer Joe Hockey delivered his budget speech last night, outlining numerous measures to return government spending to surplus.

Among those measures is the abolition of "a range of industry assistance programmes, saving over $845 million."

And within that sum is $618.5 million over an eight-year period for automotive industry assistance. Treasury has also specifically cited a figure of $215 million to be saved over the next four years from withdrawing co-investment for the development of GM-Holden's next-generation of new vehicles to be built at the Elizabeth plant after 2017.

Now that the entire car manufacturing industry in Australia has confirmed the end of local vehicle production – including Holden's announcement that it would not continue production in Australia beyond 2017 after all – the government is justified in revoking at least some of that funding, if not all.

The Holden program would have required the government provide $36 million during the 2013/14 financial year, $50.7 million in 2014/15, $112.7 million in 2015/16 and $15.6 million in 2016/17. Ending the Automotive Transformation Scheme will save $100 million this financial year and another $100 million in 2014/15. There will be no savings to be made during the two subsequent financial years, but the government will save $118 million in 2017/18, followed by $176.7 million in 2018/19, $95.2 million for 2019/20 and $28.6 million in 2020/21.

The treasurer stated in his speech last night that the government "will refocus our effort on innovation and self-reliance," as a consequence of ending the industry assistance programs.

"Businesses should stand or fall on their ability to produce the goods and services that people actually want," he added – clearly taking a swipe at the local car industry and other sectors struggling in the prevailing business environment.

Comment was sought from the Federal Chamber of Automotive Industries, but no response had been received by motoring.com.au in time for publication. Similarly, Holden was still assessing the budget and was yet to formulate an official answer.

There was good and bad news for motorists across the board, with the treasurer announcing the re-introduction of indexation to increase the fuel excise levy, but at least that added impost will go towards road building – although there are doubts within the blogosphere as to how much of the increased excise levy will actually be spent on roads.

"Motoring clubs will fight for a better deal for motorists and seek a guaranteed and stronger share of tax revenue directed to infrastructure," said AAA Chief Executive Andrew McKellar, in a press release overnight.

"Motorists expected a fairer deal from this Budget, they are sick and tired of paying taxes and not seeing a fair return on their investment.

"While there is a significant investment in roads and infrastructure in this Budget, and the government has opened the door to having a direct link between motoring taxes and road funding, it falls well short of what motorists want.

"It is totally inadequate that out of the 38 cents per litre that motorists currently pay in tax the Government has only committed that one cent will be guaranteed to go to future road funding.

"Motorists already pay a significant amount of tax and have not been getting fair value for their money.

"Only a fraction of fuel excise is invested on transport infrastructure by the Federal Government and this Budget provides an opportunity to get a better deal through a fairer direct link.

"Motorists want a guaranteed share of fuel excise returned to transport funding in order to stop the Budget 'drip-feed' of investment.

"A fair proportion of the fuel tax revenue must be dedicated to transport infrastructure to ensure Australia can ease worsening congestion in our cities and improve the safety of our rural highways," he concluded.

For once the VACC (Victorian Automobile Chamber of Commerce) was somewhat more circumspect than the AAA, with Executive Director David Purchase offering guarded support for the budget – with the qualification that it can be expected to deliver an impact on small business.

"We were expecting a Budget of savage cuts, of slash and burn, but in reality, Treasurer Hockey outlined a clear vision for the future that will not directly impact small business as much as we first thought. However, the detail has revealed that, indirectly, small business will be hit as consumer confidence will slacken and households have less disposable income," David Purchase was quoted saying in a press release this morning.

"The reduction in social welfare, including family and youth benefits, will result in less disposable income, especially when the introduction of Medicare co-payments are taken into account. If people have less money to spend, they are more inclined to delay purchasing new, up-grading or maintaining vehicles, for instance."

The VACC boss reserved the main thrust of his criticism for the fuel excise levy indexation.

"Fuel excise currently generates more than $14 billion annually for the Federal Government and yet it now wants more. We oppose this tax rise and the reintroduction of twice-yearly fuel excise indexation. This automatic adjustment has no ceiling or expiry date, and does not take into account other economic challenges faced by small business. Motorists should not be penalised with higher fuel prices and the Federal Government has to stop milking motorists dry."

Purchase was sceptical to the point of cynicism that the road infrastructure would receive a fair share of the increased excise levy.

"We've heard this promise before and quite frankly, we'll believe it when we see it. This is a promise the Coalition needs to keep and we'll be holding them to it."

In his final comment, Purchase suggested that the budget as it stands is needlessly complicated, when simply increasing the GST would have achieved the same ends.

As political analysts have noted, the budget deficit is predicted to fall from $49.9 billion currently to $29.8 billion the following year and finish as low as $2.8 billion in the 2017/18 financial year – around the time of the next federal election.

Budget 'shock' for auto industry

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