Taxpayer footing the bill for Aussie manufacturing

Productivity Commission's stats reveal a local auto manufacturing industry doesn't come cheap

Is the Productivity Commission being hauled across the coals for relaying an unpopular message?

Since the advisory body issued its position paper last week, it has borne the brunt of the backlash from the FCAI and the AAAA.

But arguably the Commission has delivered what was asked of it when the federal government set in place the parameters for the review of the local manufacturing industry.

Central to the thrust of the Commission's findings and recommendations are three tables of facts, figures and statistics. In one, the table compares the cost to the taxpayer for the local industry, relative to other automotive manufacturing nations. Another table places Australian automotive industry assistance in the context of support for other local industries. The third table illustrates the accessibility of the Australian market with its low tariff rate, against other global markets.

And complementing those is a comprehensive appendix outlining industry assistance provided to local manufacturers in other countries – which might be construed as barriers to trade in those countries for Australian exporters.

First the cost to the taxpayer for supporting the Australian automotive industry. Expressed in US dollars the cost of industry assistance is $17.80 per head of population in Australia, according to 'Budgetary Assistance to the Australian Automotive Sector' by A. Davey (2011). That is certainly much cheaper than Germany ($90.37), Canada ($96.39) and even the UK ($27.99). And it's way more affordable than France ($147.38), the USA ($264.82) and Sweden ($334.18).

By another calculation however, the amount taxpayers tip in for every car built in Australia reverses the scale. Every car built in Canada costs the taxpayer just $28. Cars in the UK are even better value for the taxpayer, costing just $22 in government assistance. Cost to the taxpayer for each car built grows to $100 in France, $166 in the USA, $206 in Germany and $297 in Sweden. In Australia, with our small output, in direct proportion to even our small population, the cost to the taxpayer of a local manufacturing industry is a whopping $1885 per car.

In the second table, figures drawn from the Productivity Commission's own analysis in the past, reveals that the local automotive manufacturing industry receives far and away more assistance from government than any of the other industries cited. Assistance between the years of 2006 and 2012 has fallen from 12.5 per cent of the (unassisted) value of the industry to 9.4 per cent. Most of that is due to winding back the passenger vehicle import tariff to five per cent, it seems.

In contrast, assistance for the mining industry has been hovering around 0.2 or 0.3 per cent for the same period. Dairy cattle farming started at the same figure of 12.5 per cent as the automotive industry in 2006, but has fallen all the way to 1.8 per cent in 2012. Textile, clothing and footwear (who even knew that still existed in this country?) was also receiving assistance worth over 12 per cent in 2006 – 12.4 per cent – but received as little as 7.3 per cent by 2012. Aquaculture and fishing was receiving 12.0 per cent assistance in 2006, but that slumped to 3.3 per cent in 2012.

If there's a flaw to be found in the Commission's argument, it amounts to whether an import tariff (which has clearly contributed significantly to the $30 billion assistance the Commission claims the industry has received between 1997 and 2012), could be truly considered assistance.

In the third table, comprising data sourced from DFAT (the Department of Foreign Affairs and Trade) and the US Department of Commerce, the tariff rate applied to both passenger and commercial vehicles is five per cent in Australia. Only one country mentioned in the table – Japan – applies no tariff whatsoever to imported vehicles.

America comes close, with a 2.5 per cent tariff on passenger vehicles and a sliding scale of tariff from 0 to 25 per cent for commercial vehicles. South Korea's tariffs are eight per cent for passenger cars, 10 per cent for commercials. The European Union takes 10 per cent for passenger cars and 22 per cent for commercial vehicles. Mexico charges a flat 10 per cent for both passenger vehicles and commercials, and that leading light of the BRIC nations, Brazil, imposes a 35 per cent tariff for both passenger and commercial vehicles. Thailand's import tariff for passenger vehicles is a staggering 80 per cent (versus 40 per cent for commercial vehicles).

Brazil, by way of helping its indigenous manufacturers, offers an extensive program of tax concessions, based on fuel efficiency, manufacturing commitment defined by up to 12 specific processes, R&D input, local content and standardised emissions labelling. The Brazilian government also assists local manufacturers with low-interest finance to set up infrastructure.

China is providing considerable financial assistance for companies developing and building alternative-energy platforms. Subsidies worth up to 5.7 billion yuan ($1.05 billion AUD) have been set aside for vehicles with advanced drivetrain systems (EVs and hybrids principally). There are also subsidies available for any car company sourcing material from Chinese companies and tax concessions for manufacturers meeting specific criteria. In addition, the government there offers rebates to buyers of cars displacing less than 1.6 litres, and a 'cash-for-clunkers' program is available for owners of any car built before 1995.

Further details for the European Union, India, Japan, South Korea, Mexico, Thailand and the United States are provided in the position paper from the page numbered 165 (actually 173 of the report).

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Taxpayer footing the bill for Aussie manufacturing

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