The Australian is reporting today that the Senate will block the Abbott Government’s bid to cut assistance to the automotive sector (known as the Automotive Transformation Scheme, or ATS) by $900m between 2013-14 and 2020-21, by bringing forward the end date for the scheme and lowering the amount that individual firms can claim:
Blocking the bill would reverse $500m in cuts to 2017-18 announced in last year’s Mid-Year Economic and Fiscal Outlook and a further $400m in savings announced in the May budget…
“All available evidence shows that decimating the Automotive Transformation Scheme, as the Abbott government wants to do, will spark an early exit of automotive manufacturers from Australia,” [Labor] Senator Carr told The Australian… “It will scuttle any chance of a successful transition for automotive workers and businesses.’’
Senator Xenophon said the cuts to the ATS would be a broken promise by the Coalition that would jeopardise more than 30,000 jobs in the components industry. “The Coalition just don’t get manufacturing,’’ he said.
…Greens deputy leader Adam Bandt said: “The Greens want a secure future for component and auto workers as Australia transitions to a clean economy, and we especially want to explore whether we can make electric cars.’’
The Abbott Government is certainly treading a fine line on automotive assistance.
With the three local automakers scheduled to close assembly operations by 2017, it would seem sensible for the Government to maintain funding for the sector at previously agreed levels up until this time, rather than cutting funding by $500 million, thereby securing the short-term viability of component makers and ensuring the industry does not close early, as already threatened by Holden if the component makers fail. However, the case for maintaining funding after the auto makers close in 2017 is obviously much weaker.
The last thing the Abbott Government would want is for local car assembly to shutter early as it seeks re-election in 2016. Such an outcome would likely decimate it at the ballot box, particularly in the manufacturing strongholds of Victoria and South Australia, and would be very bad timing given the structural headwinds for the economy.
After all, modelling by the Productivity Commission (PC) estimated that the closure of Australia’s car industry would cost up to 40,000 jobs, mostly in Victoria and South Australia. The PC’s findings were broadly similar to modelling undertaken late last year by the Allen Consulting Group, using economic analysis from Monash University, which estimated that the closure of the local car industry would cost around 33,000 jobs in Melbourne and around 6,600 jobs in Adelaide by 2018.
Both studies, however, seem overly optimistic, given they assume that a high proportion of component manufacturers will move into exports and/or the after-sales parts market, which are already crowded and highly competitive. The PC also assumes that two thirds of the expected 40,000 retrenched auto workers will find another job – an assumption that seems fanciful given the lack of other manufacturing industries in Australia, the sheer size of the employment shock (which of course will occur alongside the sharp decline of mining investment), and the overall weak labour market.
Irrespective, the impact of the car industry’s closure is likely to be huge and represent a king hit to the economy, particularly in South Australia and Victoria. Again, the timing is particularly poor, since these job losses are set to coincide with the unwinding of the biggest mining investment boom in Australia’s history and the loss of tens-of-thousands of mining-related jobs.
These are the two employment cliffs facing the Australian economy, and are key reasons why I remain so concerned about Australia’s labour market.
With commodity prices sinking fast, and the Australian dollar likely to follow suit in due course, Australia may also face the unfortunate prospect of importing Holdens from South Korea at higher prices than could have been built locally given more favourable exchange rates.
Such is Australia’s gross mis-management of the mining boom.
