The Australian’s Gary Johns has continued the newspaper’s assault on the local car industry today with a well-argued post:
Australia seems to have no end of goods and services to sell. The world seems to have no end of goods and services that Australians want to buy. The trick is that as long as Australia does what it does best, the chances of Australians buying more of what the rest of the world produces increases. The consequence is you have to stop doing the things you do not do best…
The looming intervention that can make Australia a better society as well as a better economy is to turn off life support to car manufacturing in Australia.
The rationale for making cars in Australia is about as thin as an EH Holden’s duco. The infant industry remains so…
The Abbott government says it wants two things: “an internationally competitive and globally integrated automotive manufacturing sector” and “a desire to improve the overall performance of the Australian economy”. These are contradictory aims…
It makes more sense to help workers adjust to, rather than pay the ongoing costs of, supporting unprofitable activity…
The tariffs should go, the luxury car tax should go, and then every grant to industry needs to be reassessed.
Like Henry Ergas’ article in The Australian over the weekend, it is hard to fault Johns’ logic. Longer-term resource allocation (and consumer outcomes) in Australia would be improved if the Government wound-back subsidies, tariffs and other support (e.g. imports of used cars and the luxury car tax).
However, the time to wind-back auto assistance was when the economy was booming and the displaced workers had somewhere to go. As I keep saying, mothballing Australia’s biggest manufacturing industry just as the once-in-a-century mining investment boom is about to begin a multi-year slump is a highly risky proposition.
More broadly, until the Australian dollar falls to a more sustainable level, and policy makers embark on a widespread program of micro-economic (structural reform), Australia’s non-mining economy (not just auto assembly industry) will remain uncompetitive and trade exposed industries will continue to close.
The broader issue of competitiveness should be the Government’s primary focus, rather than industry assistance per se.
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