Treasurer Joe Hockey has continued his contradictory statements on corporate welfare, today stating that the Government could still bailout Qantas because it does not operate in a free market. From the AFR:
Treasurer Joe Hockey could still provide government assistance to Qantas Airways, saying the government’s edict about ending corporate welfare does not apply to the airline because it does not operate in a free-market environment.
With a beleaguered Qantas increasingly anxious for a response from the government following its request for support, Mr Hockey told The Australian Financial Review Qantas was an exception because it was heavily regulated and faced competition from foreign governments…
“You’ve got to have a set of parameters,’’ he said. “The parameter where the state steps in to constrain a particular business, then the state has to pay a price for that constraint,’’ he said, referring to Qantas which faces competitive and foreign ownership limits imposed by the Qantas Sale Act.
“There is a legitimate argument that in the case of Qantas there is specific legislation that restricts the entity, as there is legislation that restricts Telstra and others and there is a price to be paid by the community for the right to restrict the free operation of that business,’’ he said.
“The second issue that needs to be taken into account is the competition. The issue is whether other governments are in the field and if there is a distorted market.
The easiest and most cost effective way to assist Qantas is to end foreign ownership restrictions, which serve no useful purpose and prevent Qantas from obtaining equity partners.
That said, the assertion that Qantas does not operate in a free market, but SPC Ardmona does, is questionable.
Like Qantas, SPC Ardmona must compete against foreign producers whose goods are subsidised by their Governments (e.g. the European Common Agricultural Policy). Tuesday’s ruling by the Australian Anti-Dumping Commission that Italian canned tomatoes were being dumped into Australia below their cost is a case in point.
We also know that SPC Ardmona must compete against foreign producers operating under less stringent health and safety standards – as evident by imported Chinese peaches reportedly containing twice the level of lead as prescribed under the Australian and New Zealand food standard.
The fact of the matter is, there are few “free markets”, and Hockey’s rationale for extending assistance to Qantas could equally be applied to SPC Ardmona.
There is also a broader issue at stake: the employment impacts that would arise if either company closed.
Qantas operates in aviation, which is a bona fide services industry. This necessarily requires that employment be performed locally, irrespective of who owns or operates the airlines. Whether a passenger flies to Sydney from Melbourne using Qantas, Jetstar, Virgin, Tiger, or another provider, a similar number of Australian employees – from counter staff, to baggage handlers and airline stewards – still need to provide the function. This means that even if Qantas were to fold completely, airline services would be performed by another carrier – be it an expanded Virgin, Tiger or another entrant, such as Singapore Airlines. In either case, the new supplier would still need to employ Australian workers to fulfill its functions, and the overall employment impacts from Qantas’ failure would be manageable.
Indeed, when Ansett collapsed a decade or so ago, there was minimal impact on overall aviation employment. Ansett’s void was soon filled by Qantas and Virgin, along with some smaller airlines that have popped-up along the way.
By comparison, SPC Ardmona is tradable. If it was to shutter, around 5,000 jobs – including processing, horticulture, and logistics – would shift offshore, decimating the Goulburn Valley Region.
In short, the different employment effects from the two industries requires a different policy approach. There is minimal justification for providing taxpayer assistance to Qantas – especially when the foreign ownership act could be revoked instead. Whereas the risks to the broader economy from SPC Ardmona’s collapse would be significant, justifying greater support.
This is why the Abbott Government needs to be pragmatic on industry assistance rather than taking a hard ideological line (except when it is politically expedient – such as the assistance provided to Huon and Cadbury in Tasmania).
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