Since Toyota announced its closure on Monday, there’s been lots of speculation that the Government will abolish tariffs and other protectionist measures on imported cars.
A bunch of articles from economists (including yours truly) have published articles arguing that the rationale behind protection will soon vanish, necessitating the abolition of a whole raft of measures – including the 5% tariff, the luxury car tax, restrictions on importing secondhand cars, and abolishing unique Australian technical standards – in turn saving consumers thousands of dollars off the cost of a purchased car.
Treasurer Joe Hockey appears amenable to change, noting that “there’s a legitimate case put forward to remove tariffs where there is no local motor vehicle manufacturing industry” and claiming that it is “something that will certainly be considered by our review of taxation, which will occur in the next 18 months or so, and certainly before the next election”.
A key issue for the Government is that the abolition of the tariff and the luxury car tax would together cost the Budget around $1.3 billion per year in lost revenue. One option is to offset these losses by implementing the former Labor Government’s proposed changes to fringe benefits taxes on company cars – a reform that would both raise $1.8 billion in revenue and improve fairness. Unfortunately, however, Joe Hockey has explicitly ruled such reforms out, making it less likely that it will wind-back industry protection.
For its part, the Labor Opposition has requested that the tariff and luxury car tax remain in place, even after the car makers exit, with the funds instead used for a transition package to support displaced workers.
Automotive makers have also warned against removing assistance too soon, warning that they will exit Australian sooner if the Government cuts the automotive tariff and doesn’t slow down cuts to the Automotive Transformation Scheme (ATS) – the main program of assistance for car and components makers.
The Federal Chamber of Automotive Industries chief executive, Tony Weber, warned that cuts to the ATS need to be “smoothed” – effectively pushed out into the final year – or they would “pose a real risk to the viability of carmaking over the next few years”. He also said that cuts to the ATS needed to be slowed to “give the companies the best chance of continuing to build cars until their announced cease dates”.
With the car industry’s demise locked-in, the Government’s focus must now turn to managing the exit to ensure that it is creates as little disruption as possible. Plans to cut assistance should, therefore, be placed on hold until the last of the producers has closed its operations.
