Think-tank calls for end to car industry handouts

A NATIONAL privately funded think-tank has recommended that the federal government stop giving direct cash support to manufacturing – including car-making – and instead hand out loans.

In its ‘Australia Adjusting: Optimising national prosperity’ report released this week, the Committee for Economic Development of Australia (CEDA) says the nation can no longer afford subsidies “because we cannot keep propping up industries that will not be sustainable in the long term”.

Instead, CEDA chief executive Stephen Martin said a ‘National Productivity Policy’ (NPP) should be supported by “a new inter-governmental agreement that provides financial incentives for the states to undertake reforms”.

Part of that plan would be to provide Higher Education Contribution Scheme-like loans to the manufacturing sector that would need to be paid back over time.

“The NPP would replace the previous National Competition Policy (NCP),” Professor Martin said.

“The NCP was successful because there were incentives for the states to carry out the agreed reforms and that will be a key ingredient if the NPP is to be successful.

“Industry subsidies should be one of the first areas looked at – the Productivity Commission review announced for automotive manufacturers last week is a step in the right direction – because we cannot keep propping up industries that will not be sustainable in the long term.”

The federal government last week set the terms of reference for a Productivity Commission review of Australia’s car-making sector, with an interim report due shortly before Christmas.

The full review is expected to be handed down in March next year – setting the future course for both Holden and Toyota beyond 2016, when the current round of government funding dries up.

Ford Australia will also close its Australian factories by the end of 2016.

Prof Martin said Australia was at a crossroad, with a new federal government in power and the mining boom in decline.

“Rather than hang onto the past, now is the time to identify and focus on the industries that will provide our future prosperity and appropriately skill people to work in these industries,” he said.

“Instead of subsidies, to drive growth and develop new industries the federal government should provide incentives to increase innovation and its adoption.

“In particular, CEDA is calling for income contingent loans, similar to HECS, for small- to medium-sized enterprises to help fund innovative activities.

“This is an area where Australia is significantly underperforming compared to other advanced economies.”

Prof Martin said any future tax reforms should focus on broadening the goods and services tax, passing on middle class and business welfare tax breaks. The company tax rate should also be allowed to fall to an internationally competitive level, he said.

“Reducing the company tax rate is an important move because to continue growing, Australia is reliant on capital from abroad for major private sector projects, such as infrastructure, and we face strong competition,” he said.

“Federal and state governments should also be required to publish long-term infrastructure development plans, which would allow the clarity and stability required to utilise private sector investment in these projects.”

CEDA will present the findings of its report at a series of seminars held around Australia until November 29. For more information, visit the CEDA website at www.ceda.com.au.