Huh?

CONTROVERSIAL car tariff cuts scheduled for 2010 should proceed but a generous new $2.5 billion grants scheme should be set up to help the automotive industry until 2020.

These are among the key recommendations of the long-awaited Bracks report, upon which the Rudd Government has said it will base its new “car plan” to ensure a future for the Australian automotive industry.

Exactly! I always thought removing a tariff and replacing it with a subsidy makes economics sense (just kidding). Well it does to this government any way.

Former Premier Bracks certainly earned his advisory fee for this well thought out micro-economic advice. Can’t wait for what else is in store. Thinking about it, subsidies can actually be worse than a tariff because the kiddies can play teachers pet and therefore make the poker game prone to shady deals on the side with the individual carmakers. We’re now at the bottom of the 5th inning and still waiting for a market friendly economic policy from these guys save the income tax cuts which they had to copy anyway.

Here’s my bet: the subsidies will directly correlate to union demands, so the government will make transfers to the firms and part of the money will make its way into union pockets. It’s a union rort made to look like “good” economic policy. So the taxpayer ends up funding the rort. In other words a daisy chain of rorts and payoffs. It will prove even bloody worse than tariffs.

19 thoughts on “Huh?

  1. Yeah, I saw that news… was quite irritating since when I started reading I initially thought, “Oh good – they’re cutting tariffs – about time they did something right”. Sadly, that feeling was evaporated as I continued reading (and I would agree that subsidies are even worse)

  2. I suppose it is hard to let go, but in reality there is no future for a car industry in Australia.

    But as someone once said to me, just thank your lucky stars your not trying to maintain a nuclear program, space program and lot of other things that don’t make sense for a country with a small population.

  3. I read somewhere that the auto industry in Australia directly employs around 60,000 workers. In the last year, some 240,000 jobs were created in Australia, that’s around 20,000 per month. If that trend was to continue, and the Aust car industry was to shut down today, all the lost jobs would be replaced in 3 months!

  4. There is a deeply entrenched view in Australia that we have to manufacture things. Somehow we become mendicants if we rely on imports made by wicked foreigners, while having a natural advantage in agriculture and resources is seen as a bit down-market.

    It’s completely divorced from economic common sense. The economy would be better off with zero protection of manufacturing, no matter what other countries do, while employment in the service industries far outweighs employment in manufacturing. Higher prices of cars affects every other sector and reduces their competitiveness, including agriculture and resources.

    There is another relevant factor too. That fat buffoon Kim Carr is a leader of the socialist faction in the Rudd government. His theory is that protecting manufacturing preserves his union support base. I doubt if even that is true.

  5. “There is a deeply entrenched view in Australia that we have to manufacture things”

    I don’t even know if it’s a weird preoccupation people have with manufacturing in general that is the problem — it’s some weird fascination with the car industry in particular. I find this really odd, because given that it’s one of the most competitive and heavily subsidized industries on Earth, it’s hard to think of a worse place to stick money.

  6. Bracks has form.

    Recall the dodgy deal he did with the head of the Victorian police union prior to the last state election, which completely undercut the negotiations of the police commissioner.

    You can bet your boots that Steve will be clipping the ticket on this little pork roll at a few points along the way.

  7. Offered in the spirit of blogging friendship: You can edit this post and create a live (i.e. useful) link to http://www.theaustralian.news.com.au/story/0,25197,24184807-601,00.html by highlighting “Check it out”, pressing the link icon and then pasting in the URL. That would enable your readers to just click the live link and read the article you’re talking about rather than copy/pasting it into their browser’s address bar. It would allow you to be a normal blog with normal features in your posts.

  8. Strictly speaking a tariff is LESS efficient than a subsidy’ (ignoring the political effects) because a tariff has a more substantial impact on input costs of producers which use as inputs the goods subject to the tariff whereas subsidies are financed from current taxes which we already pay for and of course suffer a deadweight loss from but where this deadweight loss is diffused across all taxpayers

    But of course neither is ideal.

  9. that should say:

    “a tariff has a more substantial impact on input costs of producers which use as inputs the goods subject to the tariff’

  10. and bugger, next time I should edit before I submit – first line should say

    “Strictly speaking a tariff is LESS efficient than a subsidy’

  11. I edited the changes, Jason. Hope it’s ok.

    Thanks Trinifar but I encounter a problem at time. I choose the hyperlink option on right click Word however when the box shows up I am unable to copy the URL as it won’t let me. The only way I am able to do it is through the drop down option which at times doesn’t carry the URL.

  12. JC i have edited your post. Try and use links – there’s a button in WordPress that lets you do this.

    First, select the text you want to hyperlink.

    Then, press the button (use trial and error to find it).

  13. Tariffs are worse than subsidies. Subsidies are more transparent and less permanent.

    Subsidies are an expected part of a prolonged transition process, and the same thing happened during the Hawke/Keating era. Without bribing the manufacturing industry and unions, tariff cuts probably wouldn’t have been possible in the 1980s.

    It’s cheaper to pay these people (and farmers) to stop producing.

  14. Sukrit:

    Ordinarily that is correct. However what’s the bet that the subsidies will be used to get money to the union members or to make the firms more “union friendly”.

  15. Sukrit – Wheat subsidies in the USA don’t seem to have been temporary.

    JC – there are two good things that the Rudd government has done besides tax cuts.

    1. Ended the bulk of the subsidies for solar panels. Not in a neat or deliberate way but at least the public purse isn’t paying for as many pointless projects.

    2. Ended the Wheat export monopoly.

  16. If the fund is to be $2.5 billion and there are 60000 jobs in the industry then the fund is equivalent to about $42000 per job. And given that a drop in the tariff from 10% to 5% wouldn’t elliminate all those jobs anyway that is a serious pile of cash to pay for adjustment.

  17. Its actually more than 2.5 billion. I believe there another 700 million going to be spent on the emissions free horseless carriage… but that isn’t annually though.

    Terje the solar panel thing wasn’t done because of good economics. It was done because they can’t stand the idea of the “rich” getting freebies.

    The wheat monopoly thing was in the works with the previous government.

  18. JC – much the same with tax cuts. However best to judge behaviour rather than spending time infering motive. So far the behaviour is disappointing.

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