$100,000 per job

Kevin Rudd wants to give away $100,000 of taxpayers money per worker in the car industry to ensure that the industry doesn’t wither in the face of the global financial crisis. This is dumb policy. If he really wants to protect the industry he would be better off deferring the 2010 cut in tariffs or in offering general tax concessions. However ideally he shouldn’t be handing out a subsidy or deferring tariff cuts or distorting the tax system. Why are we protecting an industry that clearly struggles to be viable? Surely $6 billion on better roads or on tax cuts would be $6 billion better used?

22 thoughts on “$100,000 per job

  1. I realise I’m stealing this line from Andrew Bolt, but why doesn’t he just give 50 grand to each auto industry worker to help them retrain for employment in other sustainable industries?

  2. How the hell does Kevin Rudd have this image of intelligence? I suppose just because he looks like a geek. A remarkable fraud. He and his government are inexcusably stupid when it comes to economics.

  3. I saw this today…

    Shocking. Disgusting.

    Kevin 07, Recession 08, Deficit 09.

    Now, a deficit itself isn’t a problem. But one that occurs without tax-cuts and one that will likely result in tax increases? Almost makes me want Howard and Costello back. Almost.

  4. is Rudd just totally stupid or is he in the pay of the auto industry?

    stupid or corrupt. there’s no other explanation.

  5. You forgot option 3, pommy: stupid AND corrupt.

    Seriously though, I don’t know what you lot expected from this bloke. For all the failings of the Libs, they were far superior to this lot – no “almost” about it.

  6. The problem is Kim Il Carr, an old leftie who likes to play Santa Claus with taxpayers money to “protect jobs”.

    If there is a good side to this, it is that the subsidy is short term while the tariff cut is permanent.

  7. Kevin 07, Recession 08, Deficit 09

    Shem, I’m going to use this if you don’t mind. Attribution will be noted where appropriate, of course.

    If there is a good side to this, it is that the subsidy is short term while the tariff cut is permanent.

    I suppose that is a positive, but what this will actually result in is subsidised Australian cars for overseas markets while Aussies will probably still buy the foreign made product. If this industry is so important that Aussies must be forced to support it to the tune of $6.1 billion then there is probably a case to use tariffs to keep that money in the country and fully utilised by forcing the locals to buy this important product, rather than giving artificially cheap cars to foreigners. Then have some sort of program to try and sell non-subsidised product to the foreign markets.

    Of course, this industry isn’t that important and there is no need to artificially support it. But this fact doesn’t even seem to rate a mention anywhere, so hey, go with the flow.

    What I suspect will happen is that we will sell some more cars overseas and the government will point to that as an example of a competitive industry delivered by competent government management. The fact that Australian taxpayers are subsidising the cars will not be widely known, or at least for the most part forgotten or ignored. Then governments from both sides will fall over themselves to keep the industry going to prove they’re not turning Australia back into a quarry or sheep station.

  8. What’s good about a short term bandaid? He should be looking ahead into how to survive the economic downturn, not just pissing money up the wall for a couple of months benefit

  9. If this industry is so important..

    Apparently it is that important because, as per a conversation I had today, a million of people rely on the auto industry. It isn’t just the car makers, but tyre manufacturers, mechanics, windscreen makers, etc, etc. And all those people would be out of a job. Then the government would have to pay to support them…

    Plus, if all the manufacturers move their plants to China then the government won’t be getting the billions in tax revenue that it does once the companies actually recover….

    That’s the argument I heard today. I found it hard to shoot it down, to be honest. I mentioned it acting as a tariff against other industries stopping job creation. But apparently people take time to transition into the new jobs (which is true)…

    People seem to like the government acting as insurance. They don’t like the risk associated with a free market. That’s why so few people invest or start their own businesses, I guess.

  10. All of this is true and people do see the government as insurance. And maybe that is a role that government can play some part in if lots of people want it to (still probably a bad decision, though). But if they need insurance then lets use the money as efficiently as possible and that ain’t blowing it on an inefficient industry that makes people feel better because it looks like Australia manufactures things.

    Also, when are these companies going to ‘recover’? If the US auto industry is any example of waiting for the recovery…………….

  11. Shem; Its really not that hard to shoot down, the car companies have been insulated from reality since I was a kid a bloody long time ago, and are as result still uneconomic.

  12. James Thomson of Business Spectator offers has a very sensible article here: http://www.businessspectator.com.au/bs.nsf/Article/62-billion-fuel-injection-L93TP?OpenDocument&src=sph

    “The fact is the Australian automotive industry is in deep, deep trouble, mainly because Australian consumers do not want to buy the family-sized cars that Australia’s car makers – Ford Australia, GM Holden and Toyota – have pumped out for the best part of five decades.
    “To make matters worse, the parent companies of the local car makers are struggling, with General Motors and Ford Motor Company posting disastrous third quarter losses ($US2.5 billion and $US2.75 billion respectively) and openly talking about the prospects of bankruptcy.

    “The local car makers are largely reliant on funding support from their parent companies – how Rudd and Carr expect these car markers to fund any investment in the short-term is unclear. Ford and GM may not even exist in 12 months, which would put the future of their local subsidies under a huge cloud.”

    Business Spectator is mostly run by Keynes sympathisers, but their coverage isn’t half bad (and it’s certainly up-to-date).

  13. a million of people rely on the auto industry. It isn’t just the car makers, but tyre manufacturers, mechanics, windscreen makers, etc, etc. And all those people would be out of a job.

    Not even close to true.

    Tyre manufacturers and mechanics are still required, whether cars are imported or locally made. No jobs lost there.

    Component manufacturers would certainly lose if local car production ceased, although the good ones would survive on exports. Perhaps a few jobs lost.

    I don’t believe Ford, Holden and Toyota were intending to close down though without the subsidy. Perhaps one of them, but not all three. So not many jobs lost there either.

    If the government had subsidised the horse industry when cars were first introduced to protect the jobs of grooms and farriers, we wouldn’t have this problem now.

  14. It’s poor policy, but for those using this to spruik the Liberals it’s worth remembering that the Liberals also provided handouts to the auto-industry every time they asked.

    Industry policy is alive and well in Australia. We have a multi-billion dollar Industry department that shouldn’t exist at all. And every State spends additional billions on hand-outs and subsidies. The ALP were never going to fix this problem.

    At least they have shown that they still believe in moving towards free trade.

    Shem — people don’t often start their own businesses in Australia because there are too many restrictions, regulations, redtape and taxes involved.

    And while some people would probably lose their jobs in an un-subsidised auto industry, these needs to be put in proper whole-of-economy context. Any subsidy on one industry is always a tax on other industries. TANSTAAFL. Industry policy slows down job creation, while keeping people in an industry that isn’t efficient. Ultimately this doesn’t lead to any more jobs, but it does lead to lower paying jobs. Not to mention higher taxes.

    Even left-wing economists accept that free-market competition leads resources to go into more efficient industries… but there is also ample evidence to show that free-market competition encourages inefficient industries to become more efficient.

    When NZ cut their substantial farm subsidies the whingers predicted the end of the world. Within five years farm employment was higher than ever, farm production had increased as a share of GDP, and productivity growth had gone from 1% to 6% per year. At the same time, marginal lands were returned to private forests.

    While not every story is as amazing as this one — it shows that even the standard free-market analysis of removing subsidies is generally too pessimistic. So the man-in-the-street, we’re-all-going-to-die view is totally out of the ballpark.

  15. John, I tried to explain that, but it still doesn’t work… Some people “don’t believe” that a free market works. They believe Thatcher did a bad job and ruined Britain. They believe that short term job loss is worse than reduced productivity in the long term.

    But what is the cost of not subsidising the car manufacturers? How much welfare will we need to be paying? How much will we lose in taxation? Assuming no new industries do replace them, what’s the cost?

    I know that the free market way is better, but it’s hard to explanation that Australia doesn’t need an auto-industry to someone that likes things being “Australian owned” and that used to be a mechanic…

    I know rationality is on our side, but frustratingly rational argument isn’t enough for some people.

    A lot of people seem to believe it’s possible to insulate the population from loss. And it is, I guess, to a degree…

    By taking $5 from someone every weekday you’re able to give them back $10 on Saturday and Sunday when they need it…

    It costs more for them in the long run, but it also provides stability. Insurance sure as hell costs more in the long run (for most people) but it minimises risk. People treat government the same…

  16. Oh and John what about the people that are 50 and 60 and have been working in the auto-industry their whole lives. You expect them to go out and get new jobs? Or go work at Maccas?

    We’re not like Hong Kong and Singapore- they use robots to do everything. We are a manufacturing country. There won’t be enough new jobs created, even with a tax cut instead.

    I guess I just can’t argue when there’s no logic to the argument I’m countering….

  17. Oh and if we let Toyota go bust do you really think other companies are going to want to move in here, even with a tax cut?

    Every country subsidises their own industries. It’s important to look after your own…

    (They are just some of the arguments. But big government is okay, because at least 35% of GDP isn’t communist. Government looks after people…)

  18. Shem

    Dont despair. it can be done 🙂

    One of Thatcher’s great legacies has been to make the British people not care less who owns our industry nor to have national champions.

    We used to have national champions in Rover, British Airways and Brit Telecom. But everyone soon realised that they were all crap. So our car industry was sold to the Amercians and the rest was privatised.

    Now you can buy great Japanese cars in England, fly super-cheap to Spain with RyanAir and it only takes two days for a BT engineer to fix your phone if it breaks down (whereas it used to be a year under govt ownership).

    Sadly the Ruddster isnt quite the inspirational figure that Thatcher was.

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