In today’s Money Morning I’m going to discuss one of my pet hates.
The Australian government’s constant pandering and protection of the Australian car industry.
I realise I may put a nose or two out of joint but hear me out.
The news today on the front page of the Australian Financial Review is that the government, via the Department of Industry and Innovation, has blocked the AFR’s request for ‘a single dollar figure’ of the assistance paid to each of the car makers.
I’m sorry but that’s completely outrageous.
The AFR says that over ten years each company ‘could have received $1 Billion’. That’s billions of dollars of your money handed out on a platter to each company. But they won’t tell you how much of your money is being given to the car companies to sustain their uneconomic business models.
Ridiculous.
But not only that, each and every car you buy has taxes added to them in order to protect the uncompetitive car industry…
An old article on the Drive.com.au website states that:
‘”The luxury tax in particular is far higher than any similar tax anywhere in the world,” he says.‘The differences are most notable in luxury imports. For example, a Porsche 911 that costs more than $200,000 in Australia sells for less than $75,000 in the United States. Holden’s own Commodore SS, which sells for $45,290 here, costs roughly $32,000 in the States.
‘Australian motorists can potentially pay up to five taxes or duties when they buy a new car.
‘Import duty is charged when a vehicle arrives on Australian shores, then GST and luxury car taxes are levied, before stamp duty and registration fees take another slice of the pie.
‘”The tax burden on motorists is already substantial and the increase in luxury tax is simply a punitive measure on top of that,” he says.
‘He says the tax regime now hits luxury buyers three times during the sale process. Apart from the luxury tax, they also pay more GST by virtue of their car’s higher purchase price.’
So the true cost to each and every Australian to keep the flailing car industry alive is far higher than the amount given by the government to the car companies.
I realise the argument for protecting the Aussie car industry is that the collapse of the car industry would affect many more people than just those employed at the car manufacturers.
A recent article on theconversation.edu.au website says that:
‘What is often overlooked is the downstream automotive components industry, which hosts both local and international firms. As the Federation of Automotive Product Manufacturers notes, this sector provides 45,000 jobs, some 5% of national manufacturing employment, with almost $49 billion in turnover. Indirectly, the job head count this industry supports is even higher. The multiplier effect of this sector’s investment and turnover upon Australia’s economy is significant.‘Dandenong, Victoria, has long been the centre of this manufacturing belt; almost half the components industry jobs are located in Victoria. If Australia’s domestic car industry downsizes markedly, Dandenong, together with Elizabeth (SA), Altona, Broadmeadows, Fishermans Bend and Geelong (Victoria) would become ghost towns.
‘Just as Homebush (until resuscitated by the 2000 Olympics) and Acacia Ridge became rustbelt monuments to industry failure, plants in Victoria and South Australia face similar dangers. Nissan has gone. Mitsubishi has gone. Ford may be next.’
This may all be true. And the upheaval in the Australian economy could be substantial, but the point I keep returning to is that the Aussie car industry can’t stand on its own feet.
A company is by definition a self-sustaining entity. It makes products the market wants and receives money in return. People are employed, profits are made and the market is satisfied. It’s self-sustaining.
But what about if the Australian government handed out money to every business that can’t stand on its own feet? Just because the government has allowed an unsustainable industry to survive for this long, thus giving the false impression that it is thriving, doesn’t mean the government should do this for every industry.
Perhaps the Australian government is happy to keep the status quo because the amount of tax dollars they reap from protecting the industry far outweighs the amount they pay out. But that’s unlikely. The Australian car industry is happy to keep things the way they are because they receive a return on their investment with little risk because the government is backstopping them.
The people who really lose out are the general public and the taxpayer.
If you could save $10,000-20,000 every time you bought a car would you feel a bit richer than you do now? What would you spend that extra $20,000 on? A holiday perhaps? A new bathroom?
If you could spend $75,000 on a Porsche instead of the $200,000 it currently costs, would that increase your ‘standard of living’? Yes, I think it would.
There are many costs involved in the current policy of keeping a dead patient on life support. As always, the economically illiterate just point in one direction without looking at all of the costs involved. The broken window fallacy strikes again.
What’s even worse is that for every dollar the Australian government forces you to pay for subsidised goods, there’s one less dollar you can use to invest or trade and save for the future.
Murray Dawes
Editor, Slipstream Trader
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