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News - Market Insight - Market Insight 2013

Auto aid highest in Aussie industry

Fuelled: The Australian car industry gets more government help than any other, says Productivity Commission.

PC report shows effective rate of car industry assistance well above other sectors

13 Jun 2013

THE Australian car industry has received more federal government support than any other area of manufacturing and other key industries, according to the Productivity Commission’s ‘Trade and Assistance Review 2011-12’ released this week.

As political debate over the long-term future of the car industry continues to rage, the annual review shows the ‘effective rate of assistance’ for motor vehicles and parts was 9.4 per cent in the past financial year – well above the 4.1 per cent recorded for manufacturing as a whole and 3.3 per cent for total primary industry production.

According to the report, the local motor industry’s level of support climbed from 8.9 per cent in 2010-11 following an increase in budgetary assistance under the now-defunct Green Car Innovation Fund (GCIF) and to Ford, which announced last month that it would cease its Australian manufacturing operations in 2016.

Although relatively high compared to other industry groupings, the motor vehicle and parts sector’s rate of assistance is well down on the 13.1 per cent in 2008-09 and 11.6 per cent the following year.

The report also highlights how rates of assistance for the car industry and the other highly supported manufacturing sector, textiles, clothing and footwear (7.3 per cent in 2011-12), “have declined significantly over recent decades following substantial reductions in tariff rates and the removal of import quotas”.

“Effective rates of assistance for these industries have also declined significantly since 2008-09, following the legislated tariff cuts in January 2010 and net reductions in budgetary assistance following the closure of ACIS (Automotive Competitiveness and Investment Scheme) and introduction of the new automotive assistance arrangements,” the report said.

Overall federal government assistance for motor vehicles and parts in 2011-12 was $620.7 million, with $579.9 million in budgetary outlays and $40.9 million in tax concessions.

This was allocated mainly through the Automotive Transformation Scheme (which largely replaced ACIS), the GCIF, extra assistance to Ford Australia and via the ‘Tradex’ scheme, which allows an importer to gain an exemption from customs duty and GST on eligible imported goods that are intended for export.

From a total $9.42 billion overall poured into Australian industry protection ($5.13 billion of which was in outlays and the rest in tax concessions), the car’s industry’s allocation was significantly higher than any other sector within manufacturing – which received a total $1.75 billion in budgetary assistance – and primary production ($1.44 billion).

The bulk of budgetary assistance ($4.2 billion) was funnelled into the services sector – the lion’s share allocated to electricity, gas, water and waste services ($1.08 billion) and finance and insurance services ($914.7 million, mostly in tax concessions) – while the mining industry also attracted $700.4 million in assistance.

The report also shows that net tariff assistance for the motor vehicle and parts industry last financial year was $496.1 million, from a total $1.08 billion across all industries.

“Assistance generally benefits the industry receiving it and, if well targeted and designed, can deliver wider community benefits,” the commission said in the report.

“But it can also come at a cost to other industries, taxpayers and consumers.” The report’s release this week comes as Toyota Australia emerged as the only Australian car-maker to turn a profit last financial year, posting a $149.1 million after-tax profit for the year ending March 31.

Toyota has confirmed it received $75 million in federal funding for the financial year, which compares to $73 million handed to Holden (which recorded a $152.8 million loss for 2012) and $112 million given to Ford, which posted a $141 million loss last year and has signalled it will not return to profitability until after it pulls out of local manufacturing.

Political debate about the future of car manufacturing in Australia has also intensified this week as the federal Coalition defended its commitment to pull out $500 million in assistance should it win government at the September election.

This will leave the car industry with $1 billion of support until the end of 2015, with a further $1 billion in the ATS from the start of 2016, although future funding will be determined by a Productivity Commission review that will include the development of a new funding model for the industry.

As GoAuto has reported, Holden – which has received about $2.1 billion in government assistance since 2001 – has criticised the plan, arguing it does nothing to remove uncertainty in the industry and could take up to three years to resolve.

Federal climate change, industry and innovation minister Greg Combet has also gone on the attack, claiming “the Coalition’s policy would kill the auto manufacturing industry in Australia stone dead” whereas Labor had committed to providing $5.4 billion to 2020.

“This assistance drives investment and improvements in competitiveness, supporting around 250,000 jobs that rely directly and indirectly on the auto manufacturing industry,” he said.

“By contrast, Tony Abbott has said he will cut support by $500 million between now and 2015.” Mr Combet also asserted that the Coalition had not committed any support at all after 2015 – which shadow spokesperson Sophie Mirabella has subsequently debunked, along with Labor’s claim that the Coalition’s total cuts to 2020 amount to $2 billion.

In a statement, Ms Mirabella said: “The Coalition is committed to supporting a viable automotive sector in Australia for the long term. We have always worked closely with the car industry and will continue to do so.

“We have consistently argued that funding to the car industry must be more accountable and sustainable – and better targeted – than it is under Labor. As part of this approach, we would make a $500 million reduction to the Automotive Transformation Scheme. That means funding of $1 billion would remain in that scheme to 2015, and another $1 billion in the scheme from the start of 2016.

“The Coalition believes it is fundamentally important to ensure that taxpayers’ dollars are targeted at the long-term sustainability of the car industry and used in a transparent way.

“If elected to office, an Abbott government would immediately proceed with the abandoned 2008 Productivity Commission review of the industry – a review that was supported by each of the local manufacturers at the time it was announced – in order to ensure there is again a sensible, evidence-based approach to taxpayer funded subsidies as well as better funding benchmarks aimed at the long-term viability of the industry.”

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