Friday, March 23, 2012

It'd be a brave PM who pulled the plug on Holden

YOU can have a car industry with taxpayer subsidies. Or you can save taxpayers' money and scrap your car industry. There are good arguments for either policy, but you can't have a car industry without subsidies.

That was the choice facing the Gillard government, and its decision was obvious. Holden is an Australian icon. Its Adelaide plant produces two of the four biggest-selling cars in the nation. It would be a very brave Prime Minister who pulled the plug on Holden.

Why do we have to pay to have a car industry? Because the world does. In Germany, Britain and the US, governments subsidise car plants because they bring not only the jobs of their workers, but far more who make their components, or benefit from the flow-on of all that spending through the economy.

Australia has probably the most open, trade-exposed market of any country in which cars are designed and built from scratch. The average tariff on imports is just 3.5 per cent. In a market of a million cars each year, there are twice as many brands competing as in the US and Japan.

The question is: do we want Australian-made cars to be part of this? Yes, the public says whenever the pollsters ask. Yes, John Howard said when he faced the issue in 1997 and 2002. Yes, Kevin Rudd said in 2008, when he set out the $3.4 billion Automotive Transformation Scheme to roll out support to 2020.

No, the economic rationalists say. They argue that if there is no prospect of Australia's car makers being able to survive without government subsidies, we should cut them off now. In effect, the government will pay almost 20 per cent of the cost of Holden's new models: what other industry receives such support?

That depends how you look at it. Former industry minister Kim Carr used to say Australians pay the cost of a footy ticket a year to support the car industry: $17 a head. That is well short of what we pay to support the mining industry: the diesel fuel tax rebate alone now costs us about $2 billion a year, or almost $100 a head, with far less flow-on to the economy.

Gillard had no choice. Manufacturing is being hammered by the high dollar, and Holden would have left town without support. To let go of Holden would be to say goodbye to manufacturing, and send south-east Australia into an economic maelstrom.

The tough choices are what to do about all the other firms whose profits are being torn to shreds by the high dollar. The answers there are less obvious, but even more crucial.