Along with its planned abandonment of carbon market pricing, the Coalition's impending destruction of the Australian car industry by calculated public stalling of decisions on government assistance is shaping up as its most disastrous high-visibility policy blunder. This is Australia's version of US Tea Party budget brinkmanship
Consider the policy inconsistencies. The Abbott Government proposes to throw billions at an overgenerous planned maternal leave scheme that nobody really wanted, and billions more at generous discretionary handouts to industries that cut carbon pollution, in the vain hope of reaching a 5 per cent reduction that will be too low to help slow global warming anyway. It proposes to build submarines in Australia at vast expense compared to off-the-shelf imported submarines. The decision to exclude the Chinese market leader Huawei — the cheapest world supplier of equipment — from any involvement in Australian telecommunications will cost taxpayers billions.
None of these policies has anything to do with responding to market forces. Yet finance ministers Hockey and Cormann, heartened by a steady drumbeat of support from influential economics commentators like the Australian Financial Review's Alan Mitchell, are ready to sacrifice Australia's car industry on the altar of an economic theory which abhors the relatively paltry $500 million per annum assistance paid to this industry under Labor. This industry — but none other — is to be wilfully abandoned as a victim of rigid free-market economic ideologies.
It does not make sense, in economic, social or national security terms.
The hapless Minister for Industry, Ian Macfarlane, is struggling to keep General Motors and Toyota manufacturing in Australia on uncommitted temporary government assistance through 2014. Later that year the Productivity Commission will issue its report; its entirely predictable advice will be to kill the industry by ending assistance.
Abbott will then face the same tough political decision as PM that he is avoiding now. But perhaps he hopes that Holden and Toyota will save him the odium, by doing meanwhile what Ford has already done — announcing the shutdown of manufacturing in Australia. He could then say it was not his decision, it was market forces.
MacFarlane's other senior Cabinet colleagues — Pyne, Johnston, Truss, Joyce — all have portfolio or electorate interest in a viable Australian motor vehicle manufacturing industry. Their silence is puzzling.
There are sound national interest policy arguments for continuing to assist GM Holden and Toyota car manufacturing in Australia, and announcing this decision without waiting for the Productivity Commission report.
These companies make good, technically advanced cars of which Australia can be proud. They sell well, and set a standard of performance in Australian conditions for imported cars to meet. They help maintain a complex skills base in this country and a level playing field for every Australian car buyer.
Strategically, Australia needs to retain this mix of technical capabilities in-country. Designing and building a modern car is not simple. Purist economists may sniff at these as older low-level technologies, but national metal-fabricating and engine-building technologies and assembly lines could quickly be converted to making armoured trucks and weapons platforms if ever needed. The future is uncertain. Australia should not abandon its ongoing manufacturing capacity to make large numbers of motorised defence vehicles if we ever had to in a hurry.
And there is nothing primitive about the IT-rich control systems in our current cars. Cars like the Cruze or Camry Hybrid are right up there with imports.
The flow-on economic and social effects of closing these industries are huge: 8000 jobs would be lost in SA, 30,000 in Victoria. Flow-on job losses are estimated by former minister Kim Carr as 200,000. Some of these may be in auto maintenance industries that would continue, but a lot won't, and I would guess 100,000 flow-on jobs lost is a reasonable estimate. What are all these businesses and workers going to do? Retrain as hospitality staff?
There would be major regional effects on SA — a state whose de-industrialisation is now well advanced. This state needs more than wheatgrowing, tourism, cultural festivals and winemaking.
There is the major loss of embodied capital from overseas. If GMH and Toyota run down their capital stock here in government-forced firesales, they won't start up again whatever happens to the exchange rate. Here we are (or some of us), bleating how much we need foreign capital to come in and help modernise our food processing and grain handling industries, yet when we have foreign capital and management attention in place in a viable industry that makes cars that compete efficiently with imports, should we deliberately set out to kill that industry?
Do Hockey and Cormann really think GM and Toyota are bluffing, that they can be nickel-and-dimed down to a smaller subsidy? Why risk it? I am sure these global companies are not bluffing. They will be tempted to write off Australian investment as Ford is doing, to build up capacity in countries like Mexico or Thailand. GMH's withdrawal to Asia of their top American-based CEO, Mike Devereux, was a clear warning shot to the Abbott Government that GM is serious. Toyota would surely follow as Australian parts supply chains become uncommercial.
Labor had achieved a workable longterm deal with GM that the unions supported. To keep their jobs, workers had voted to abstain from pay increases. Now, the deal is voided, and workers have to accept 3 per cent pay increases that they don't want. They would rather have job security.
Abbott needs to face down extreme free-market ideologues. If he buckpasses this crisis to the Productivity Commission, knowing that such a delay may set in train a self-fulfilling dynamic of closures in the industry, he will be responsible for destroying an industry of real importance and value to Australia.
Tony Kevin was a career foreign service officer for 30 years and a member of the Senior Executive Service of the Australian Public Service from 1986 to 1998. He received a first-class honours degree and University Gold Medal in economics and political science at Trinity College, Dublin in 1967.
Scattered wooden cars image from Shutterstock