The Productivity Commission has encouraged the Federal Government to stop providing financial support to the Australian automotive industry.
The Commission's intermediary position paper, released two months ahead of the final report due on March 31, contends “the policy rationales for specific assistance to automotive manufacturing are weak”, and insists “the community would benefit from the ending of assistance to automotive manufacturing”.
The paper recommends funding for Toyota Australia and parts suppliers through the $2.5 billion-plus Automotive Transformation Scheme (ATS) should end in 2020 and not be extended or replaced with other industry-specific assistance programs.
The recommendation is a blow for Toyota Australia, which is currently fighting to win approval from its Japanese parent company to produce the next-generation Camry from 2017/2018. The car maker is set to announce its future manufacturing plans around mid-year.
The Commission also recommends, however, that consideration should be given to potential severity and duration of costs associated with changing the timing and amount of funding provided by the ATS, warning that changes “could elevate risks of earlier plant closures by Ford and Holden and might negatively affect investment decisions by Toyota and its component suppliers”.
Ford and Holden announced last year their intentions to cease local production in 2016 and 2017 respectively.
The paper argues “decades of transitional assistance have forestalled but not prevented” the challenges now being faced by the industry.
It controversially suggests “assistance imposes costs on the community and dulls incentives to improve productivity, seek export opportunities, and diversify into other industries”.
It also contends there is “no compelling evidence” that spill-over and multiplier benefits exceed the costs of assistance to the industry.
The Commission acknowledges “loss of employment and economic activity will be concentrated in some regions” – in particular South Australia and Victoria – including some that already suffer “relatively high rates of unemployment and disadvantage”.
It suggests welfare, employment and training services should be relied on initially to support displaced workers, and says going forward infrastructure investment and labour adjustment programs need to be designed in ways that generate net benefits to the community as a whole.
The Federal Chamber of Automotive Industries (FCAI) has condemned the paper, however, and has warned the Federal Government to be careful in its assessment of the Productivity Commission’s findings.
In particular, it criticised the Commission’s failure to address the industry assistance provided by other countries, despite the paper’s terms of reference stating it was to take into account the assistance provided to the automotive industry by “major and emerging automotive-producing countries”.
“It is extremely disappointing that the Productivity Commission considered this was ‘not feasible for this inquiry’, despite the 19 pages at Appendix B on international assistance arrangements that shows the extensive levels of assistance used by governments around the world to support their local industries,” the FCAI argues.
“Why does almost every other G20 country think their automotive industry is an important part of their economy and their future?”
The Productivity Commission is seeking further public consultation and input before it prepares its final report.