President Tim Andrews
Conference Convenor Jessica Adelan
Fellow Liberal Students
Last time I addressed an ALSF annual conference the circumstances were a little different,
– we were 11 years into a Coalition Government lead by John Howard and Peter Costello
– business and consumer confidence were high
– the All Ords was hovering above 6,300 points
– inflation was 2.1%
– economic growth an impressive 4.3%
– interest rates just 6.25%
– and, Hillary Clinton was poised to claim the Democratic nomination
How times change. We’ve had seven months of Kev, Jules and Wayne and
– business and consumer confidence have plummeted
– inflation is now running at 4.2%
– interest rates are 7.25%
– the All Ords is closer to 5,000 points than 6,000
– and, Hilary is no more
But some things don’t change,
– ALSF is still attracting solid citizens from around the country
– ALSF is still debating controversial motions
– and, ALSF is still searching for new things to privatise or commercialise – including peoples’ organs!
And in the parliamentary party we know we can always count on the ALSF,
– to stay strong
– to provoke
– to be at the forefront of the freedom policy agenda
– and, to keep the parliamentary party honest and accountable
This role of keeping the parliamentary wing honest is important. As pragmatic parliamentarians, sure, we need to compromise. But there need to be limits. The ALSF helps provide them.
One example, ALSF was of critical importance and assistance to me in government as chair of the education committee when I was trying to push VSU through our Party Room. I kept pointing to the ALSF. And telling my colleagues we can’t betray these guys. We have to honour their trust. But more important than that. I told them the ALSF know where you live! And they will find you!
This role of keeping us honest is perhaps even more important now that we are in Opposition. In the lead up to the budget, supporters of small government raised their eyebrows at some of the noises from the Coalition questioning the need for any budget cuts at all.
My view on budget matters is pretty simple. We are a centre-right party. Whatever the size and scope of government under Labor. It would be smaller under us.
We should never be in doubt about which is the true party of economic freedom.
Federally we’ve seen Labor’s outrageous tax-grab and nanny-state approach to pre-mixed drinks.
And in Victoria, we’ve seen more nanny-statism. We have a government unable to provide law and order within the CBD. Their response – a lazy and draconian 2 am bar and club lockout. Surely one of the basic tests of competency for a state government is the ability to secure the square mile of the capital. You do that by providing enough police, not by punishing small business and young people.
And then there’s FuelWatch. That North Korean-style price fixing.
But the policy area that has really been bugging me is the Government’s approach to the car industry.
Now our record on this area isn’t perfect. The Automotive Competitiveness Scheme was still dispensing billions of dollars to inefficient car makers during our time in office.
And the Fraser government reversed perhaps the only good reform of the Whitlam era a unilateral cut in manufacturing tariffs.
However, the previous Coalition government did vigorously pursue free trade agreements with our major trading partners.
And we did reduce tariffs on imported cars and had in place a timetable to further reduce from 2010. And we planned to phase out the Automotive Competitiveness Scheme – eventually.
And Brendan Nelson quite rightly called the government’s $35 million handout to Toyota for what it was.
But see if you can guess who described the grant this way:
A “pig in a poke”, “a drop in the bucket”, “old technology”, “not…cost effective”, “nothing green about it”, “quickly cobbled together to allow the Prime Minister to make an announcement”, “the government has gone for perception rather than reality.”
Brendan’s words? No. A Coalition colleague? No.
They don’t come from a free market think tank or a conservative columnist either. They are the words of former Labor senator George Campbell. Not just a Labor man, but a former National Secretary of the Australian Manufacturing Workers’ Union. It’s even too much for the true believers.
The $35 million for Toyota was policy on the run. Announced without cabinet approval. Without department advice. Perplexed Toyota executives confessed they had no idea how they were going to use this gift from Australian taxpayers. One Toyota executive even admitted that they would have gone ahead without government support.
And to make matters worse. The keen, eager and willing Steve Bracks has been tasked to conduct the review of the car industry. With the Productivity Commission sidelined. And Treasury dissenting.
So where was Finance Minister, Lindsay Tanner?
Before the election he promised ‘Operation Sunlight’ and attacked the former government whenever their plans were announced “without proper scrutiny by Treasury or Finance and without consideration by Cabinet.”
Labor has failed the Finance Minister’s test for good government. A test he set out in June last year in these terms:
“To what extent are its initiatives directed towards advancing the wider national interest, as opposed to rewarding its supporters and securing its own re-election?”
Yet here we have a one-off grant to a foreign manufacturer announced during a tour of that manufacturer’s home country. It’s sole purpose was to provide a photo opportunity.
It would be hard for the Finance Minister to argue that this was in the “wider national interest.” In fact, I would argue that the government’s $35 million grant, along with continued tariff protection for the domestic car industry, fails another one of the Finance Minister’s tests for good government. It fits his definition of another no-no for government “Producerism”.
The Minister argued that:
“Producerism exists wherever the state implements regulatory and ownership arrangements which favour or protect particular producer groups at the expense of society as a whole.
Tariffs, monopolies and other distorting regulatory regimes are the most obvious examples of the producerist philosophy at work.”
Yet that’s exactly what the government is doing for domestic car manufacturers. They are already protected by a 10% tariff barrier. The automotive industry already benefits from a half-billion dollar competitiveness scheme, and the Rudd Government thinks that is not enough. So the Government wants to hand over another $500 million of taxpayers’ money to prop up car makers through the Green Car Innovation Fund.
As Minister Tanner rightly pointed out:
“every dollar spent on narrow producer interest is a dollar which can’t be spent fighting poverty, improving education and building infrastructure.
Every regulation needlessly protecting businesses from competition is a regulation driving up prices and hitting those with the least capacity to pay.”
That’s exactly what the government’s protection of the car industry does.
And it raises the cost of cars produced efficiently overseas, making them out of reach for Australian families. If the Rudd Government is genuine about providing Australians access to fuel efficient vehicles, there is a very cheap and easy way to do it – cut Australia’s tariff barriers to cars built overseas. The Japanese have been producing hybrids for years. They don’t need multi-million dollar subsidies to force them to sell to Australian consumers. They’d sell more if they weren’t subject to a 10% tariff which make them too expensive for many Australian consumers.
Hybrids aren’t the only option either Europeans have been building and selling fuel-injected diesel cars for years. And many fuel-efficient vehicles would also be more accessible and affordable if they weren’t subject to Labor’s latest tax grab. The Rudd Government’s unnecessary and distorting luxury car tax increase will ensnare a number of efficient cars. Making them less attractive to Australian consumers. But these aren’t the only costs to Australia of the Government’s industry policy.
Giving handouts and protection for one industry in this case the car industry hurts other domestic producers. We’re at a time of record low unemployment. Providing assistance to one favoured industry hurts others by artificially skewing employment away from more efficient industries. Our best and most productive miners struggle to find skilled workers to meet surging world demand. Yet workers are tied up in other industries by companies which can only afford them thanks to government largesse.
A perfect example of this phenomenon is car parts manufacturer Ajax, which was subject to much media attention last year due to a financial collapse. It was bought out by another manufacturer, which has reorientated the business away from the automotive to the mining industry. As a result, 65 workers today are in jobs they might not otherwise have had.
Financial assistance to the car industry probably prevented this process from occurring earlier. Yet it seems that expanded industry assistance is exactly was Senator Carr is contemplating. Taxpayers will be worse off as they foot the bill for these subsidies. And booming domestic industries will be denied the labour they need to operate. These subsidies don’t protect Australian jobs. They just ensure that these workers are employed by inefficient industries. Worse still, protectionism hurts our efforts to open up markets overseas to Australian exports.
But perhaps the most amusing defence of unnecessary subsidy was Senator Carr’s claim that the plan will ensure “we have the capacity to build fighter aircraft.”
Hello! I’m sure Toyota executives were surprised to learn that Senator Carr plans to transform their production lines to build fighter aircraft in times of national emergency. I don’t know how that would work short of Senator Carr strapping stinger missiles and bunker-busters to the family four-door.
It’s truly frightening that Senator Carr is winning in cabinet against the senior economic ministers. It’s not just the Finance Minister who is being outgunned. So too, the Small Business Minister, Craig Emerson.
Dr Emerson has spoken of the folly of government protecting business from competition. In a speech last month, Dr Emerson floated his philosophy of “market democracy” and hit out at the rent seekers. Dr Emerson said that:
“Some businesses beat a path to my door seeking cash payments, tax breaks and law changes to give them an advantage over more efficient rivals. They want the benefits of competition in the rest of the economy in the form of lower input costs, but not competition in the markets into which they sell.”
Dr Emerson goes on to give what is in my view a pointed message to Senator Carr:
“These public champions of a free-enterprise Australia want the government to give them a little piece of socialism in their own industries.”
Why have Mr Tanner and Dr Emerson, so vocal before the election, suddenly lost their voice?
During Budget week this year Mr Tanner argued that Shadow Treasurer Malcolm Turnbull must have been cloned, “We have got two Malcolms” he said. The Finance Minister alleging that Mr Turnbull has two different political personas.
Wrong. In actual fact, I think there are two Lindsays.
We’ve got Dry Lindsay. Who burnishes the ALPs economic credentials. Whispering sweet-nothings in the ear of business leaders. Cooing about the evils of producerism, subsidies, tariffs and distorting taxes and regulation.
Then there is Meek Lindsay. Cowering. Hiding under the Cabinet table when Commissar Carr is in full flight.
Lindsay Tanner should be arguing that trade is in Australia’s interests. That protectionism hurts Australian consumers and workers.
The Productivity Commission has confirmed this. Noting that the more than a billion dollars the car industry receives each year via tariff protection and direct subsidies amounts to $23,500 per worker.
Add in other factors and the Productivity Commission states that:
“…each job currently ‘saved’ in the industry requires around $300,000 in support each year from the Australian community.”
Clearly these jobs are not sustainable if they require such high levels of assistance. And really, what are taxpayer’s getting for that money?
– bottlenecks in our domestic economy
– workers prevented from migrating to more efficient industries
– less access to the best made foreign cars
– and, paying more for them
So what should the government be doing instead? Why not kick off a new round of free trade agreements?
The Coalition Government won greater access for Australian exporters, delivering cheaper products for Australian consumers, through agreements with the United States, Thailand, and Singapore. And when we left office in 2007, agreements with our biggest trading partners including China and Japan were on the table for consideration.
Trade Minister Crean should be aggressively pursuing these opportunities, and others with Australia’s key trading partners including India and Indonesia.
But the benefits of open trade are not limited to better access to foreign markets. Trade forces Australian firms to be more competitive and to focus on the areas where we have the greatest skills. Rather than giving in to special interests and offering protection to selected industries, the government should continue to phase out tariffs on the domestic car industry.
The Government should also phase out the excessive and inefficient automotive competitiveness scheme, which costs taxpayers and only creates distortions in our domestic economy, rather than protecting jobs.
At the moment the score is car makers – 1. Consumers – nil.
The truth is the automotive industry has played successive state and federal governments of a break, securing billions of dollars of subsidies over decades.
The Bracks review of the car industry presents the government with an opportunity to redress this situation.
– It’s time to bring down the trade barriers
– It’s time to end politically motivated subsidies
– It’s time to think of the consumer
And we should be there to mount the case for economic reform for free trade and for consumer interest.