Making tough decisions is an important skill for governments. This one hasn’t had the best start in dealing with Qantas and Holden.
A mere $300 million extra a year from 2016 is all that is needed to keep an Australian automotive manufacturing industry, according to today’s media reports. Extra, that is, beyond maintaining existing levels of assistance, which cost around $1 billion a year between direct government assistance and tariffs. That’s for an industry that currently employs 46,000 people, meaning we’d be paying a total of $26,000 a year for each job.
Meanwhile, a “corporate raider” named Greg Woolley has found in The Australian Financial Review a congenial platform for his proposal to restructure Qantas. Woolley was upgraded to “corporate financier” in today’s edition, which also failed to mention that his plan involved a government handout in the form of loan guarantees for his sell-and-leaseback plan for the Qantas fleet. Call me old-fashioned, but in my day buccaneering “corporate raiders” didn’t need government assistance to “swoop” (they always swooped) on their targets. Otherwise, Woolley’s proposal looks a lot like the standard corporate raider MO: flog whatever assets will make a buck (sorry, I mean “unlock value”) for a temporary boost to the share price then bail out with the long-term problems of the company unaddressed. Qantas’ problems are a lot more fundamental than owning rather than leasing their jets.
The government would have liked to have spent the period before Christmas, including the last week of federal Parliament, focusing on Labor’s refusal to help it repeal the carbon price and mining tax. Instead, the fates of Qantas and Holden will loom large. Reflexively, the Coalition has tried to combine the issues. Last week, Environment Minister Greg Hunt blamed Qantas’ announcement of a massive profit downgrade and 1000 job losses on the carbon price. Junior frontbencher Josh Frydenberg ran the same line yesterday.
For an ordinary company warning of difficulties, that might be a workable tactic. But despite the best efforts of Alan Joyce and successive boards and managements that have worked hard to trash its brand, Australians don’t see Qantas as an ordinary company. Nor do they see Holden as an ordinary company. For the government to sit by and do nothing about those except blame everything on the carbon price risks creating the impression of a do-nothing, ideological outfit.
But the line must be drawn somewhere. Another $300 million a year on top of existing handouts? That $300 million a year could be far better directed at infrastructure or education, and in any event would need to be borrowed and would cost tens of millions in extra interest every year. A loan guarantee for Qantas puts taxpayers on the hook for the stuff-ups of Qantas’ dreadful management, and will do nothing to fix its inability to deal with an aggressive competitor or lure Australians back to its international services.
“The challenge for the government is thus to find a creative way to do nothing to help Qantas and Holden …”
The challenge for the government is thus to find a creative way to do nothing to help Qantas and Holden, to minimise the political fallout from what will be unpopular decisions. The first priority was to give the appearance of a proper process, which is exactly what the government did in referring car subsidies to the Productivity Commission for a pre-Christmas report — a very short timetable, but the PC has looked at the car industry innumerable times over the past decade or more. It was only permitted to provide modelling for the Rudd government’s inquiry into the car industry led by former Victorian premier Steve Bracks, for fear it would point out the truth about the industry, so the Abbott government’s referral with the stated intention of basing a decision on the outcome gave the appearance of mature reflection.
The problem was, that appearance was undermined last week by those among the conservatives labelled the dries, leaking against Holden and Industry Minister Ian Macfarlane and then the Prime Minister appearing to demand that Holden make a decision, rather than the government making a decision after the PC had completed an initial report — a reversal of the original process.
The second priority should have been to make the case against further handouts, to emphasise the key point in all this, that local car manufacturers had failed to compete effectively and meet the needs of Australian consumers, and that the money spent propping up the car industry had a real opportunity cost to the rest of us. Australians, like voters in most countries, are deeply protectionist and need to be constantly told what the real costs of propping up industries are. None of that has so far happened from the government.
Nor has the government done much preparatory work on Qantas, possibly because it is more likely to intervene. Treasurer Joe Hockey called for a debate on the future of the airline, seeming to suggest the government would take its cue from what voters wanted. The debate, such as it is, has mostly been confined to the political class of politicians, economists and media commentators, where everyone’s positions are well known and could be conducted entirely by rote.
It’s a bit rich to bag a new government for failing to carefully craft national debates on big issues like industry policy, yes, but the early signs have been, at best, very mixed. Good governments develop the skills to make and sell tough decisions. The previous government never mastered the art; will this one?