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Feb 11, 2014

Toyota decision should herald the immediate end of car tariffs

The decision by Toyota to end manufacturing in Australia means there is no further rationale for our remaining car tariffs. The government should immediately dump them.

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There’s a potentially significant upside to Toyota’s decision to walk away from Australian manufacturing. With the last of the local automotive manufacturers announcing its departure, there is now no longer any justification for retaining the last vestiges of protectionism in the automotive industry. In the May budget, Treasurer Joe Hockey should announce that the remaining 5% tariff on passenger vehicles (except for vehicles made in Thailand, the United States, Malaysia and, in the future, South Korea) will be scrapped, giving buyers of imported vehicles an immediate, if not huge, cut in car prices.

Better yet, there’s no longer any need to preserve the punitive tariff on imported second-hand cars, which is currently $12,000 regardless of the value of the cars. This will give Australian consumers access to an entirely new market of vehicles — provided importers can demonstrate they are safe for Australian conditions. Consumers in New Zealand — a country without the macho obsession with maintaining a car building industry at any cost — have for decades been able to buy cheap second-hand imports from markets like Japan.

If the government fails to immediately move to end these tariffs, it can only be because it has decided to retain them as revenue-raising measures at the expense of Australian consumers; there will no longer be any policy rationale for them. There’s no point in protectionism when there’s no longer an industry to protect.

This will be a big win for the automotive retail sector. The sector’s industry body claims there are 100,000 motor retailers in Australia employing over 300,000 people — but take that with a liberal dose of salt, given the Productivity Commission says only about 230,000 people are employed in the entire automotive repair, maintenance and retail sector. But even at only, say, 100,000, the automotive retail sector is a more significant employer than the automotive manufacturing sector.

Then there’s the luxury vehicle tax, levied on vehicles over around $57,000, which currently stands at 33%, the level to which the Rudd government lifted it from 25%. This is a simple soak-the-rich revenue-raising measure, and probably unlikely to be dropped in a tough fiscal environment.

Immediately dumping the tariffs would be smart politics for a government that, henceforth, will have to wear the tag of the government that closed the car industry. It would demonstrate to Australians that protectionism comes with a cost, not just in terms of taxpayer dollars but every time they buy a car, and that there are benefits from removing these industry support mechanisms.

The response from unions, Labor and those who believe in a local car industry is always that other governments around the world subsidise their car manufacturing industries, and that Australia has, by international standards, cheap car industry support mechanisms. Indeed we do. But another way of looking at that is that every time you buy an or an American vehicle, or a German vehicle, or a Korean vehicle or (until recently) a Japanese vehicle, the governments of those countries are subsidising your purchase. If foreign taxpayers are happy to subsidise us, often to the tune of a couple of thousand dollars per vehicle, we should enjoy their largesse. It’s certainly no reason why our government should join in the subsidy game.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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14 thoughts on “Toyota decision should herald the immediate end of car tariffs

  1. R. Ambrose Raven

    Protection is needed by Australia-based industry – at least, if we want to keep any. As is shown by the Great Recession and increasing income inequality and casualisation of work arising from diminishing protection, trade liberalisation actually makes many worse off. Protection does not just mean tariffs, it also means the ready availability of finance to productive industry, and interventionism.

    Abbott and Hockey have made very very clear that their aim is to cut wages and destroy conditions. They would hardly be so pleased about the success of their Plan to Destroy the Car Industry were higher wages and better conditions even remotely likely to result.

    No lasting benefit has accrued to consumers from such price reductions as tariff/protection cuts have caused (remembering that local manufacturer’s prices have fallen as well); increases in net disposable income over the last two decades – from any source – have essentially been plundered into ever-higher dwelling prices, now permanently at peak unaffordability (meaning prices will automatically rise with real wage increases, tariff cut price reductions, or any other increase in aggregate household incomes).

    In any case, tariffs cuts overall have only given an individual about 1% extra. No private health or private school fee increase would ever be that small; profit-seeker/provider mendacity means that, as with housing, both are increasingly unaffordable – which of course does simplify choice. Isn’t capitalism wonderful?

    Contrast that with having a tariff that could easily be designed to vary with the trade-weighted index, according to the luxury nature of the good, and external factors with no connection with relative efficiency, while earning substantial revenue to reduce our budget deficit. With both solar modules and motor vehicles, tariffs could have been increased by 25% immediately, the first to counter dumping, the second to counter a deliberate currency depreciation that has nothing whatever to do with comparative advantage. A similar tariff could be imposed on advanced manufacturing systems and work produced overseas for systems here (such as FLNG and aircraft overhaul).

    Obviously putting domestic employment and Australia’s interests first would conflict with most “Free” Trade Agreements. They are in fact intended to bind us into an unfair trade system to maximise Australia’s exploitation for transnational benefit.

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