Crikey subscribers have recently received several missives on the issue of corporate welfare and this is an issue we are keen to explore so read on and send in your feedback.

Sealed section May 23

Crikey is just staggered that guillible state governments across the country have collectively handed over about $12 million to the Rugby World Cup organisers. You are talking about one of the world’s richest and most elite sports here. The 1999 World Cup made a profit of $125 million. So much for the pact between Steve Bracks and Bob Carr not to bid against each other.

Stadium Australia shares jumped another 28 per cent yesterday and Colonial Stadium owner Channel Seven must be licking their chops about the 7 games they’ll be hosting next year. Wonder if Seven and Kerry Stokes will be pocketing any of the money being needlessly handed over by Victorian taxpayers?

Mitsubishi hand out

Sealed section from April 25

We told you on Monday it was going to be $90 million and the announcement of $85 million in Federal-state welfare for Mitsubishi happened yesterday.

The Feds are kicking in $35 million of this and all players are talking up the deal claiming it secures 1300 new jobs, a global R&D facility and two new models.

Meanwhile, yet another strike has shut down Holden’s plant in Adelaide and is costing them millions every day.

Crikey has long wondered what would happen if all corporate welfare was stopped, serious IR reforms were introduced and the corporate tax rate was cut to 25 per cent. My guess is that business investment in Australia would take off and huge numbers of new jobs would be created.

Instead we have some of the highest taxes in the world, militant and disruptive unions and a piecemeal corporate welfare system which means no major new investment project gets off the ground without huge licks of public money being kicked in.

Here is the start of a corporate welfare list and we’d love some more contributions:

Australian Grand Prix: Victorian taxpayers have spent about $150 million subsiding multi-billionaire Bernie Ecclestone.

Australis Media: $28m from the SA government in early 1990s but still went broke.

Dick Pratt: Visy collected about $50 million of incentives to build a paper mill in Tumut.

Foxtel: collected $10 million from Kennett to establish national phone farm in Moonee Ponds

Holden’s new engine plant: $120 million

Kodak: Hawkie committed $60 million in the 1980s when Ziggy Switkowski was running the show and the main plant was near Hawkie’s electorate of Wills.

Magnesium Industry: more than $100 million of Federal and Queensland monies have gone into a new Queensland magnesium plant.

Mitsubishi SA: $85 million being handed over this week.

Rio Tinto: $125 million has just been announced for its HISsmelt plant in WA.

Virgin Blue: The Queensland government kicked in more than $10 million.

Now, let’s look at some of your contributions:

More than $1 billion in textile bailouts

Sealed section April 30

A subscriber writes:

“If you are looking at corporate welfare it would be interesting to see how much has been paid out o the textiles clothing and footware sector since quotas were removed in the Button plan of 1987. My guess is that collectively over $1bn has been expended under various international competitiveness programs etc administered by the TCF Development Authority.

Makes one think of the Button anecdote when dining at the home of a wealthy textile magnate he complimented him on his art work to which the magnate responded – funded by the textiles bounty.”

Shale oil subsidies

Was getting this gem of corporate welfare ready to send you anyway, then thought it was very timely with the Henry Thornton piece on oil shale this morning. This project has been in the pipeline for over 30 years, and is still only in pilot phase. Despite the support already given and offered, the companies are going back to the government for more – it will be intersting to see how the government responds to the request. Anyway, here is the full list of benefits directed to the oil shale project:

Oil shale: Southern Pacific Petroleum (SPP) are eligible for up to $36 million a year from the Federal Government in excise exemption. The payment is equal to the excise paid by Australian refiners on unleaded petrol produced from oil produced at its experimental Stuart Project in Queensland. The subsidy is worth over $50 of the $75 SPP receive for each barrel. The Stuart Project is uneconomic without it.

This is on top of a Federal R&D START grant of $7m, an exemption from State royalties on the oil produced, and an $11 million wharf primarily for the use of SPP paid for by the Queensland Government.

SPP have applied to the Federal Government to extend the excise repayment to exports because they are currently unable to sell their oil domestically, despite the fact no excise is charged on exports. This was approved along with other new exemptions a couple of weeks ago.

Cheers, Shane

AAPT and Queensland taxpayers

A subscriber writes:

AAPT received $3 million to move to Qld 6 months later they were taken over by Telcom NZ who sacked 300 workers.

Our little mate Terry MacInsloth appears to be the moving light behind all the loans up this way?

Helping out the world’s biggest media company

A subscriber writes:

Warner Bros, was just granted $8M for their works programs in Queensland. As if they need it.

Propping up the health insurance sector

One of the biggest corporate welfare systems that is ongoing would have to be the private health insurance industry, it seems most people have forgot about this license to print money.

In the year before it became semi compulsory the Howard government gave and still is $300 or something for each policy to the insurance companies.

Then when it became compulsory there was another ongoing gift given to them of about the same magnitude.

How short peoples memories are.

A report was commissioned into the health industry and the government never released it’s finding. WHY? Because the results said Australia would have been better off under a full Medicare system and free enterprise would lose, (part of the preliminary ongoing of the report said it was heading that way and I think I read it in the fin rev at the time).

I think you and I should start our own health insurance company

Frosty

In support of corporate welfare in New Zealand

Dear Stephen/Crikey,

I couldn’t agree with you less regarding corporate welfare. For one thing, look at New Zealand. Since undertaking many of the things you mention, there has been no new discernible investment interest in New Zealand.

Sure, foreign investment in NZ shot up immediately after the country undertook its radical economic reforms of the 80s and labour reforms of the early 90s. But this was entirely directed at buying existing assets, not building new ones.

My observation is that the dismantling of capital investment inducements in New Zealand has done no more than encourage a massive flight of capital overseas.

The reality is that small countries such as New Zealand and Australia are not the natural homes of large capital investment. Why would General Motors or Ford, for example, bother with local plants in either of these two countries when the entire annual sale of new vehicles for these two countries can be accounted for in a few days in an Asian factory?

It has always been extremely difficult to attract capital here. The only reason why Australasia ever got UK or US money in the past was simply because of the large growth rates experienced by these countries between 1850 and 1950 and, moreover, the outsized returns available to capital investment through tariffs, etc.

A common argument is that by dismantling the “inefficient” industries that grew up under these policies, money will now be poured into efficient ones.

Really? Like what? It is hard to imagine an unskilled labourer in Geelong ever becoming a world-leading software engineer.

The other thing that the low-tax, “free market” theory ignores is that large, possibly inefficient industries such as car manufacturing often support scores of smaller, very efficient ones. Bosch and instrument maker VDO would be good examples of this. It is worth reconciling this observation with Prof Michael Porter. Porter, the Harvard guru whose musings were often used to justify NZ’s progress down the deregulation path, also said it was crucial to establish a local market before a manufacturer could become an effective exporter.

It is commonly assumed that redirected capital will be reinvested locally. That’s not the experience in New Zealand where shareholders, upon selling their stakes in large NZ companies, have had almost no option but to buy overseas-domiciled shares. With no locally listed media, banking, resource or manufacturing sectors, a portfolio with any sort of balanced risk profile can only invest mostly overseas. No wonder the Kiwi dollar has been on a death spiral since floating in 1984.

Abolition of corporate welfare is a favourite theme of free traders. But how many of the same people would advocate getting rid of social welfare to able-bodied people? Again, my conclusion after watching New Zealand wallow in the no-growth doldrums over the past 20 years is that you either pay welfare to investors or you pay it to the workers. This is especially true if you want to perpetuate a social welfare economy with large transfer payments to the health and education sectors.

Ironically, I believe the “trickle-up” effect is probably more efficient than its “trickle-down” cousin in terms of economic stimulus. But the social observer in me sides with the former Reserve Bank governor, Don Brash. Paying able-bodied people to sit on the employment sidelines is a disgraceful policy that ultimately produces the social degradation we now see in New Zealand’s poorest communities. Far better, I believe, to pay these people to work for investors than to have them doing nothing for the country.

Yours, Matthew

Crikey subscriber in Auckland

Peter Fray

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