Until 1982 when the Keating Government came to office, cars had assumed icon status. Imports were pegged down to 20% of the market, massive subsidies were in place for exports of both cars and components.
Labor at that time realised that something was wrong. Faced with protection that provided a 100% subsidy to local production inputs into cars and components, our prices were 50% above world prices.
But in those days government plans were all the rage. The ACTU had offered us the Swedish Model in a report of its overseas junket “Australia Reconstructed”. By and large the Government swallowed this version of democratic socialism.
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They repackaged it into an industry plan, which wishful-thinking anti-Hayekians of the day imagined to be the secret of Japan’s success. So we had the “Button” plan which would see just three manufacturers and six car models but tariff protection at the equivalent of 32%.
Later revisions of this saw further adaptations. Importantly these included a tariff reduction program accompanied by some industry support. The Coalition has broadly maintained the program, though Labor at the last election wanted to renege and return to more protection.
While this does not appear to be the Rudd line, Labor’s industry spokesman, Kim Carr is, at best, in recovery from a lifetime dedicated to preventing the operation of market forces. He said in The Age that Labor believes in “an active industry policy correcting market failure and in maintaining a stable macro-economic environment”.
For the car industry the pressure is on. Current tariffs are at 10% and being reduced. The industry’s exports are worth less than $5 billion with imports almost fivefold that amount. Locally assembled cars are down to 20% of the market. Mitsubishi, in spite of good design and quality, cannot seem to find buyers.
Industry Minister Ian Macfarlane is showing no sign of blinking with a tariff reduction slowdown or a new expansive package of hand-outs. Whether Howard will be kept out is another matter. Notwithstanding the Rudd critique of Howard as a rigid follower of Hayek, the Prime Minister has unfortunately been all too disposed to inject government interventions into the economy’s operations whenever there seemed a political plus.