It should be a good time to be a free trader in Australia. One of the key and repeated messages coming from the G20 group is that resisting protectionism is a priority. Australians are more aware than ever before of the importance of trade to the Australian economy and local jobs. And there’s a government desperate to find programs it can cut to prevent the budget deficit from spiralling out of control. What better place to look than the Industry portfolio?

And, let’s be fair, last year Industry — or Innovation, as it is now called, possibly in an effort to make it sound less like a giant handout program — sustained some damage in the Government’s first budget. The $200-odd million Commercial Ready Program was terminated. The Australian Industry Productivity Centres program was wound up, saving $35m pa.

But we know this is the most protectionist government since the 1970s, and the pressure on it to extend assistance grows with every rise in unemployment. Last November — after the Prime Minister had flown to Washington for the first G20 meeting and committed to no additional protectionism — the Government announced an additional $3b worth of assistance to the motor vehicle industry. Most of that will be in 2015-20, but the Green Car Plan, with its decidedly underdeveloped criteria for what qualifies, kicks off on 1 July, at $130m a year. That’s on top of well over $1b in direct assistance or tariffs that the car industry will benefit from next year, to prop up about 70,000 jobs all told. And still they’re barely viable. Even if you like governments spending money that way, there are surely better industries to waste a billion a year on.

Not surprisingly, other industries are lining up for the same sort of generosity. Australian Workers’ Union secretary Paul “look at me, look at me” Howes has demanded a massive protectionist program for the steel industry, developed in consultation with steel companies, including local preference in government procurement, a “fair price” for steel (as “fair trade” demonstrates, “fairness” is always a giveaway about what someone really wants), subsidies and anti-dumping measures, with the aim of protecting “500,000 jobs” from cheap foreign steel. Our two major steel companies, Bluescope Steel and Onesteel together employ about 30,000 people, but what’s an extra zero or two between friends.

Steel, according to Howes, should be a “strategic industry”. Watch out for that term – it may be used quite a lot by sectors looking for a handout. Oh, by the way, the steel industry is already slated to get more than a quarter of a billion dollars a year in free permits under the Government’s ETS, should that godawful mess ever become law.

Some Labor backbenchers are predictably enamoured of such nonsense. Kim Carr was non-committal yesterday, saying “some have dismissed the plan out of hand, but I think it is important to keep the lines of communication open.” This might have been Carr politely dismissing it. He spoke about the ramifications of protectionism, particularly at the moment, but also spoke at length about the need for a form of non-compulsory protectionism in government procurement and household expenditure.

“We don’t have to choose between mandating local content and turning our back on Australian industry,” he said.

“We can prefer local products and services without forcing anyone to use them.”

Indeed, because non-compulsion makes all the problems of protectionism, like misallocation of resources, waste of taxpayer funds and reciprocal acts by foreign governments, disappear, right? I’m sure Australian exporters would be delighted if foreign governments and consumers began “preferring” local products over their own.

With this sort of mindset, the chances of any reduction in current levels of industry assistance in the Budget are minimal. There will be considerable movement of funding, however – the Government is using the Budget to respond to Terry Cutler’s innovation review, so there’ll be an overhaul of R&D funding, taxation and venture capital program arrangements, as well as the Bradley Higher Education Review: Innovation’s other main function now is the allocation of about $1.3b worth of higher education research grants each year.

The Green review of textile, clothing and footwear assistance also has to be addressed, although the Government appears rather less interested in than helping foreign auto makers. When it comes to industry policy, bras aren’t as sexy as cars.

Some small programs that don’t fit the Kim Carr view of the world may not be defended vigorously in ERC. The previous Government’s LPG conversion scheme looked like it was for the chop last year and may not survive a second brush with death now that petrol hysteria has receded. And there are a number of climate change and energy efficiency-related programs, like the $75m Re-tooling for Climate Change, which theoretically would be made redundant by an effective emissions trading scheme, but that may be taking suspension of disbelief in either the efficacy of the proposed ETS or its chances in the Senate a bit too far.

But like Education, much of Innovation’s functions are core Labor business. Which is not to say there aren’t smarter ways of funding industry assistance… sorry, innovation. In particular, given we require students to pay for their education via long-term income-based loan repayments, why aren’t businesses that have benefitted from Government programs repaying the funding once their after-tax earnings reach an appropriate threshold? The revenue stream, which might eventually amount to several hundred million dollars per annum, could part-fund assistance for emerging companies in the future.

Who knows — in 2020, when the Australian car industry is finally, as promised by Kevin Rudd, “self-sufficient”, it could start repaying some of the billions of dollars it will get between now and then.

Peter Fray

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