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.

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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.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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