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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.


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.



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

  1. Tristan Wilson

    “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;”

    Which is exactly what will happen. Can anybody honestly see an Australian government, Coalition or otherwise, voluntarily removing a major source of revenue? We’re constantly being screwed over in this way. Just because we will no longer have a car industry to protect won’t change anything.

  2. Mr Tank

    Hmmm the cynic in me is torn between yours and Tristan’s opinion.Tho I’m leaning toward Tristan’s take being the more likely. However should it come to pass and Australia is swamped with cheap imports beware the Japanese second hand cars – if the NZ experience is anything to go by. Lots and lots of flash looking cars stored on waterfronts and shipped en masse – the result a couple of years of good driving then a rust bucket with very expensive electrical problems. Caveat Emptor and all that.

  3. Andybob

    As the PM said, some jobs will go and others will open up. Continuing the tariffs will do nothing to prevent jobs going but may prevent other jobs (such as refitting imported second hand cars up to safety standards) from opening up.

  4. CML

    Bernard – Wrong, wrong, wrong!
    You sound like the extreme right-wing journalists who agreed with, no pushed, the views of Margaret Thatcher, back in the last century. You know, that comment she made about there being no such thing as a society, only an economy (or something similar).
    The rAbbott and his motley crew of a government remind me of what Thatcher did to Britain. That took a generation to fix, after she laid waste to the country. I fear we are in for something similar here. Hopefully, Labor will be returned to government in 2016, before the damage is complete.
    And BTW, who is going to buy ANY of these imported cars at any price, new or used, when there is going to be a huge number of people out of work? Alright for you, and the commentators above, who obviously have good jobs or are wealthy.
    Such selfish attitudes just proves that none of you care about ‘society’. Only the economy is worth talking about.
    Paddy Manning has got it right – economic vandals, the lot of them!

  5. Andybob

    CML, how will retaining tariffs assist employees affected by the cessation of assembly in Australia ?

  6. AR

    Just to note first principles, Her Majesty’s Customs & Excise once exacted levies on both exports & imports, for different reasons/manias. Peron showed the former was a bad idea but that didn’t stop various commodity boards, from Bill Gunn’s wool stockpile (and didn’t that work out well?!?)from getting their (several) pounds of muscle..errr..flesh.
    On tuther side, (to hark back the Paelolithic for young’uns) the reason Whitlam was so excoriated (for being right) when he enacted an “across the board” tariff cut of 25% in 1973 was because it pissed off so many feather bedded bludgers who thought they were hard working ockers.
    Tariffs are supposed to make imports as expensive as the domestic product – never worked, never could.
    So – will tariffs on imported, 2nd hand Jap cars be abolished?
    Oh, look, porcus aviatrix!

  7. zut alors

    Dump vehicle tariffs?! Not likely.

    Abbott/Hockey are hellbent on penny-pinching…unless it happens to be a chocolate company owned by Kraft or a royal commission into evil unionists.

  8. Ian

    CML @4

    Is a return of the ALP really a satisfactory solution to all our problems? I don’t think so although I suppose anything is better than what we’ve got at the moment.

  9. seriously?

    Will the FBT concession on private use of cars now be scrapped because it too was to “protect Aussie jobs”? I don’t know of any (legitimate) justification in keeping it. Doing that would be a real test of the “age of entitlement” regime.

  10. dazza

    “A recent report based on economic analysis by the Monash University Centre of Policy Studies and research by Allen Consulting revealed that for every $500m provided in subsidies to the car manufacturers, the nation’s economy benefited to the tune of $21.5b”

    Bernard, is the above statement I just found true and correct??

  11. Carbonbasedlife

    Won’t dump them. Excuse would be need protect the industry for 3 more years. Else it will be gone sooner. Postpone the pain. Will be interesting debate in lead up to the next election.

  12. Glen McCabe

    Mr. Tank @ 2

    While you may have heard differently, if my personal experience is anything to go by, Japanese second-hand cars have been great in NZ.

    Between myself and my parents, we have had about ten Japanese second-hand cars since they first started coming in in the early 90s. None have had any significant problems until the end of their useful lives.

    One, a 1984 Toyota Corona, arrived with about 80,000 km on the clock (and being an early import, may have had a falsified odometer, we never found out). My Dad (as a rural sales rep at the time) put over 300,000 km on it, and the only repair it had was a new fuel pump as a precaution. The next owner put at least another 50,000 kms on it. The maths are not bad.

    If Australians do get the choice of imported used vehicles, IMHO before long they’ll be wondering what they missed out on.

  13. 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.

  14. Ian

    Why did the US and the UK before that become the the economic powerhouses of the world? Why, because the made sure their industries were protected and did everything to prevent other countries from doing the same.

    Read The Open Veins of Latin America by Eduardo Galeano to get a good understanding of this.


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