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Aug 27, 2014

Crikey says: poor people drive second-hand cars

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The Productivity Commission’s report on automotive manufacturing, released yesterday, has been somewhat overtaken by events since it was first commissioned, with the local car industry now scheduled to close in 2017. Unsurprisingly, the PC is rather sanguine about the closure and notes that the likely job losses are a small fraction of the total number of Australians who lose their jobs (and gain others every year).

But there are a number of consequences of the looming cessation of the automotive industry with which the PC grapples. The commission recommends the gradual phasing-out of both the current $12,000 tariff on, and regulations restricting the import of, second-hand vehicles, over five years and subject to appropriate regulations relating to safety and environmental performance, as New Zealand allows. A transitional phase-out is recommended by the PC in recognition that existing businesses, such as car dealers and the salary packaging industry, have made investments based on the current restrictions.

In Crikey’s view this is insufficient justification: the potential consumer benefits of second-hand imported vehicles are significant and will help drive down the prices of all vehicles in the Australian vehicle market. In a country where the Treasurer claims that “poor people don’t drive cars”, consumers should not continue to be punished to help industries like the salary packaging sector.

The PC also baulks at the immediate removal of the current 5% tax on all imported vehicles apart from those from countries with which we have a free trade agreement, suggesting there is an in-principle argument for removing the tariff once the local industry has closed. It notes that the current tariff is strong source of revenue for the federal government, yielding nearly a billion dollars a year.

Again, the PC has been too timid. Australians consumers’ interests should be first and foremost, not those of industry or the Treasury. All passenger vehicle tariffs should be removed immediately. If the government wishes to preserve its revenue base, it can tax all motor vehicle sales directly and explicitly.

But the days of protecting this long-cossetted industry should be brought to an end — and now, not in five years’ time.

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