Handouts to small business and farmers pushed Australia’s business welfare bill to new heights in 2017-18, with industry assistance surging $500 million, or 4%, according to the Productivity Commission’s latest report. The total bill for industry handouts, tariffs and other forms of protectionism reached a net $12.3 billion — all of it paid for by taxpayers, consumers and businesses.

The PC splits handouts into two broad types: tariffs and budgetary assistance (tax concessions and straight handouts). Mining scores $460 million in handouts, manufacturing nearly $1.5 billion (the biggest recipient is the petroleum, coal, chemicals and rubber products sub-sector), but the services sector did by far the best, hoovering up nearly $5 billion in handouts.

Agriculture received nearly $2 billion in handouts, with sheep, beef cattle and grain farmers trousering $973 million. Those farmers also enjoyed another $345 million in tariff assistance on top of that, while manufacturing secured $1.17 billion in tariff assistance. The services sector, in contrast, lost — via higher costs from tariffs — over $1 billion, illustrating how protection for one sector simply punishes another sector of the economy.

Construction continues to be the biggest loser in the whole economy: it lost nearly $420 million in higher costs due to Australia’s bipartisan and ridiculously inefficient anti-dumping protectionism for our inefficient steel industry. Construction got around half of that back in handouts, but remains Australia’s most punished industry. It is the only industry in the country that is punished, with a net “industry assistance” cost of more than $200 million a year. That cost is passed on to families in higher residential construction costs, to businesses and the consumers who are their customers via higher commercial construction costs, and to taxpayers through higher infrastructure costs. 

The Productivity Commission has also undertaken a review of the world trading system in the age of Trump, and has reiterated some old messages about what Australia should be doing in an era when free trade is under greater threat than at any time in a generation — especially the benefits of unilaterally reducing tariff barriers. 

One of the single most important steps Australia can take in the face of mounting troubles in the world trading system is to keep its borders open and to continue working towards freer markets. Australia could proceed in this sense unilaterally, as most of the benefit from lower non-tariff measures does not depend on our trading partners taking similar actions; we damage our own prosperity by maintaining nuisance tariffs, other trade restrictions and one of the most active anti-dumping regimes in the world.

The PC also wants to see Australia standing up for free trade and the processes that regulate it — something Scott Morrison et al have been noticeably absent on:

Australia should also continue to work with our international partners to build agreement on how best to resolve long-standing and escalating challenges facing the WTO. There is a need, in the interests of all members, to reinvigorate and strengthen the WTO’s negotiation and surveillance functions to ensure it continues to anchor the world trading system.

At the moment, however, Australia is continuing its own drift into self-destructive protectionism. Just ask people in the building industry.

Peter Fray

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