Thinkyness Blog

With the Federal Cabinet decision to reject SPC Ardmona’s request for a one-off grant for $25 million the government make quite clear its desire for individuals and business to ‘stand on its own two feet’ (unless that business is in a marginal seat of course like Cadbury). This leads me to question what industries a government should support, if any?

To consider which industry Government could support it may be worthwhile looking at how much government currently supports industry. Government can support industries in a variety of ways:

• Directly via way of grants such in the Cadbury example, or proving a discount on tax to be paid (taxation expenditure) such as the diesel fuel rebate claimed by the transport and mining industries;
• Indirectly such as tariffs or different quarantine rules on imports thus making international competitors more expensive, different safety rules such as the Australian vehicle design rules, or different incentives for consumers to purchase such as an emissions trading price signal making renewable energy price competitive with coal power.

The Treasury recently published the Tax Expenditures Statement 2012. Around $111 billion, or 7.6% of GDP, was the total estimated tax expenditures in financial year 2011-12, quite a large figure. Most of the $111 billion went towards Housing capital gains tax concessions ($32b), and Superannuation ($30b). Considered another way there was an estimated $10b worth of personal taxation related expenditures vs. $9b for business related taxation expenditures.

To explore the Australia’s Federal Budget my preferred way is to use BudgetAus which is a site created and maintained by Rosie Williams. A search for “Industry” finds 14 Programs with “Industry” in their name totalling $1.884b in FY 2013/14. Now not all that money goes to assistance, but surprisingly the Manufacturing Industry isn’t in the list. Performing a search for manufacturing locates six programs totalling $3.7 billion with manufacturing within the program description, however it didn’t shed much light on “Vehicle” (thinking Holden). So I searched for “Vehicle” and found four schemes totalling $105 million.

The more I dug, the more I discovered how hard it is to work ones way through what appears to be a tangled web of industry support. Perhaps rather than diving into the detail I needed to take a step back. What better way than to head to the Organisation for Economic Co-operation and Development (OECD).

I’ve only scratched the surface of the wealth of data available through the OECD site. I decided to focus on agriculture given the SPC Ardmona decision was the catalyst for this thinkyness post. For agriculture the OECD uses a measure called the Producer and Consumer Support Estimate to monitor and evaluate the level and composition of government support to agriculture. Below is a graph of the OECD Producer and Consumer support estimate for selected OECD countries.

It is clear government support for agriculture as a percentage of GDP has been decreasing across the board since 1986. Zooming on the decade to 2011 in the following graph:

We can see that Australia and New Zealand have lower support for agriculture as a percentage of GDP than every other country, by a country mile. In fact over the last few years support by many countries for agriculture has increased as a percentage of GDP. This of course then does make me question exactly who benefits from free-trade agreements; perhaps a thinkyness for another day :)

I found trying to work out indirect support even harder, probably because I’m not a policy wonk :) The Australia’s Productivity Commission does some excellent economic based research examining areas such as industry support. Recent publications include Safeguards Inquiry into the Import of Processed Fruit Products (Relevant for the SPC Ardmona funding issue), and Australia’s Automotive Manufacturing Industry (preliminary findings). However, I couldn’t find after a few  searches any paper which detailed (at a high level) total government support across all industries.

So while I think a little more about how to untangle the web of industry support a few questions for you:

• What industries do you think Australia should be in or going into?
• Which industries do you think deserve government support?
• If Australia is to support industry(s), what caviets/restrictions on that support, if any, do you think should be in place?

Update#1 : 8 February 2014

Thanks to @pascalg15 who linked a recent Sydney Morning Herald article "Line in sand washed away by ocean of obfuscation over seafoods grant" which referes to the Productivity Commission Trade assistance report "Trade and Assistance Review 2011-12", the report I couldn't find because I didn't think to search on "Trade"! Summary: net assistance from tarrif and budgetory measures in 2011-12 was $10.5 billion.