Media release

Productivity Commission warns against backsliding

Australian industry received over $15 billion in assistance from the Australian Government in 2014-15, down slightly from last year.

'$15 billion is the assistance we can readily measure and does not include all industry assistance. While overall assistance has fallen considerably since the early 1990s, government continues to provide substantial support to some industries through tariffs, grants, concessional loans and other budgetary assistance,' said Commissioner Paul Lindwall.

The report states that a tariff of up to 5 per cent continues to apply to around half of imported manufactured goods delivering $7.8 billion assistance to the local manufacturing sector. These tariffs impose costs on consumers and to the services sector, to such an extent that services records net negative total assistance.

'Service industries account for about 85% of the Australian economy. We are penalising our largest employing sector and burdening agriculture by continuing to protect selected industries through tariffs.' said Commissioner Paul Lindwall.

Budgetary outlays and tax concessions add a further $7.3 billion to measured assistance. Around 40 per cent of this support goes to promote R&D, over half of which as a general R&D tax concession. The number of regional adjustment packages has also expanded, in response to the closure of car manufacturing in Victoria and South Australia and slow growth in Tasmania.

The report calls for evaluation of these regional assistance programs to ensure that they deliver the best outcomes for the people and local regions affected by industry closures. These schemes appear to involve very high subsidy rates to some individual companies.

'Governments naturally want to help large groups of people who find themselves suddenly out of work due to the collapse of a major industry in the area. But it is difficult to find effective evaluation of whether this assistance is meeting its stated objectives, be that helping people transition to new careers or regional diversification' said Commissioner Paul Lindwall.

The report also draws attention to preferential assistance that is not measured and included in the $15 billion assistance figure. Anti-dumping measures and domestic purchase criteria for government contracts (such as defence procurement) are two classic examples of industry assistance that is not measured.

The report also maintains the Commission’s stance on trade agreements that allow foreign companies to sue the Australian government for policy changes beyond the rights available to all firms from our well-respected legal system. The success in defending the recent Investor State Dispute Settlement (ISDS) case relating to tobacco plain packaging entailed reported legal costs of around $50 million. As it was resolved on a technicality, and costs are apparently yet to be recovered, this success should not be taken as an indication that ISDS is essentially harmless.