Some people may be glad to see the car industry go, but it isn’t the only one with its finger in the budget pie

The story this week of Holden ceasing production in Australia in 2017 has drawn attention to the level of assistance the car industry receives.

From the talk by some commentators and government ministers you would think the car industry and manufacturing in general is the only industry that receives any government handouts.

The reality is rather different and also rather complicated. The Productivity Commission each year reviews the assistance for each industry, splitting it into two main categories – tariffs and budgetary.

The assistance through tariffs is indirect and not a budgetary cost. They allow producers to raise the cost of their product because tariffs add to the price charged by their overseas competitors. Tariffs also raise the cost of imports for local producers so they can have a net negative assistance – as is the case for much of the services sector.

But the big issue this week has been budgetary assistance. This is also divided into two sections. The first is direct outlays – actual money in the budget spent on companies and industries, which adds to the deficit (and debt).

The second category is tax concessions. These also cost the budget through tax revenue foregone. They are generally less well known because the direct outlays make for much better publicity for politicians as they turn up at a factory and hand out some cash. For example, during the election campaign Tony Abbott visited the Cadbury factory in Tasmania to pledge $16m in direct assistance. Tax concessions are by their nature more dispersed and less easy to sell as a specific benefit to any particular company.

The Productivity Commission found that in 2011-12 the industry that received the most total budgetary assistance was manufacturing with $1.65bn, followed by the primary agriculture industry with $1.44bn and then the electricity, water and gas industry with $1.08bn.

The electricity, water and gas industry mostly received assistance under the energy security fund to cope with the introduction of the carbon price. The manufacturing and agricultural industry had a number of types of assistance and the Productivity Commission breaks down those industries to give a clearer picture of where the money is going:

On this breakdown we see that the motor vehicle industry ranks fourth in level of assistance received. Most of its assistance came through direct outlays via the automotive transformation scheme ($381m) and the green car innovation fund ($125m).

The mining sector’s $700m of assistance mostly came in the form of the coal sector jobs package, to assist with the introduction of the carbon price ($218m) and research and development tax concessions.

But while these nominal amounts show how much of taxpayers’ money is going to various sectors, the Productivity Commission calculates the effective level of assistance by contrasting each industry’s nominal assistance with the value of the industry’s output. Clearly if the government gives $1bn to an industry with a $100bn output it is less dependent on that assistance than an industry with a $5bn output.

This measure shows the importance of government assistance to the car industry (although the list is incomplete because they don’t publish effective rates for the services industries or including the electricity, gas and water, and construction industries):

The motor vehicle and parts industry is clearly the most dependent upon government assistance; whereas the mining industry, which received $80m more in nominal assistance, was scarcely dependent upon it. The manufacturing industry as a whole had an effective assistance rate of 4.1%.

It’s worth, however, getting some context to the assistance to the manufacturing industry. While in the 1970s and 1980s it was massively supported – at the time worth over a quarter of its output, since 1990 its effective support has been on a par with that other great Australian industry, agriculture:

Also, while the Productivity Commission does consider tax concessions as assistance it only includes those which are industry or sector specific. This means it does not, for example, include as an assistance the fuel tax credit scheme, which allows companies to claim a tax credit for the use of diesel fuel in heavy road vehicles.

And yet assist the mining industry it does – to the tune of $2.3bn in 2011-12, compared to only $182m for the manufacturing industry:

One other tax concession not counted by the Productivity Commission is negative gearing. This certainly provides assistance given in 2010-11 negative gearing investors claimed $13bn in losses in their tax. Such investors were claiming an average loss on their property of $10,947.

The ability to claim negative gearing assists the investment property market. For all the talk of a housing boom in recent months, it is worth noting that over the past two years the value of investment housing loans has vastly outstripped that for owner-occupiers. The more than 45% increase in value of investment housing loans is as big as anything seen since the early 2000s housing boom, while the growth in owner-occupier home loans remains below levels seen in 2007.

Similarly, tax concessions via GST exemptions are not counted as assistance although you could argue, for example, that the $3.5bn foregone each year through education expenses being GST exempt is a massive assistance to the private education sector.

You could also argue that the $30bn in taxation foregone due to concessional treatment of superannuation contributions and earnings is a massive boon for the financial services industry. But that also is not included as official “assistance”.

So yes, the car industry receives assistance and it is understandable why some are glad to see it will end. But there are plenty of industry fingers in the government pie. And it is worth acknowledging that the reason much of the assistance like the fuel tax concessions or negative gearing remains in place – or remains at its current level – has little to do with economics and more to do with political lobbying.