THE taxes taken from wage earners, consumers and businesses and given to other businesses amounted to over $22 billion in the four year period of 1996/97 to 2010/2011, according to the Productivity Commission.
It was not described in those terms of course. It sounds far less alarming to call it industry assistance rather than giving away other people’s money. Yet that is what it is. Industry assistance is essentially corporate welfare, and comes from the same taxpayers who fund pensions and unemployment benefits. The government has no money of its own.
The automotive and TCF industries were the largest beneficiaries, accounting for 54 per cent of all assistance. But next in line was the rural sector with about $9 billion in assistance, not counting fishing or forestry. Moreover, in the 12 months prior to the May 2012 budget the government announced further assistance of $700 million, much of it directed at the forestry and rural industries.
The biggest rural recipient by far was the dairy industry, which received $1.7 billion to help it adjust to a de-regulated market. The sugar industry received $620 million for the same purpose. Drought assistance accounted for $5.5 billion with a further $452 million for the Rural Adjustment Scheme and $230 million for grants to irrigators in the Murray Darling Basin. Several other sectors received lesser amounts.
Non-budgetary assistance to industry is also provided though measures such as marketing arrangements, quarantine regulations, regulatory restrictions on competition, government purchasing arrangements and guarantees.
Fairly obviously, industry assistance benefits the sectors it is directed towards. However, it comes at a cost to other industries. The Productivity Commission found, for example, net assistance was negative for most service industries because the cost of tariffs on imported inputs exceeded the magnitude of budgetary assistance. The service industries, which include finance and retail, are our biggest employers.
Most of the direct cost of industry assistance is borne by taxpayers via consolidated revenue, but in some cases consumers pay directly: the sugar adjustment package was funded by a three cents per kilogram levy on domestic sugar sales for five years, and the dairy package was funded by an 11 cents a litre consumer levy for eight years.
The idea that agriculture should be assisted to remain competitive or deal with adversity was once unchallenged dogma in Australia and remains widely accepted around the world. Indeed, on a global basis agriculture is by far the largest recipient of other people’s money.
But times have changed in Australia and are slowly changing internationally. While some people still argue that because other countries subsidise their farmers, our farmers should also be subsidised to put them on the same footing, few now agree. A number of our competitors (including New Zealand) offer less assistance to agriculture than we do. In any case that argument is like claiming passing wind in a crowded room is OK because others are doing it.
Most of the assistance that agriculture now receives is justified on the basis of exceptional circumstances, such as adjusting to a new government policy (eg deregulation) or hardship such as drought.
But even then, as governments struggle to live within their means, corporate welfare must compete with other forms of welfare for the available dollars. A very compelling case is needed if it is not to be interpreted as simply another example of funding the idle and incompetent. For many, the most recent announcements of assistance to the car industry were not compelling enough.
Inevitably, future assistance will be presented as a special case. Already $26 million has been spent on the Climate Change Adaption Program (Australia’s Farming Future), which is supposedly intended to help farmers adapt and respond to climate change. As the carbon tax comes into effect, this will become a more common story.
There is an alternative. The assistance to industry that some countries’ governments provide is to simply getting out of the way. They have efficient public administrations that impose few barriers to business prosperity. Farms and other businesses are not subject to a myriad of taxes and regulations that reduce their competitiveness and increase their costs. Competitiveness is achieved without corporate welfare. Success depends on innovation and marketing and is not guaranteed.
Corporate welfare costs taxpayers a great deal of money. It inhibits productivity and innovation and, like unemployment benefits for the able-bodied, drags down the economy. Perhaps it’s time recipients were given a label equivalent to dole bludgers.
David Leyonhjelm is an agribusiness consultant with Baron Strategic Services. He may be contacted at email@example.com