Aid to Carmakers Should End in 2020, Australian Commission Says

Government subsidies to Australia’s car manufacturing industry, including payments to Toyota Motor Corp. (7203), should end in 2020, according to the nation’s Productivity Commission.

“The arguments supporting public subsidies for automotive manufacturing are weak,” the government agency said today in a report on its website. “Governments could better assist firms by undertaking broad-based economic and regulatory reforms and removing impediments to greater workplace flexibility.”

Australia’s car industry has suffered from an Australian dollar that surged almost 50 percent against its U.S. counterpart from 2009 to 2012, making exports uncompetitive and boosting the appeal of imports. General Motors Co.’s Holden unit will shutter production lines in Australia in 2017, while Ford Motor Co. will close its car lines in the country in 2016. The departures may drive out Toyota, the last remaining car-maker, and further damage a manufacturing sector that has shrunk to about 7 percent of Australia’s economy from 29 percent in 1960.

“Infrastructure stimulus programs need to demonstrate a net benefit, or else could end up being costly exercises,” Mike Woods, the Commission’s deputy chairman said in the report. “Schemes that divert valuable labor and capital from one subsidized industry to others represent a lost opportunity for our economy.”

Funding under the Automotive Transformation Scheme for Toyota and other businesses should cease in 2020, and not be replaced with other assistance, the Commission said in the report.

The hollowing out of the nation’s auto industry has implications beyond the three companies as carmakers have about 150 suppliers that employ an estimated 42,000 people.

Prime Minister Tony Abbott’s government, elected in September vowing the cut taxes and ease red tape for businesses, has said it doesn’t believe in “corporate welfare” to prop up ailing companies.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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