Industry aid worth $13 billion

Services sector wins out for Federal aid

If you like to promote Australia as a free enterprise state, free of government patronage of business, think again.

According to its own economic adviser, the Productivity Commission, the Federal Government assists Australian industry each year to the tune of more than $A13 billion.

That comes in the form of assistance through the imposition of tariffs on imports, budgetary outlays and tax concessions.

Earlier this month, the Productivity Commission released its Trade and Assistance Review for 2019-20, showing how, where and by what amount the Government directed its assistance to industry. (It does not include assistance from state and local government.)

In 2019-20, industry received Federal assistance worth more than $13.6 billion, comprising $6.7 billion in tax concessions and $5.1 billion in budgetary outlays.

A further $1.8 billion was attributed to tariffs on outputs (imports into Australia). Of course, many industries have to bear the higher cost of tariffs on goods; the PC estimated this tariff input penalty at $1.5 billion.

So, the net cost of assistance to industry – that is, less the tariff penalty – was $12.1 billion in 2019-20. That was $400 million higher than the net level of assistance in 2018-19.

Services sector dominant

In 2019-20, the PC found that the largest industry recipient of Federal assistance ($4.24 billion) was the services sector. According to the report, the property, professional and administrative sector received more than $1.4 billion in net assistance, including more than $1 billion in budgetary outlays. Financial and insurance services received $1.1 billion, led by almost $1 billion in tax concessions.

Manufacturing received more than $2.6 billion in assistance, primarily through net tariff assistance ($1.15 billion) and budgetary outlays ($933 million); food, beverages and tobacco received $336 million in tariff assistance alone.

Meanwhile, the PC review found that primary production was allocated $1.75 billion in assistance, chiefly through budgetary outlays ($970 million) and tax concessions ($661 billion).

Australia’s leading export sector, mining, was the industry group to receive the least assistance. It received net combined assistance of $365 million, which included the cost of $52 million in tariff penalties.

The PC also attributed $3.1 billion in assistance to programs where the “initial benefit industry cannot be readily identified”. Most of this allocation came in the form of tax concessions ($2.6 billion).

Construction the loser

If there were a ‘loser’ among the Federal assistance, it was the construction industry.

In 2019-20, the construction sector bore a penalty of $352 million through tariffs on imports; with just $169 million in budgetary outlays and tax concessions, it ended up with net ‘assistance’ of almost -$183 million.

Public administration and safety, classified as a services industry, was also slightly worse off (-$22 million) in the allocation of assistance.

In his foreword to the review, the Chair of the PC, Michael Brennan, noted that the review period included the onset of the Covid-19 pandemic, from March 2019. Most of the Federal Government’s Covid-19 economic response measures, however, would take effect in the 2020-21 year.

Mr Brennan noted that many of the measures introduced during the pandemic supported the survival of inherently efficient businesses.

But in a note of caution, he warned that a key policy challenge would be the “orderly removal of assistance as Australia’s economic recovery continues.”

Gavin Clancy is a Senior Consultant with Lunik