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Resolving the ambiguity that surrounds our car industry

By Raffaele Piccolo - posted Wednesday, 24 July 2013

The Federal Government's decision to make changes to how FBT claims are processed was prompted by the desire to ensure that the transition to a floating Carbon Price (earlier than planned) had a neutral effect on the budget. Those who seek to claim FBT will now have to keep records for 12 weeks over the period of 5 years – to prove, as their claim for FBT infers, that they are using their car for business purposes. Up until the change was announced a person could make a claim for FBT without actually demonstrating or being required to demonstrate that the car in question was being used for business purposes.

Surely this is to be welcomed. However the decision to bring greater integrity to the taxation system has not been universally welcomed.

A coalition of car manufacturers, car leasing companies and salary packaging industry representatives are seeking a meeting with the Federal Government to discuss the recent announcement regarding the FBT. They are concerned that the decision to improve the integrity of the taxation system could have dire and unintended consequences to the car manufacturing industry and in turn the car leasing and salary packaging industries.


The most dramatic effects of the change to FBT claims are said to foretell the loss of jobs and the death of several interrelated industries, but are these claims well-founded? I am not in a position to make a determination. However these concerns, well-founded or not, highlight that the lack of national discussion on the future of the car manufacturing industry cannot be understood as a sign that the matter has been dealt with conclusively.

Recent discussions (those preceding the announcement regarding FBT) highlighted the existence of two, diametrically opposed groups; those who would remove all tariffs and government assistance packages that seek to prevent the demise of the car manufacturing industry and those who seek to continue support and protection for Australia's car manufacturing industry.

The argument could be made that those who sought to remove all tariffs and cease all other government assistance were defeated during that national debate. This we can see in the agreement that provided for a government assistance package to the car industry over a period of ten years. Yet this agreement did not signal the end of the debate. Instead it signalled a progression in the debate; we resolved that we want the car manufacturing industry to play a significant role in our economy, and that we are willing to play a part, however we did not resolve what part we would play. Thus the debate as to the future of our car industry continues.

The debate as to the future of the car manufacturing industry will continue to permeate national discourse until we have concluded what role we are to take in the future of the car industry. Should we fail to make a decision soon, then we can expect that the sidelining of the voices of those who advocated a complete withdrawal of all government involvement in the car manufacturing industry will be nothing more than temporal. However presuming that those who wish to remove tariffs and assistance continued to remain sidelined (for the moment), we are now left with a decision to make; do we protect or do we support our car manufacturing industry?

Some may think that the difference between 'protect' and 'support' is merely semantics. Although the words are similar, and may be used interchangeably in some situations, a clear difference can be substantiated for present purposes. To 'protect' denotes a lack of agency on the part of the car manufacturing industry; it is a passive recipient, not required to respond to market changes or conduct research and development. In contrast, support requires the car industry to evolve, to conduct research and development and ultimately respond to market changes. The former is infinite in its duration, the latter is finite.

The car manufacturing assistance package agreed to by car industry representatives and governments has not conclusively resolved the stance that has be taken; to protect or to support. The fact that the package is to have a lifetime of ten years and requires car manufactures to make a corresponding investment would seem to suggest that the approach we tend to favour is one of support.


What we have before us is a chance to resolve the ambiguity that surrounds our approach to the car manufacturing industry. If we are to protect the industry, then the proposed changes to FBT should be reversed. Yet, if it is our desire to support the industry, then the changes should proceed as planned.

In resolving this ambiguity much has to be borne in mind. A decision to protect the car manufacturing industry involves both financial and non-financial costs. Government assistance packages have an obvious financial cost, and this may grow as competitors invest in research and development and our car industry remains static. Further there is the opportunity cost; the cost associated with not being able to spend the money that provides for the government assistance package on something else. Perhaps that same money could have been spent on building a new industry; an industry that does not require constant government assistance packages?

But there are also costs associated with deciding to support, rather than to protect the car manufacturing industry. Support, by its very nature, is to be finite. Thus our decision to support may require us to let the car manufacturing industry cease to play a major role in our economy. Now the obvious ramification of that will be a loss of jobs, both directly and indirectly. There will be a direct loss of employment with the car manufacturers themselves. The indirect loss of employment will come with the lost of employment in the industries and workplaces that support the car manufacturers. Further there is the ramifications that the loss of employment will have on the communities in which these workplaces, factories and employees are located. The families of the former employees will experience a significant decline in their spending power and hence a corresponding decline in spending and employment in local shops, businesses and services can also be expected to follow suit.

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About the Author

Raffaele Piccolo is a student at the University of Adelaide. He holds an Honours Degree of Bachelor of International Studies and is currently studying towards his final year of a Bachelor of Laws. He has a keen interest in public policy and community development. In his spare time he is involved in many community organisations.

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