The woes of the manufacturing industry are well known, but new findings indicate the industry is receiving more government assistance than any other sector, while in the last financial year small business financial assistance has decreased.
Figures released this morning from the Productivity Commission’s annual review of government assistance found more than $7 billion was spent aiding the struggling sector in the past financial year, with car manufacturers and steel producers receiving more than $1 billion each in subsidies.
In total, the government delivered $5.1 billion in grants and $4.3 billion in tax breaks last financial year and overall assistance reached $10.5 billion, down $728 million from 2010/2011.
From budgetary assistance such as tax concessions and grants, electricity and gas companies are benefiting most from the government, while banks and insurers are also doing well, receiving $845 million in concessions and grants.
Unfortunately for small business, a winding down of the Small Business and General Business Tax Break has resulted in small business losing $1.7 billion in tax breaks.
Small businesses were endowed with an extra $2.4 billion thanks to the tax break in 2010/2011 but in 2011/2012 this has reduced to $680 million.
The struggling construction industry has also fared poorly, with the sector hit with $1.5 billion in additional costs due to higher costs from tariffs on imports.
The Productivity Commission report says the industry assistance landscape in Australia has changed dramatically in the past 40 years.
“Tariff assistance has declined markedly, predominantly through unilateral tariff reductions implemented by the Australian Government.
“On the other hand, there has been a shift towards greater budgetary assistance to industry, particularly over the last decade,” it says.
While the report provides a picture of which industries benefit most from government assistance, the report did not consider financial losses incurred by each industry saying it was “beyond the scope” of the review.
University of Technology Sydney dean of business Roy Green told SmartCompany while the Australian government invests a lot of money in the manufacturing sector, it is small compared to international standards.
“The effective rate of assistance to Australian manufacturing is quite low. We have had a period of reform which has almost eliminated tariffs, but this doesn’t mean we operate in an international free trade environment.
“We need to help manufacturers to re-position themselves and become globally competitive,” he says.
Green says the implications of not having a manufacturing sector are serious, but the key is to direct funding toward “industry and business transformation”.
“I don’t think one can say the provision of a subsidy is a good or a bad thing, it depends on the purpose to which it is addressed.
“The only subsidies and assistance which can be justified are those which are directed toward industry and business transformation. This is essential if we are to be competitive in global markets and supply chains, otherwise it’s wasted,” he says
With Ford recently announcing the closure of its Geelong manufacturing business, Green says this shows the money was not being spent on transforming the business.
“Providing the funding to the automotive sector was always a risk because the name of the program is automotive transformation, and yet at least one company has not really pursued the spirit of that program.
“The Ford company has not transformed its products and its business, which is why it’s now unable to compete in the local market. In the car industry we need to understand that our domestic scale is not large enough and the only successful companies need to be truly globalised,” he says.