A few weeks ago I wrote about the positive impacts of any free trade agreement (FTA) to Australia for the shopper, specifically noting and welcoming the drop in new car prices for cars made in Japan under the new FTA with that country.
However, I kind of glossed over the benefits to small and medium-sized business and the flow-on benefit of job creation.
During the week, I met with a very energetic Kiwi exec who has just arrived in Australia to take on a senior role in an East Coast city: beautiful office with sweeping views over the CBD. Having lived in Auckland and London he and his family love the weather and the vibrancy of Australia, but hate the high taxes, high cost of living in general and high cost of cars in particular. His two brothers are self-made millionaires from growing small businesses in New Zealand.
Late last week the ABS let us know that Australia’s unemployment rate had reached a 12-year high, increasing by 0.3% to 6.4% in July, the same month that New Zealand’s unemployment rate dropped to 6.0% from 6.3%.
Now I am a great fan of how the New Zealand government has unlocked competition, created a vibrant and innovative small to medium-sized business community via simplifying rules, removing tariffs and taxing as low as possible. The top rate of income tax is 30%, no Capital Gains Tax or Stamp Duty. Basically, ideal conditions for people to back themselves and start a business. And create a job for themselves, maybe their family members and then, as the business grows, others in the community. It seems to be working as they are CREATING jobs.
I went back to the Japan-Australia FTA and read the Department of Foreign Affairs and Trade synopsis. There in the very last paragraph was the phrase: “The $12,000 specific tariff on Japanese used cars will be retained.” That means that before an importer even buys a used car in Japan, adds freight, margin or GST, a used car from Japan will cost a minimum of $12,000. Even a 20-year-old Toyota Corolla with 200,000 kms on the clock.
This phrase in the FTA does three things. It stops small business owners taking any advantage from the lowering of car import tariffs by setting up new business or expanding existing businesses to import and sell used cars. This in turn stifles job creation at the entry level of the market. Thirdly, it keeps the prices of all Australian cars considerably higher than the rest of the OECD.
I looked for some expert views from the New Zealand market and our own unaligned government employees at the Australian Productivity Commission.
I saw that David Vinsen, the chief executive of New Zealand’s Imported Motor Vehicle Industry Association, had visited Australia prior to the FTA being shaped. He said: “In New Zealand, once the used imports started coming in, the price of new vehicles went down. It changed the way things operated in provincial towns because families could afford to operate a second car and travel. If and when Australian laws are changed and used imports are allowed, we think they would bring the same benefits for consumers and for the wider industry.”
Our own Australian Productivity Commission outlined how large-scale used car importation would effectively liberalise the Australian market, increasing competition and helping to lower new car prices. It said: “The Commission expects that the removal of unjustified restrictions to the large-scale importation of second-hand vehicles would benefit the community as a whole,” and added: “current regulations reduced competition.”
Now I know we need the big end of town. They pay a lot of taxes. Well, some do. But they aren’t creating jobs. Not just here in Australia but around the world. Nor is government. It’s getting smaller here and all around the world. The engine of growth for all OECD economies, jobs and GDP growth is coming from, and will for the next decade come from, SMEs.
As thousands of government employees are forced to leave their jobs over the coming years, perhaps the ones who are staying need to put their minds to how they can create new opportunities for new jobs in the small business sector. Maybe a study tour to New Zealand?
Kevin Moore is a retail expert and the chairman of Crossmark Asia Pacific Holdings.