Government Adviser Says Car Manufacturers' Exit Will Leave A Huge Gap In Australia's Economic Make Up

Employee parking at Holden’s Elizabeth manufacturing facility / Getty

Australia will slip further into a third-world, raw materials-based economic structure as car manufacturers exit the country, government adviser Goran Roos has warned.

Roos, a professor at University of Adelaide, told Business Insider that Holden’s decision to close its Australian manufacturing plants would hurt the local economy, and that he was perplexed by the Government’s handling of the situation.

“I have no criticism of Holden and General Motors for making its business decision … I do find [the Government’s actions] somewhat difficult to understand,” Roos said.

“If you do not want them to leave, then you can always do something to make sure it doesn’t happen.”

Holden will stop making cars in Australia as of 2017, putting some 2,900 people out of work, on the tail of Ford and its 1,200 job losses in October 2016. That leaves Toyota, whose future in Australia is uncertain.

Neither Treasury nor Minister Ian Macfarlane’s Department of Industry would comment yesterday on plans for the $1 billion the Government had set aside in the Automotive Transformation Scheme and further $1 billion earmarked for car industry subsidies between 2015-2020.

Roos suggested that the funds wouldn’t even be enough to pay for the fallout from the car makers’ exit, which affected not only the thousands directly employed, but also related businesses like car parts.

Citing Productivity Commission figures, Roos said car manufacturing returned $12 in economic value for every $1 in government assistance.

Car makers paid for themselves in GST alone, he argued, comparing the $620 million in budgetary assistance and $500 million tariff reductions they received in 2011-12 to the $12 billion they declared in annual revenues.

Then there’s also payroll tax, stamp duties, R&D benefits, and foreign investment. A September 2013 Allen Consulting Group report, commissioned by the Federal Chamber of Automotive Industries, said automotive manufacturing made the Australian economy $21.5 billion larger.

Some economists, like former ACCC chairman Graeme Samuels, have opposed car industry subsidies, arguing that funds would have been better spent on retraining people to work in more sustainable sectors.

“There is not a single place in the world where the automotive industry is not being subsidised by government,” Roos argued, characterising the US Government’s recent $US10.7 billion loss on General Motor share sales as a subsidy of sorts.

“Obviously, all these people that give subsidies are not stupid.”

Without car makers, Roos said Australia would likely slip further in global economic complexity rankings – an index that predicts economic growth by looking at the goods countries produce.

Australia ranked 78 in 2008 with a score of -0.35, while Japan and Germany topped the list with scores of +2.37 and +2.01 respectively. Roos said Australia would likely lose another 0.05 points without a car manufacturing industry.

Roos warned that an insufficiently complex economy would fail to attract entrepreneurial activity – without a manufacturing industry and its suppliers, for example, entrepreneurial engineers may take their start-ups to countries besides Australia, he explained.

And while Australia has been trying to foster a high-tech, innovative culture, Roos said that high-tech industry was about 10 years away from maturity and was unlikely to support as many jobs as manufacturing.

“We have to have an economy that is complex, otherwise we will not be able to create value,” he said.

“The Government now needs to take action to ensure that the [manufacturing] supply chain doesn’t keel over. It usually takes three to seven years to achieve diversification of people in the supply chain.

“Now we’ve been given absolute clarity [from Holden]. As of Monday, we need to have a diversification policy.”

Now read: These 10 Charts On The Australian Car Industry Show Why Holden Was Doomed

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