Australia should rein in business subsidies

AUSTRALIAN Prime Minister Tony Abbott started out determined to stick to his credo as an economic rationalist. He was nonchalant on hearing about the death knell for the nation's car manufacturing industry. After commiserating with the affected workers, he limited himself to expressing the hope that the workforce would move "from good jobs to better jobs". Last week, Toyota Motors decided to stop making cars in Australia from 2017. The decision comes hard on the heels of announcements by Ford and GM to quit manufacturing in the country, and spells the end of a A$20 billion (S$22.7 billion) industry. Together with engine, gearbox, seats and other car part makers, the combined industry employs upwards of 30,000 workers. Some economists predict that these closures will trigger a recession in those states where the car factories are located.

A few weeks earlier, Mr Abbott's government refused a A$25 million bailout to keep a fruit processing plant going. It has been speculated that the country's last fruit cannery, SPC Ardmona, could announce its closure by the end of this month with a loss of 1,600 jobs. Such a shutdown would ripple across the broader farm economy in the region. The plant has lost more than A$400 million in the past five years.

So far, so consistent. But Mr Abbott's government has a long way to go if it wants to end the subsidy mentality that many Australian businesses have come to expect as a matter of right. One major Sydney newspaper, using figures from the government's own Productivity Commission, has tallied the tax breaks and outright grants that various industries enjoy. Remarkably, one of the most coddled is its financial services industry. It has been given subsidies exceeding A$900 million, including tax breaks of more than A$840 million and direct grants of about A$70 million. Even more surprising, the mining industry enjoys tax breaks of A$300 million and direct grants of another A$400 million. Yet, the mineral extraction business has always painted itself as the sturdy engine that pulls along the rest of Australia's economy.