With the Abbott government's close relations with big business, we're
still to see whether its reign will be one of greater or less
rent-seeking by particular industries. So far we have evidence going
both ways.
We've seen knockbacks for the car makers, fruit canners and
Qantas, but wins for farmers opposing the foreign takeover of GrainCorp
and seeking more drought assistance, as well as a stay on the big
banks' attempt to water down consumer protection on financial advice.
The
next test will be the budget. Will the end of the Age of Entitlement
apply just to welfare recipients (especially the politically weak, e.g.
the unemployed and sole parents, rather than politically powerful age
pensioners) or will it extend to "business welfare"?
With Joe
Hockey searching for all the budget savings he can find, there's a lot
of business welfare or, euphemistically, "industry assistance" to look
at. The Productivity Commission measures it every year in its Trade and
Assistance Review.
Government assistance to industry is provided
in four main ways: through tariffs (restrictions on imports), government
spending, tax concessions and regulatory restrictions on competition.
Although much rent-seeking takes the form of persuading governments to
regulate markets in ways that advantage your industry, the benefit you
gain is hard to measure, so it's not included in the commission's
figuring.
Assistance through tariffs is far less than in the bad
old days before micro-economic reform, but there's still some left.
However, its cost is borne directly by consumers in the form of higher
prices. So it's not relevant to Hockey's search for budget savings. Even
so, I'll give you a quick tour.
The commission estimates that, in
2011-12, tariffs allowed manufacturing industries (plus the odd rural
industry) to sell their goods for $7.9 billion a year more than they
otherwise would have.
In the process, however, this forced up the
cost of goods used by manufacturers and other industries as inputs to
their production of goods and services by $6.8 billion a year. About 30
per cent of this cost to inputs was borne by the manufacturers
themselves, leaving about 70 per cent borne by other industries, largely
the service industries.
(This, by the way, shows why import
protection doesn't help employment as non-economists imagine it does. It
may prop up manufacturing jobs, but it's at the expense of jobs
everywhere else in the economy.)
So now we get to budgetary
assistance to industry. On the spending side of the budget it can take
the form of direct subsidies, grants, bounties, loans at concessional
interest rates, loan guarantees, insurance arrangements or even equity
(capital) injections.
On the revenue side of the budget it can
take the form of concessional tax deductions, rebates or exemptions,
preferential tax rates or the deferral of taxation. In 2011-12, the
total value of budgetary assistance was $9.4 billion, with just over
half that coming from spending and the rest from tax concessions.
Often
people will virtuously assure you their outfit doesn't receive a cent
of subsidy from the government, but omit to mention the special tax
breaks they're entitled to. Think-tanks that rail against government
intervention and the Nanny State, hate admitting they're sucking at the
teat because the donations they receive are tax deductible (causing them
to be higher than otherwise, but at a cost to other taxpayers).
This
is why economists call tax concessions "tax expenditures" - to
recognise that, from the perspective of the budget balance and of other
taxpayers, it doesn't matter much whether the assistance comes via a
cheque from the government or via the right to pay less tax than you
otherwise would.
Of the total budgetary assistance in 2011-12 of
$9.4 billion, 15 per cent went to agriculture, 7 per cent to mining, 19
per cent to manufacturing and 45 per cent to the services sector
(leaving 14 per cent that can't be allocated to particular industries).
To
put that in context, remember that agriculture's share of gross
domestic product (value-added) is about 3 per cent, mining's is 10 per
cent and manufacturing's is 8 per cent, leaving services contributing
about 79 per cent.
Within manufacturing, the recipients of the
most business welfare are motor vehicles and parts, $620 million, metal
and metal fabrication, $270 million, petroleum and chemicals, $220
million, and food and beverage processors, $110 million.
Within
services, the big ones are finance and insurance, $910 million, property
and professional services, $610 million, and arts and recreation, $350
million.
But if you combine tariff and budgetary assistance, then
compare it with the industry's value-added (share of GDP), you get a
different perspective on which industries' snouts are deepest in the
trough. The "effective rate of combined assistance" is 9.4 per cent for
motor vehicles and parts, 7.3 per cent for textiles, clothing and
footwear, and 4.7 per cent for metal and metal fabrication.
Get
this: outside manufacturing, the most heavily assisted goods industry
relative to the size of its contribution to the economy is forestry and
logging on 7.2 per cent. We pay a huge price to destroy our native
forests.
Within services, the most heavily assisted industry is
the one where incomes are so much higher than anywhere else: financial
services. Virtually all the assistance picked up in the commission's
calculations comes via special tax breaks, such as the tax concession
for offshore banking units and the reduced withholding tax on foreigners
receiving distributions from managed investment trusts.
But that
ain't the half of it. These calculations don't pick up two big free
kicks: the benefit to the industry because the government forces almost
all workers to hand over 9.25 per cent of their pay to be "managed" by
it, and the benefit it gains from having one of its main products,
superannuation, so heavily subsidised by other taxpayers.
Cut these fat cats? Naah, screwing people on the dole would be much easier.
