Does the ailing Australian car industry offer us the chance to fix the Commonwealth Grants process and make the GST allocations fairer?
The grants, which have historically favoured Western Australia, were established because this state had to be compensated for the cost of admission to the federation – largely the protected manufacturing of the eastern states which WA business experienced as higher prices due to tariffs on imported equipment.
It was a fair trade argument, not because WA needed to be propped up but because its efficient businesses could no longer import equipment from the cheapest source.
A century later and that system of compensation has been broken by a poorly set up GST framework. We still pay a small tariff to assist the eastern states car industry, but we are no longer compensated.
So when Industry Minister Greg Combet rather ironically suggests that state governments like WA “lift their game” and buy more Aussie cars, he ought to realise that we are already paying twice (tariffs and lost GST) for the privilege of employing people in Melbourne and Adelaide, and we don’t need to pay again (by failing to buy the cheapest cars on offer).
It is his government that needs to lift its game.
My preference would be that he relaxes the union grip on the car industry to ensure vehicles are made more cheaply. That would be better for the country in the longer term.
But Mr Combet is old-style union Labor, and his comments reveal he prefers an interventionist policy of saving the national subsidised car industry via state-government vehicle purchases.
It is a dumb policy that we all know won’t work. But if he wants to try he ought to go those states that benefit most from having their industry protected and get them to agree to a change to the GST. That way it would be more attractive for states such as WA, Queensland and NSW to buy cars made in Australia.