The Productivity Commission is required under its Act to report annually on industry assistance and its effects on the economy.  Trade & Assistance Review 2012-13 contains the Commission’s latest quantitative estimates of Australian Government assistance to industry.

Key points

• Government assistance to industry is provided through an array of measures including tariffs, budgetary outlays, tax concessions, and restrictions on competition.

– This benefits the industry receiving it, but comes at a cost to other industries, taxpayers or consumers. A critical issue is whether the benefits accruing to industry outweigh the costs.

• Estimated tariff assistance to industry was $7.8 billion in 2012-13 in gross terms, accruing overwhelmingly to manufacturing. Budget and tax related support was worth a further $7.8 billion, thus total gross assistance was $15.6 billion.

• After deducting the cost penalty of tariffs on imported inputs ($7.1 billion, two thirds incurred by services industries) net assistance to industry was $8.5 billion.

• Budgetary assistance in 2012-13 was about $2.2 billion less than in 2011-12. The largest reductions were from the winding down of transitional assistance afforded by the Energy Security Fund ($1 billion), the Coal Sector Jobs Package ($219 million) and the Steel Transformation Plan ($164 million).

• Since November 2013, the current Government has announced, amongst other things, that it would:

• reduce funding to motor vehicle manufacturing between 2015–2017 by $500 million, not provide a debt guarantee or line of credit to Qantas, nor provide assistance requested by processing company SPC Ardmona, but would proceed with support to Cadbury for a tourist facility.

• Australia recently agreed to bilateral trade agreements with Korea and Japan. Trade agreements can distort comparative advantage between nations and consequently reduce efficient resource allocation.

– The rules of origin in Australia’s nine bilateral agreements differ widely, are likely to impede competition and add to the compliance costs of firms engaging in trade.