The Abbott Government’s rejection of the SPC Ardmona plea for $25 million of taxpayer funds, coming after its pre-Christmas decision not to give more subsidies to General Motors, sends a pretty clear message to struggling manufacturers across the economy. They are own their own.
Frankly, it’s the right message.
The pragmatic decision, indeed the easier decision, might have been to cave in to the demands given the political sensitivities of rural enterprises and jobs.
The SPC call on the federal government (it was looking for similar assistance from the state government) was for an amount that wouldn’t even be a rounding error in the federal budget, so it isn’t the dollars involved.
The principle, however, was – as it was in the GMH decision – a significant one. In an open market economy private enterprises have to determine their own fates and, for the economy to continue to evolve and capital to be deployed in the nation’s best economic interests, that means some will fail.
There are a lot of struggling enterprises, particularly in manufacturing, as a result of the prolonged period of strength in the Australian dollar and the structural changes that have been occurring – and which have always been occurring – within an economy which has become high-cost, less productive and less competitive after two decades of unbroken prosperity.
Extending taxpayer-funded hand-outs to one enterprise would inevitably see a queue of corporate beggars forming, seeking to avoid the difficult decisions they might otherwise have to confront. Taxpayer-funded welfare for uncompetitive enterprises or industries doesn’t resolve their lack of competitiveness, but simply delays the consequences of it.
Government’s role is to do what it can to create an opportunity for well-managed businesses with some form of competitive advantage, or at least without fundamental competitive disadvantage, to be viable by managing the economy well and efficiently, reducing (to the extent that it can) the imposts of government on business and providing the public infrastructure for a modern economy.
The Abbott Government will itself have to make some very difficult and tough decisions if it is to contribute improving the competitiveness of the economy and the viability of well-managed businesses within it.
While there was some division in Cabinet over the question of assistance to SPC, and the government’s own expert panel is said to have recommended that it provide it, the fact that it is owned by the very large, very profitable and very sophisticated Coca-Cola Amatil clearly was a factor in the decision.
While CCA had said it was prepared to invest $90 million in SPC if the governments provided a further $50 million the kind of ‘’co-investment’’ model which it was seeking – and which has been a major feature of the recent history of the local motor vehicle industry – simply means taxpayers were being asked to subsidise an uncompetitive businesses.
Another way of looking at that would be to say taxpayers were being asked to subsidise CCA shareholders’ returns on capital from a business that wouldn’t otherwise meet its hurdles for additional investment.
CCA, SPC and the other stakeholders in that business will now have to consider whether there are ways they can contribute to a restructuring of SPC that enables it to generate acceptable returns, or whether it has become too uncompetitive to save.
Tony Abbott described the decision as ‘’an important marker’’ in sending a message to businesses that they were responsible for their own restructuring and survival. It was marker that needed to be set down to reinforce the non-decision on GMH – that there aren’t going to be any more corporate hand-outs from the government that Abbott leads.