The warning – in the commission Trade and assistance review, an annual tally of tariff, budget and other aid to industry – comes as a new wave of COVID-19 lockdowns are forcing state and federal governments to borrow money for rounds of additional financial aid.
While the commission’s report goes to a point in properly applauding last year’s commando – claiming that “there has been no historical precedent in peacetime, for example, for the decline in production suffered by companies providing services to international students, tourism services and air transport. – he warns against reopening the door to permanent forms of costly and counterproductive support.
“The longer this lasts, the higher the cost to taxpayers,” write the commission’s authors in the report.
“The more subtly, the longer the aid is provided, the more likely it is to support less efficient (or ultimately unsustainable) businesses while providing windfall rents to profitable businesses.”
Noting that in normal times, hundreds of thousands of businesses are born and collapsed every year without derailing the economy (in 2018-19, some 293,000 businesses closed while 356,000 were created), they say that supporting inefficient firms can prevent new ones from entering the market.
âIn industries where entry and exit costs are relatively low – for example, due to low fixed costs and limited company-specific skills – this time would be earlier than in other industries.
âIndustry-specific aid to support existing sectors also risks being too generous and providing unnecessary windfall gains to beneficiaries, which can make these programs costly and unprofitable for taxpayers.
âAlso, when budgets are tight, these programs work at the expense of other initiatives that could provide greater community-wide benefits. “
For example, the commission is challenging the government’s decision in November to expand the HomeBuilder program, when, as it points out, housing permits were already well above pre-pandemic levels.
The move increased the “already significant cost of the program,” part of which went to people who would have renovated or built a new home regardless of the grant.
“For others, it may have just advanced their decision to build or renovate, reducing demand in the future,” the commission said.
âThis could ultimately induce a substantial slowdown in business after the delay associated with HomeBuilder wears off, with a commensurate disruption to employment that the program was supposed to avoid in the first place.
âThis means that any distortions generated by the HomeBuilder program have the potential to remain long after the program itself ends. “
Unlike Australia’s last official recession in the early 1990s, which was triggered by a demand shock caused by high interest rates, the 2020 slowdown was driven by government shutdowns.
The widespread nature of these measures, according to the commission, meant that they would have wiped out businesses and sectors, whether well managed or not.
Yet the commission’s analysis shows that some industries have relied more on support than others.
JobKeeper’s payments were dominated by industries such as accommodation and food services, arts and recreation, and real estate. In contrast, mines, utilities and banks were largely self-sufficient.
Another consequence of the pandemic response has been the further entrenchment of a long-term trend of aid to industry in the form of fiscal measures such as subsidies and subsidies and tax breaks, rather than tax breaks. tariffs, he said.
Almost half of the $ 13.7 billion paid to industry and sectoral assistance in 2019-2020 was in the form of tax breaks (worth $ 6.7 billion), of which 5, $ 1 billion in budgetary spending. Only $ 1.8 billion came in the form of tariffs.
If the tariff penalty is included, the total economy-wide aid is $ 12.1 billion, up $ 400 million from the previous year.
The commission’s report also examines the impact of the deepening tariff war with China, which has seen Beijing impose costs on Australian exporters of barley, coal, wine, cotton and timber in retaliation for the Morrison government’s call for a global inquiry into the Chinese origins of the coronavirus.
Despite the coup, some exporters are already successfully shifting their sales to new markets, notably barley to the Middle East and Asia, and Mexico. The coal industry has also found new customers in Japan, India, Pakistan and the Middle East.
“However, finding new markets will likely prove more difficult for more differentiated, and therefore less substitutable, products such as wine.”
The annual review notes that the pandemic has reduced foreign direct investment flows to Australia from over $ 56 billion in 2019 to less than $ 30 billion in 2020, with Australia’s largest flows coming from Japan, from Great Britain and Singapore.