In describing last week's gross domestic product figures as ''a reminder of the tough trading conditions in the economy, particularly outside of the mining sector'', federal Treasurer Joe Hockey was not exaggerating. On Wednesday, Qantas announced it was facing a half-yearly loss of up to $300 million, and planned to axe up to 1000 jobs over the next year. Two days later, senior government ministers were reported to be circulating rumours that Holden had decided to pull out of manufacturing in Australia as early as 2016. Industry Minister Ian Macfarlane rebutted the gossip, as did Holden itself, declaring it pure speculation. But the consternation in the motor industry was palpable.
A Holden departure in 2016 - the year Ford has said it will cease manufacturing in Australia - would leave just one company, Toyota, making cars, and probably result in significant overcapacity in the component manufacturing sector. That would likely trigger a new round of closures and job losses in Victoria and South Australia, states which are already afflicted with higher than average unemployment.
By dint of canny advertising and a long and successful presence in corporate Australia, Qantas and Holden occupy exalted positions in the affections of consumers. The uncertainty about their future is a worry for not just to ordinary consumers but to governments already under pressure to extend or improve corporate welfare to the two companies.
Holden has, of course, received billions in direct and indirect aid over the decades. In return it has invested in and built factories, design studies and proving grounds with jobs for thousands of Australians - and made possible the development of other sophisticated manufacturing activities. It has even designed and built a vehicle, the VF Commodore, that is world-class in terms of equipment, safety and driveability. But if all the corporate welfare Holden has received was subjected to a cost-benefit analysis, it's unlikely it would show taxpayers have had good value for money. Tariffs walls put in place to nurture Holden's postwar development remain, albeit reduced to 5 per cent. But they ensure new cars cost more than they otherwise would. Holden's inability to export its cars in large enough numbers to achieve greater economies of scale, combined with the relatively high wages for its workers, means the cars will always be costlier than those from Asia. Indeed, the free trade agreement with Thailand allowing cars made there to be imported tariff-free to Australia guarantees it in perpetuity. The soon-to-be-signed FTA with Korea will do the same. Given that - and consumers' reluctance to pay a premium for Holden Commodores - the case for further assistance is not overwhelming.
Qantas has not demanded, or received, anything like the corporate welfare cheques extended to Holden in years past, but its chief executive, Alan Joyce, has been soliciting in earnest in recent months, occasionally with menaces. Mr Joyce claims not only is Qantas hamstrung by the high wages it is forced to pay its Australian-based staff, but it [uniquely] faces regulatory burdens, the most onerous being a government-imposed rule forbidding majority shareholding by foreign investors. He wants the Qantas Sale Act amended to improve the airline's ability to compete against foreign state-owned carriers. However, the government has shown no willingness to act on this sensible suggestion. That has led Mr Joyce to ask for more direct help, including a cash bailout by way of the government buying a stake in the airline and a guarantee on its debt. With Qantas said to be at risk of a credit rating downgrade, Mr Joyce has made clear that failure to provide support could lead to further job cuts, or even the sale of assets like the airline's budget carrier, Jetstar, or its frequent flyer business.
To its credit, the government has ignored the browbeating, with Mr Hockey arguing that "governments should not be in the business of propping up private-sector operations''. The Prime Minister's declaration on Friday that there would be no more money for Holden was equally heartening. The difficulty of the economic climate notwithstanding, governments need to eschew handouts and embrace more creative ways of supporting business.