Canberra must heed Productivity Commission’s warning bell on trade, domestic subsidies and tariffs

Australia’s Productivity Commission’s latest annual Trade and Assistance Review 2021-22, released yesterday, is scathing of recent federal government programs that it says will harm the competitiveness of the Australian economy and future prosperity of the nation.

The report showed that government support to industry rose from $460 million to $13.8 billion last year. The report includes in its calculations policies enacted by the former Coalition Government and Covid-19 programs which have been allowed to continue.

The report was also critical of continuing of tariffs on about 10 percent of imported goods as they add to cost-of-living pressures in the nation’s current inflationary environment.

The report warned against Australia following the de-globalisation policies of the US and European nations which are replacing tariffs with opaque non-tariff barriers to protect domestic industries. It said that “[a]s a small, open economy, our future prosperity depends on global economic integration and low trade barriers”. It further stated “[i]t is unlikely to be in Australia’s interests to try and compete in a protectionist contest via large-scale industry assistance.”

The report said the move to domestic self-reliance “comes with its own risks”, mainly higher costs for consumers and a tax on sectors that “enjoy comparative advantage”.

The report was also critical of the way many of Australia’s climate change policies have been designed, resulting in “a proliferation of piecemeal sectoral abatement policies.” It points to the risks of these climate change policies acting “more as a form of industry assistance than a cost-effective means of credibly contributing to Australian emissions reduction goals.”

Perhaps recognising that he has to appeal to the most Left-leaning government in Australia since the Whitlam Government, Productivity Commission deputy chair Alex Robson, writing in today’s Australian Financial Review (subscription required), references Gough Whitlam’s “historic 25 percent reduction in all Australian tariffs” 50 years ago. As Robson says, “[Whitlam] understood that reducing these taxes would lower costs to consumers and importers, and help the firms that were using more advanced production processes.”

To this former trade adviser, it is a great pity that the continued economic reforms of the Hawke, Keating and Howard governments that saw Australia further reduce tariffs, improve international competitiveness, and integrate into the global economy, are now being undone as Canberra returns to the pursuit of populist protectionist policies.

It’s hard to believe, but the fight for rational economic policies and consumer rights must be reignited for Australia to maintain its competitiveness and comparative advantages internationally.

(Photo by Dan Burton via Unsplash.)