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Monday, 14 September 1992
Page: 956

Mr DOWNER (9.38 p.m.) —I was going to say a little about defence, but I have to confess that I have left my notes on defence behind. In any case, I want to begin by talking somewhat about the issue of car tariffs because that is an issue which, as a South Australian member, is close to my heart and close to the hearts of my constituents. In light of that, I thought it would be appropriate to use this debate as an opportunity to express some of my views on that issue.

  I begin by saying that I do not think any reasonable person in this Parliament would ever argue that there was another member of the Parliament who did not want to see the Australian car industry prosper. Nobody in this Parliament has some sort of passionate desire to close down the car industry. I am included in that group; I want to see the car industry grow. I want to see our car industry become an international industry that we can be extremely proud of. I want to see it become one of the really rapid growth car industries of the world, and I think we in this country have the opportunity to achieve that.

  A couple of years ago the Industry Commission did quite a lot of work on the car industry. It concluded that Australia could be one of the three most competitive countries in the world in which to invest in order to manufacture passenger motor vehicles. That must be our objective; that is what we have to try to achieve. I am not a defeatist about this. I believe our car industry can do it. Fightback as a document offers the car industry a large number of very major benefits and an opportunity to move down the path of becoming internationally competitive.

  Tonight I want to make the House aware of some of the data that we on this side of the House have received from people in the car industry which illustrates the point that I am making—that under Fightback very real benefits will accrue to the car industry which simply are not available under the present Government's programs. First of all, the car industry—and these are the industry's own figures, not mine—estimates that the abolition of payroll tax, which for the industry is a very real burden given the size of the companies, would reduce the cost per car, based on a $15,000 wholesale price car, by between $350 and $400. Clearly, that represents a considerable saving.

  Secondly, the abolition of the wholesale sales tax would reduce the cost of producing a car by between $150 and $220. The benefit to the industry in terms of reduced costs from abolishing fuel excise would reduce costs by between $50 and $70 per car. That clearly indicates the very substantial benefits from the tax reform aspects of Fightback alone which the car industry would obtain which simply are not offered by the Australian Labor Party. If one takes the total benefits of those three tax measures, in terms of the reduction in cost per car that would be between $550 and $690.

  The argument that the car industry puts is that the difference between the 15 per cent tariff, which is the Labor Party's tariff, and the 5 per cent tariff, which is the negligible level by the year 2000 proposed by the coalition, is in the vicinity of $1,000 per car. That means that it would be possible to import a car for $1,000 less under the coalition's proposal than it would be under the Labor Party's proposal. That disbenefit, if you like, to the car industry must be offset against the cost savings of between $550 and $690 per car as a result of the tax changes. That means that the actual net loss, to use the car industry's figures, taking just those two factors into account, is between $310 per car and $450 per car.

  Even if one were to accept those figures—and, as I will explain in a moment, we do not—the proposition that to effectively give imports a relative benefit over the position that would otherwise apply under the Labor Party of between $310 and $450 per car is hardly a difference in price which is likely to have a big impact on demand for cars. But the argument is more complicated than that. Remember that we are not going to continue with the Government's superannuation guarantee charge. We will retain what is already in place at the time of our election but we will not continue with that process, so the car industry will never end up having to pay the 9 per cent superannuation guarantee charge which is the Labor Party's policy; it will end up paying only the current charge. It is hard to work out precisely what benefit that would be per car but it might be in the vicinity of $30.

  The figures I have quoted do not include any recognition of the reform to the industrial relations system that has been proposed by the coalition. We estimate that the benefits of that reform will be in the vicinity of $250 per car. So, taking the superannuation guarantee charge and the industrial relations reform into account, we are very nearly at a completely neutral position in terms of per car costs. But that still has not taken into account a range of other micro-economic reforms that the coalition is deeply committed to—waterfront reform, reform of our extremely antiquated and expensive transport system, reductions in energy costs, reductions in telecommunication costs, and so the list goes on.

  To take the issue of waterfront reform, it is worth remembering that both importers and exporters—car manufacturers are both of these things—have said, and this has not been disputed by the Government, that the so-called waterfront reforms under the present Government have not yielded a saving of one single dollar; they have not been helpful at all for the car industry. If one takes all of those things into account, there is no doubt that the car industry's position will, in net terms—net all of those benefits in the Fightback package and the process of micro-economic reform by the coalition—be better in terms of costs and relative costs to imports than it currently is.

  But the debate goes a bit further than that because the Fightback package also changes the whole dimension of the economics of the demand for cars, and one has to take that into account as well. Approximately 50 per cent of all cars manufactured and sold in Australia are sold for business purposes, to business purchasers. For those particular consumers of cars—and that is around half the consumers of cars—all the Federal taxes that currently exist on those cars will be abolished. There will be no sales tax for those people any more because that will be abolished. There will be no fuel taxes on those cars either, and the GST will be fully refunded for business purchases, business inputs, which means that the cost of 50 per cent of all cars sold in Australia will be substantially reduced. Those cars will be purchased tax free, compared with the current arrangement under which they are purchased subject to sales tax. That will reduce the cost of the average business car by in the vicinity of $2,500.

  Although elasticity of demand for cars, according to the Industry Commission, is not very high, it has to be concluded that that $2,500 per car reduction in cost of purchase by businesses—I repeat, 50 per cent of all cars sold—will increase demand for cars. So too will the very substantial reduction in fuel prices brought about by the Fightback package. Remember that for ordinary consumers—that is, the 50 per cent of private motorists who buy cars—the price of petrol will reduce by 19c per litre. For businesses, the other 50 per cent of consumers of cars, the price of fuel will reduce by 26c a litre. To put it very simply, the cost of running a car will be very much cheaper than is currently the case. So the amount of money that either businesses or consumers have to devote not only to buying but to owning and running a car will be very much less than is currently the case, which I would have thought anyone could see would lead to an increase in demand for cars.

  So the car industry gets two basic benefits, a substantial reduction in costs and a substantial improvement in demand for motor vehicles which, at a time like this, I would have thought was a wonderful message for people in the car industry to hear. Car sales are at an extremely low level at the moment, and the abolition of the sales tax in particular on business cars, reducing the price of those cars by some $2,500 on average, will be a very major contributor to an improvement in demand. The point I make here is that, in contrast, the Labor Party—and indeed it has boasted it has done this—has reduced the level of protection on cars from an effective rate of 243 per cent to 15 per cent. In other words, it is in the process of overseeing an enormous reduction in tariff protection. But what has it done to reduce the burden of government costs and charges and the inhibitions to reducing the cost of producing cars? The answer is that it has done absolutely nothing. It simply has not achieved the sort of micro-economic reform which is necessary to go with those sorts of tariff reductions.

  During 1991 alone, the recession in particular has been responsible for the loss of some 46,682 jobs in the motor vehicle industry in Australia. There are now 66,000 jobs in car manufacturing in Australia, including the component manufacturing side, but let us remember that in 1991 alone, under Labor, 46,682 jobs were lost in the car industry. What gall those opposite have, accusing this side of politics of not wanting to retain jobs in the car industry when they themselves have thrown so many people out of work in that extremely important industry for Australia.

  The last issue I want to raise is why some of the car manufacturers are concerned about this process of reducing tariffs. I am not entirely unsympathetic to their concerns because in years gone by, and in particular over the past 10 years, manufacturers have been told they will have to face reductions in tariffs but government has done nothing to reduce their costs. They hope that in the future that contribution of government to the industry will be improved very substantially, but they are not sure.

  Some of this debate seems to have got a little out of hand, because so many of the cost advantages that the Opposition proposes for the car industry have not been fully taken into account. I believe that by substantially reducing the cost of manufacturing cars in Australia and by going through the process of micro-economic reform in the vital way it has to be done in this country, we will be able to achieve the objective of turning our car industry from being the relatively struggling industry it is today into an extremely profitable and dynamic industry for the future. This industry will be export oriented, and will be able to afford to be export oriented by being internationally competitive.

  I noticed this afternoon that on a radio program in Adelaide Mr Ray Grigg, general manager, operations, for Holden's Motor Co., made some interesting comments about the car industry. It is worth reflecting on these comments. In answer to a question on the issue of reducing tariffs, Mr Grigg said:

. . . from all our numbers that we've put together, that we can see that we can survive, as long as there's a realistic pace of duty reductions from the present levels, provided we have support of a really efficient national economy.

That is a fair enough comment. Who could dispute that? That is a commonsense, ordinary, logical comment for him to make. The fact is we do not have an efficient national economy by any measure in the OECD and indeed by comparison with other rapidly industrialising countries. It is about time people faced up to that obvious reality. Mr Grigg went on to say:

And I think the key really is to ensure our viability is the linkage between the rate of tariff reduction and microeconomic reform.

Certainly that has to be achieved. I congratulate Holden's on making the fundamental point that this country must achieve the micro-economic reform that has been promised for so long and has never been delivered.

  The Automotive Industry Authority's annual report, which was published last week, said that if we do not start doing something about reforming our micro economy—and one could add bringing our taxation system into the 1990s and out of the 1930s—then our car industry simply will not survive. It does not matter what level of tariffs we have, we must ensure that the car industry becomes more competitive through changes to the tax system and micro-economic reform. Mr Grigg and other people in the car industry have made that point very clearly. I think that will be a very important challenge for this Parliament in the years ahead. To reiterate the point I made: the car industry will not survive if micro-economic reform and tax reform is not achieved over the next eight or nine years. If it is achieved then we can turn that car industry into one of the most dynamic car industries in the world.

  In the last two or three minutes I want to make a couple of points about the defence budget. First of all, I draw the attention of the House to a statement made by the Minister for Defence, Senator Robert Ray, in the Senate on 11 December last year. When making a very political point designed to attack the coalition, he said:

All Ministers who become Minister for Defence have an obligation to the future of the defence forces—

I would not argue with that—

I want to see a secure and proper future for the defence forces and not some cheap opportunist political trick to rip money off defence to no effect.

He went on to say:

  I believe that we are at our absolute minimum in respect of defence expenditure.

If that is what the Minister said on 11 December last year, how does he explain that in the defence budget it is proposed that defence spending be cut by $50m a year each year from 1993-94 onwards? We have a range of other objections to the way in which the defence budget has been handled. There is once more a cut to the combat capability of the Australian Defence Force. There has been no effort at all to reduce the bureaucratic and non-combat costs, when I would have thought it made perfect commonsense to bring us at the very minimum into line with comparable defence forces around the world.

  We are also very concerned that the defence budget is being used, to some extent, to finance so-called make work schemes instead of being used to ensure that we improve the effectiveness of the combat capability of our Defence Force. We are very disappointed to see that Labor is continuing with its Ready Reserve program, which is proving to be a massive cost blow-out. The cost of the Ready Reserve at the moment is running at 71 per cent of the cost of regulars, which is a massive blow-out from the original figure of around 40 per cent. Not only will the Ready Reserve fail to improve the combat capability of the Defence Force by definition in that it replaces regulars, but it will also reduce the combat effectiveness and the Government will save very little money in the process. That does not make much sense.

  There are a range of other things I would like to say about the defence budget but time does not permit me. I conclude by saying that the Government spends something like $75m on defence cooperation with our regional neighbours, which is only slightly more than it spends on the telephone bill for the Department of Defence. That says something about the Labor Party's priority for the defence of this country and the need for our country to work more closely with our regional neighbours in order to underwrite the security of our part of the world.