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Our politicians are repeating mistakes they made with the car industry and GMH

By Brendan O'Reilly - posted Wednesday, 8 April 2020

PM Morrison last month observed that "Australians will be fuming" after General Motors Holden (GMH) allowed its business to "wither away", despite pocketing $2.17 billion in taxpayer-funded subsidies over the past 12 years. The PM said that the carmaker's exit proved the company was "never going to respect" the subsidies it received. He also argued that the departure showed "the ineffectiveness of government propping up industry".

The PM is correct in saying that subsidies and other forms of protection don't result in an industry that is sustainable in the long term. I don't, however, accept his claim that the public is fuming over the downfall of Holden.

When former PM Abbott in 2013 (sensibly) declared that there would be no more increases in taxpayer assistance to Holden and the other car manufacturers, the writing was on the wall. By late 2017 the last major manufacturing plant had shut down, and the demise of the Holden brand was all but guaranteed. The public knew full well that all this was coming, and generally felt that enough was enough in terms of never-ending mega-subsidies to the industry.


The reality is that Australia had no comparative advantage in car-making. Our fragmented industry (with its small right-hand-drive market) always had insufficient volume to be efficient, and was totally reliant on subsidies/protection for its continued existence. The industry should never have been encouraged in the first place. It is even claimed that it would have been cheaper for taxpayers to have given every Australian auto worker $1 million in 1985, and have called it quits.

Given Morrison's expressed view that subsidies and other protection don't produce a competitive industry, it's a pity that the Government doesn't practice what it preaches. Instead it (with Opposition support) is throwing even bigger subsidies at other industries, that the public knows will never be economically viable.

What in hell is Australia now doing building submarines and frigates, and paying more than double the going price (and losing tens of billions in the process)? Are we spending too much of our defence budget on submarines and anti-submarine frigates? And why is the Australian Government now spending millions in subsidies (admittedly a pittance by comparison) trying to grow a space industry? The only explanation that might account for such decision-making is that it is all just pork-barrelling (yet again) to gain votes in South Australia (where else?).

There are other unviable industries and projects (not necessarily based in SA), that are also propped-up by unwarranted subsidies. Why is our electricity system so expensive and in such a mess despite huge subsidies for new renewable capacity? Why is the Government committed to Snowy 2, when there are so many questions about its cost effectiveness?

The Australian Submarine Corporation (ASC) did not have the confidence of Senator David Johnston, when he was defence minister around 2014. "You wonder why I'm worried about ASC and what they're delivering to the Australian taxpayer. You wonder why I wouldn't trust them to build a canoe?" he said. The ASC was at least $350 million over budget in building three air warfare destroyer ships. "I'm being conservative, it's probably more than $600 million, but because the data is bad, I can't tell you," he said. "ASC was delivering no submarines in 2009 for $1 billion." Mr Johnston was sacked as defence minister (for daring to spoil a good pork-barrel) weeks after making the comments. He lost his seat in Parliament at the 2016 federal election.

(Johnston was not quite accurate with his cost figures. The predicted cost over-run for the Hobart class destroyers actually is now predicted to be much more (at least A$1.2 billion). The total cost, A$9.1 billion for 3 ships, is said to represent the world's most expensive build for this type and size of ship.)


The existing Collins Class submarines have been plagued with problems, though some in the RAN now claim that their problems have been largely sorted. They are a Swedish design fiddled with by ASC in Australia. An audit reported that the entire programme was beset with poor planning, lack of client-shipyard coordination, lack of performance vision, and poor craftsmanship. This resulted in immense reliability and performance problems. The subs spent most of their time in dry dock being maintained, and had at one time been deemed "louder than a rock band", despite submarines requiring stealth.

It seems most unwise for Australia to trust ASC with another major sub build.

The cost of building the new 12 French-designed submarines has reportedly crept up from an expected $50 billion three years ago to at least $80 billion. The cost to "sustain, update and upgrade" the submarines until 2080 was estimated to total a further $145 billion, when adjusted for inflation. Originally the French proposed to convert their nuclear-powered Barracuda design to diesel-electric propulsion. Now it seems that it will be a new diesel-electric design.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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