The car industry receives AUD$4.27billion from only three government Initiatives (Productivity Commission, 2014, p9). Many support these funding decisions of the government however many also disagree that one industry should receive such large amounts of funding. This essay will demonstrate that the Coalition government’s decision not to provide monetary support to Australian car manufacturers which resulted in their decision to move manufacturing overseas was justified.
Australia is a capitalist society which private businesses, such as the car industry, aim to make a profit. However, the Australian car industry has endured a combined loss of AUD$1.5billion over a decade (Dowling, 2014, p1). Adam Smith (referred to as ‘the Father of Capitalism) developed a theory of the ‘invisible hands’ of supply and demand which states that the government does not need to interfere in the market as the invisible hands will regulate the economy (Heywood, 2012, p47). This theory thus supports the view that the government should take the approach of the liberal democracy that Australia claims to be and limit government intervention of the car industry and emphasise the free market economy that we are becoming.
In the 21st century Australia is influenced by globalisation. By taking part in the global market it allows countries to specialize in their production of goods and services and give them what is referred to as the comparative advantage. This advantage enables nations to specialize in certain products which then become a major part of their Gross Domestic Produce (GDP). As the Australian car industry only makes up 0.53% of the total GDP it is only logically to conclude that for various reasons Australia is not a country that is able to specialize in the car industry.
Australia’s current approach to the collapse of the car industry is one that is founded on a passive model, which is that the state should not interfere and allow the market to change on its own. The sale of Australian manufactured cars dropped by a staggering 15.2% in 2013 (Hagon, 2014, p1). The main factors in the decline of the car industry is the reduction in sales as well as passenger motor vehicles being Australia’s third largest import good in 2012-2013 (DFAT, 2013, p1) on top of a combined $1.5 billion loss. In the financial year of 2011-2012 the Gillard government gave just under AUD$620 million worth of funding and tax breaks to save the car industry (Polites, 2014, p1). In 2013 the Coalition government decided to cut AUD$400 million in tax breaks down to AUD$200 million (Cassin, 2013, p34). This approach is believed to be justified due to the contribution to the total Australian Gross Domestic Product (GDP) was only 0.53% in the financial year 2011-2012 (Polites, 2014, p1). This input into the Australian economy is very minimal and...