The Australian Productivity Commission’s latest annual Trade and Assistance Review was released quite recently. These, statutorily required, reviews contain
the Commission’s latest quantitative estimates of Australian Government assistance to industry
as well as useful discussion and analysis of key recent developments in the trade and industry assistance area. As the Commission notes in the Foreword to this year’s report
Views inevitably differ on what constitutes industry assistance and whether it is warranted. Fundamental to these questions is transparency of measures. The annual Review seeks to identify government arrangements that may be construed as assistance, as well as their target, size, and nature. This information provides a basis for considered assessment of the benefits and costs of the arrangements.
Transparency alone usually can’t stop daft policies being adopted or continued, but without good empirical estimates and disinterested analysis it is harder to push back against the special interests lobbying governments for this deal or that. Such deals are almost invariably dressed up as being in the public interest, but perhaps rarely are.
The Commission highlights one particularly egregious example in this year report – the decision to build the new submarine fleet in Australia (characterized by many as marginal seat retention scheme – and the Cabinet minister most often mentioned did retain his seat at the recent election). As the Productivity Commission’s report tartly observes
Paying more for local builds, without sufficient strategic defence and spillover benefits to offset the additional cost, diverts productive resources (labour, capital and land) away from relatively more efficient (less assisted) uses. It can also create a permanent expectation of more such high‑cost work, as the recent heavily promoted ‘valley of death’ in naval ship building exemplifies. Such distortion detracts from Australia’s capacity to maximise economic and social wellbeing from the community’s resources. The recent decision to build the new submarines locally at a reported 30 per cent cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs (box 3.1). While based on hypothetical data, the example reveals that the effective rate of assistance provided by purchasing preferences can be higher than the peak historical levels recorded for the automotive and textiles, clothing and footwear industries prior to the significant economic reforms of protection. It is notable that this cost premium does not include any delays in deploying the new submarine capability.
Effective rates of protection, in 2016, higher than those provided to automotive, textile, clothing and footwear industries in the bad old days of high industry protection.
I wrote briefly about last year’s review, which included material which the Sydney Morning Herald described as scathing attack on preferential trade agreements of the sort that Australia (and New Zealand) governments have been enthusiastically signing. The Australian Productivity Commission – a body strongly committed to open and competitive markets – has a well-established record of skepticism around the wider economic benefits of such deals. Here is their box summarizing the issues and concerns.
It isn’t exactly the enthusiasm of New Zealand or Australian governments for deals such as TPP (although the Commission does not comment at any length on that specific deal).
One can always argue what value publications like these add – given the fondness for daft policies that governments continue to show. But given how badly the incentives are skewed against citizens, provisions that require officials to publish reports of this sort seem appropriate. Information is one of the few tools citizens have to push back.
In New Zealand, the Taxpayer’s Union has done sterling work in highlighting some of the cost of “corporate welfare”, but it might be a good part of improving New Zealand’s economic governance if provisions requiring an annual report of this sort were included somewhere in New Zealand legislation. At very least, it would help to prompt something like the annual modest round of stories in the Australian media about just what governments are doing – and at what cost – in this area. In a small country, with a lightly-resourced media, we probably need such official reports even more than Australia does.