Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Oz flagbearers put Abbott to test

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Bailing out Holden and Qantas will not come easily to this govt, but Aussie voters may not forgive a hold-out.

Holden's long day in the Australian sun may now be over. Photo / Richard Robinson
Holden's long day in the Australian sun may now be over. Photo / Richard Robinson

Australia's automotive and aviation industries appear to be on the brink of collapse. Holden is considering pulling its manufacturing operations out of the lucky country - as Ford has already said it will.

Its departure puts at risk something up to 50,000 jobs in the wider automotive parts industry.

Meanwhile, Qantas has slashed 1000 jobs, forecast a A$300 million ($330 million) loss and had its credit rating cut to junk status.

Things look pretty grim for these quintessential Aussie brands.

Of course, how close they really are to collapse depends on the extent to which management have been playing up their woes to maximise the case for government support.

There might be a bit of that to the news of the past week, because both companies have been talking to the Tony Abbott Government about getting more taxpayer support to save jobs.

They need to push hard and, as with Chorus in this country, there is a suspicion that the extremely negative outlooks could be biased by the need to bolster their case.

On the other hand, things do seem to be coming to a head for these industries which have been struggling for years to compete with deregulated and de-unionised rivals around the world.

Australia made many of the same free market reforms as New Zealand through the 1980s and 1990s.

But no government across the ditch has had an appetite to fully deregulate the labour market or fully remove subsidies for sectors such as the car industry the way that both Labour and National did here during that era.

In that sense the stand-off between the Government and these powerful companies represents an important moment which could determine Australia's future economic direction.

Increasing, or even continuing, taxpayer support doesn't sit well with the free market outlook of the right-leaning Abbott Government.

Australia still spends half a billion a year keeping its car industry alive.

A report released by the industry last month made a strong economic case for this support - suggesting the long-term benefits to the economy far outweigh the cost of the subsidy.

But no doubt there are strong counter arguments and, in the end, this kind of choice is political.

It is about what taxpayers and voters choose to support.

Abbott has campaigned on a policy of reform that was always going to bring him into conflict with the car industry.

Aviation is a bit more complex and, despite the nationalistic appeals, Qantas chief Alan Joyce has not been clear what he is asking the Government for.

There will be a huge amount of political pressure on Abbott in the coming months.

So far he has held firm.

Abbott told Holden last week: "There's not going to be any extra money over and above the generous support the taxpayers have been giving the motor industry for a long time."

His message to Qantas was much the same although he may relax the Australian ownership rules to allow the airline to seek capital from foreign investors.

In New Zealand we've long since seen the bulk of our automotive industry jobs disappear and Air New Zealand, while still dealing with a powerful union, seems to have a more flexible workplace structure among the mix of advantages it has over Qantas.

Unfortunately Australian business has to operate in a global economy.

If it is not competitive then the choice is always there to prop it up as long as the Government has a mandate from voters to do so.

But Australia's voters have just made a pretty clear choice.

Driven by the internal meltdown of the Labor Government and by a slightly exaggerated fear that the nation is on the brink of an economic downturn they've swung right.

As it turns out many economists now see Australia's slowdown as pretty shallow and temporary. The Reserve Bank of Australia has been threatening further rate cuts for four months but has resisted as economic data has steadily improved. It may not now need to.

But the economic conditions are tougher now than they have been for several years. Australia skipped the global financial crisis in 2009 when Kevin Rudd decided to unleash the entire budget surplus to stimulate the economy.

Rudd committed A$10 billion to boost the housing market and consumer spending and A$42 billion to a range of initiatives from infrastructure projects to home insulation upgrades for all.

That's despite the fact that the great mineral boom was still in full swing.

In a perfect world that might have been a good time to do some of the painful restructuring that the automotive industry now faces. But ideologically no one would expect a Labor Government to do that.

Now if Abbott doesn't budge, the wind down of the car industry and an airline in retrenchment mode may exacerbate the lingering economic negativity in Australia.

If he sticks to his guns he will have to be prepared to absorb a great deal of public anger.

What is harder to judge from this side of the Tasman is the level of public resolve to end state support and further reform the Australian economy.

Like the Chorus debate here this kind of debate can blur traditional political lines as unions and left wing groups align with the corporates and investors on calling for support.

It is going to be fascinating to watch the stand-off between Abbott and these two big industry groups unfold.

It will be a test of his character and should reveal whether he is a politician driven by pragmatism and polls or deeper policy principles.

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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