View from The Hill

View from The Hill

Abbott’s words will please the Liberal “dries”

Tony Abbott is facing manufacturing pressures. AAP/Nikki Short

The Abbott government is, as a new administration, being tested out on various fronts. A very obvious one is industry policy and whether it is going to hold firm against providing more subsidies.

Both the car industry and Qantas are applying pressure for some sort of assistance – extra help in the case of cars and new aid for Qantas.

The demands haven’t yet been formulated but the cries of woe are in the air. There have been reports that Holden is planning to pull out of Australia as early as 2016 (the company has responded by saying no decision has been made). Qantas this week revealed that it was looking at a pre-tax loss in the first half of the financial year and and would shed 1000 jobs.

In their separate ways, both the car industry and Qantas have a certain iconic status. The auto industry is regarded as of wider importance to the manufacturing sector. The Flying Kangaroo has been seen as not just any old airline but a national symbol.

(It should be noted however that Australians neither choose to buy locally-made cars in any numbers nor usually fly overseas – as distinct from domestically - with Qantas. Qantas International had a market share of 18 per cent of total air traffic in and out of Australia in 2012. The Australian motor vehicle industry had an even lower market share in 2012 - of about 1.1 million cars sold, only 10.3 per cent were manufactured domestically.)

There has always been some question mark over where Tony Abbott will stand when the industry hands go out. His critics see him as potentially flaky or, put in less pejorative terms, as pragmatic.

So his comments today are significant. He strongly ruled out additional assistance to the auto industry and also threw cold water on calls for the government to inject capital into Qantas, or give it a guarantee. His words will give heart to the “dries” in cabinet that he is in the tent.

Speaking on radio, Abbott said there was already half a billion dollars a year available for the car industry “but there’s not going to be any extra money over and above [that]”. Presumably thinking Holden is playing a cat and mouse game, the PM also called on the company to clarify whether it was going or staying, rather than have “everyone on tenterhooks”.

On Qantas, he said that a subsidy or guarantee raised the question of why other businesses shouldn’t be treated the same. That would lead to a “bottomless pit”.

Abbott’s hard line may have in mind that after Treasurer Joe Hockey’s rejection a week ago of the US company ADM’s bid for GrainCorp the government needs to reassert its “dry” economic credentials. The PM would also have an eye to a budget under stress.

Abbott’s stand comes ahead of the findings of a Productivity Commission inquiry the government commissioned on the car industry which makes an interim report by December 20 and a final one in late March.

The PC was asked “to examine the best way that the Australian Government and Australian economy can ensure the ongoing viability of the automotive industry.”

While the final report is months away, there is some pressure for earlier government decisions. There is also the complication of the election in South Australia, where the auto industry is particularly important (the final PC report is just after the election.)

The issue is potentially divisive for the cabinet with Industry Minister Ian Macfarlane more sympathetic to calls for aid than colleagues such as Hockey.

When it comes to “dry” economics the PC is up there with the best of them, so it is unlikely to be urging large dollops of money.

One of its terms of reference, however, is to look at “retargeting of assistance, including within the Automotive Transformation Scheme”. This may be a route the government could go down.

On Qantas Abbott, like Hockey, is wanting to open up the debate about whether the legislative cap on the level of foreign ownership (49%) should be lifted.

It was a big step for Labor in the early 1990s to privatise Qantas and the condition that it should remain in majority Australian hands was important at the time. Labor is still sticking to that policy.

But a lot has changed since, and there are some strong arguments for removing the cap, including that it would avoid having to give the airline government support.

The government is aware, however, of the political sensitivity - hence its stress on a public debate. It is couching the question for taxpayers as: are you prepared to pay to keep majority Australian ownership?

The discussion ahead will gauge how much support there is for insisting that a majority of Qantas should stay in local ownership, but for many people the time has passed to think of an airline in nationalistic terms, even if its planes do have kangaroos on them.