Grattan Institute report says car industry subsidies can make job woes worse

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http://www.adelaidenow.com.au/news/s...-1226768196217

CAR industry subsidies could be offering false hope to workers and even exacerbating the associated problems, a major report says.

Without industry support, jobs would dry up and there could be "significant economic and social effects on the local community", according to the Grattan Institute's Balancing budgets: tough choices we need to make.

But, it adds, there is little evidence that support from government will help and they could be stopping people moving to areas with better job prospects.

"Ironically, governments that continue to prop up struggling industries can exacerbate this problem," the report states.

"By providing hope that a region will continue to offer the same jobs as in the past, governments encourage people to put off the hard decision of moving.

"In practice, when substantial industries close, most workers rapidly find alternative employment - although it is often at a lower wage precisely because the new job is in an unsubsidised industry."

The new Government says it will reduce subsidies to Holden but help the industry through other policies such as getting rid of the carbon tax.

It has also established a Productivity Commission inquiry into support for the industry, which has a public hearing in Adelaide next week.

The Grattan Institute report examined 20 reforms to fix the budget, including increasing the GST to cover health, education, fresh food, and other areas.

Institute chief John Daley said the Government had to make "tough choices" to ensure "Australia's long-term prosperity".

The other GST change on the agenda is to reduce the threshold that it applies to on overseas purchases.

That shift will be high on the agenda on Wednesday when Treasurer Joe Hockey meets with state treasurers, including Jay Weatherill, for the first Standing Council on Federal Financial Relations under the new Government.

Parliamentary secretary to the treasurer Steven Ciobo said it was up to the states to argue for a lower threshold.

"It's the state governments that actually reach the agreement and put in place the framework around what the threshold should be and how much revenue should flow back to the states," he said.

Opposition Leader Bill Shorten said it was a "very tough issue" and questioned whether it would cost more to collect the tax than would be raised by it.

Premier and Treasurer Jay Weatherill said the Government was showing its true colours after the election.

"We've got Mr Hockey talking about revisiting the whole GST base, taxing food, taxing health, taxing education," he said.

"None of these things were mentioned in the federal election campaign."