Monthly Archives: August 2013

The price of protectionism

An  article in Friday’s Australian began

Ford has blamed Kevin Rudd’s $1.8 billion fringe benefits tax overhaul for halting production, forcing at least 750 workers to be stood down in rolling stoppages that will further imperil Labor’s chances of retaining the nation’s most marginal seat.

and goes on to report that the Federal Chamber of Automotive Industries has called on Labor to reverse its changes to the application of fringe benefits tax (FBT) to cars.

So what exactly has Labor done to put these jobs at risk?

The previous regime provided two mechanisms to determine tax benefits for expenses incurred for cars used for work purposes:

  1. the “log book” method, whereby the driver maintained records to show what proportion of their use of the car was for work rather than personal use, or
  2. an assumed flat rate of 20% work use of the car (regardless of how often the car is actually used for work purposes).

The government has eliminated the second option. So, the estimated $1.8 billion saving is due to the fact that a significant number of drivers using the 20% method could never come close to a 20% proportion of work use if they took the trouble to maintain a log book. Either that or they don’t think it is worth the effort to maintain the log book records.

While the elimination of this tax-payer largesse for drivers may come at a cost to workers in the car industry, does it really make sense to reverse the changes to save 750 jobs? These jobs would be saved at a cost to the tax payer of $2.4 million per job. Now these are just the jobs at Ford and (for now at least) we should acknowledge that some Holden jobs may also be saved, bringing the cost closer to $1 million per job.

The car industry in Australia has long benefited from government support, but surely there are better ways of saving these jobs. A job guarantee springs to mind.

Of course, industry protectionism is far from unique to Australia and this week I had my attention drawn to an extreme example in the small central American nation of Belize.

On 7 August, the parliament of Belize met for the first time since April. With so long between sittings, there were many bills for parliament to pass that day. Included among these was one which increased the already high import tariff on flour from 25% to 100%.


Why such a dramatic increase? For some time, local bakers had been buying their flour from Mexico for 69 Belize dollars per sack (approximately A$38). It was hard to justify buying the more expensive local flour at BZ$81 per sack (A$45). The new tariff will push the price of Mexican flour up to around BZ$110 (A$61), which is good news for the domestic flour mill and its employees.

That domestic flour mill is operated by Archer Daniels Midland (ADM), one of the top 10 global commodity firms. This is the same ADM which is in the process of trying to buy GrainCorp, Australia’s largest agricultural business.

But back to Belize. ADM’s website proudly declares that it “employs more than 40 people” in its Belize mill. Presumably, parliament had an eye to saving these jobs from the threat of cheap Mexican flour when it hiked the import tariff. With a population of only 335,000, Belize is 1/70th the size of Australia. You could argue that saving 40 jobs in Belize is the equivalent of saving 2,800 in Australia and that this is a far more effective form of protectionism than reversing FBT reforms.

But protectionism always has consequences and in Belize these are easier to see than is often the case.

Bread in Belize is subject to price control, along with rice, beans and even local beer. By law, bakers must sell “standard loaves” of bread for BZ$1.75. The August sitting of parliament may have increased flour tariffs, but it did not increase the price bakers could charge for bread.

Bakers in Belize will see their profits squeezed, job losses may follow and there are more bakers in Belize than workers at the ADM mill. Needless to say, the Belize Baker’s Association is lobbying for an increase in the controlled price of bread.

Perhaps it is time for the Belize government to consider abandoning the flour tariff and trying a job guarantee instead.