ANZ chief Mike Smith has urged governments to provide tax breaks to businesses setting up in regions hit by the exodus of car manufacturers, amid fears the loss of tens of thousands of jobs in Victoria and South Australia would push the states into recession.
The chief executive of Australia’s third-largest bank said tax and other incentives for new businesses were a proven way of tackling the social and economic impact the closure of the auto industry would have on some towns.
”If you were starting up a business at the moment in Australia, I think those businesses should be encouraged to look at those areas where there is likely to be a labour supply,” Mr Smith said.
”There are all sorts of ways to [encourage] businesses to set up in areas, and frankly the most effective one is using some sort of tax incentive and we’ve seen that around the world.”
Despite the looming loss of Toyota, economists on Tuesday issued an optimistic outlook for the manufacturing sector, saying the industry remained strong despite the structural changes it has undergone over the past few decades.
The exit of such large firms is tipped to have a severe impact on local regions already suffering from jobless rates twice as high as the national average.
Even so, economists said the exit of Toyota, Ford and Holden would have a small impact on the wider economy. But they called on state and federal governments to use the pull-out to boost productivity in manufacturing and other sectors, by cutting regulatory burdens and introducing tax reforms.
Without a local industry to protect, policy makers could also abolish all tariffs on motor vehicles, which would, in turn, make cars cheaper and allow households to spend their money on other goods. The move would reduce the fall-out from the industry’s shutdown, Deutsche Bank’s chief economist Adam Boyton said.
A boost in government infrastructure and retraining investment would also soften the blow on the Victorian and South Australian economies, analysts said.
The manufacturing industry has seen its share of the workforce decline over the past three decades, with the services sector
employing the largest share of workers at more than 75 per cent.
At the same time, the manufacturing sector’s contribution to the Australian economy has fallen since it peaked at just under 30 per cent of gross domestic product in the late 1950s and early 1960s. Manufacturing is now estimated to make up about 7 per cent of GDP.
A shift has also taken place within the manufacturing sector. While Australia has struggled to compete in the low-cost, mass-produced sections of the industry, it has seen a rise in the production of high-value goods such as scientific equipment and specialised machinery.
The services sector was expected to fill the hole left by the auto sector, analysts said. ”Low interest rates are supporting the housing market, supporting the pick-up in retail sales and a turn in the housing construction cycle, and we think that’s going to lead to job creation across those industries, as well as in the services industries,” HSBC’s chief economist for Australia Paul Bloxham said.
In the short term, Toyota’s production withdrawal from Australia would undermine confidence and could prompt consumers to be more cautious about their spending, National Australia Bank’s chief economist Alan Oster said.
A key question would also be where and what industries the affected car workers would move to, Mr Oster said.
This story Administrator ready to work first appeared on Nanjing Night Net.