Why do we subsidise industry?

petrol ”The cost-benefit analysis to taxpayers … is not just about the car industry jobs … it’s also about the importance of that skill system and that ability to innovate and that kind of equipment and machinery to the whole of manufacturing – and manufacturing employs around 1 million Australians.” Prime Minister Julia Gillard, 6 February

The main argument when governments subsidise industry usually centres on supporting jobs. The subsidy is deemed necessary because if it were not paid the industry would fail and jobs would be lost. There is also often a national interest argument that the industry has an important role to play in the wider economy.

With the huge amount of publicity and discussion around the merits of Australia’s car industry receiving $1.5 billion over four years and the Opposition’s plans to cut the program by $500 million, you might get the impression that it’s a lot of money. Yet, when it’s compared to some of the subsidies that go to the mining industry it is chicken feed.

It is estimated that those in the fossil fuel business receive more than $10 billion per year in government subsidies, with the mining industry receiving the lion’s share. One of those subsidies is the enticingly named Fuel Tax Credit Scheme. It is worth more than $5 billion per year. Under this scheme if you use diesel for transport on non-public roads you do not pay fuel excise tax. Originally it was primarily aimed at farmers but the biggest beneficiary is the mining industry.

The huge mining trucks that tower over everything around them are never driven on public roads and actually wouldn’t fit on a normal road. Therefore the diesel that goes into them is covered by this scheme and is tax free. This saves the mining industry billions of dollars every year.

What is the justification for this subsidy? Is the most profitable industry in Australia going to collapse if it’s not subsidised? We have had a large public debate about giving the car industry $1.5 billion over four years but no debate on why we’re giving the mining industry billions every year.

If the government is determined to return the budget to surplus, if the government wants to discourage the use of fossil fuel, then it could easily remove just one subsidy to the hugely profitable mining industry and save billions.

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