Government Business Relationship in Australia

Question: Discuss about theGovernment Business Relationship in Australia. Answer: Governments across the world play acritical role in the set-up and operations of businesses. The government as the highest authority in the land affects businesses in several ways especially through policies (Afonso, Jalles, 2013). The government and its arms like the legislature make laws which regulate business practices in a given country. The most common roles of government in business today include taxation, consumer protection, employee protection, investor protection, enforcing contracts and bailouts. In general, the role of the government is to create an environment for businesses to thrive so that they can translate their returns into national economic growth (Wang., et al, 2012). The Australian government is no exception to this pattern. For a very long time, the Australian government has been working closely with the car manufacturing industry along several spheres. The fundamental role that the Australian government has been playing for years is offering financial assistance to car manufacturers as a way of empowering them to compete with established brands across the globe as well as cushioning them against fluctuating market trends. The government has been doing this, in the realization that the automotive industry is critical to the economy of the country. In 2005, the Australian government pumped in excess of $7 billion to car manufacturers in the country to boost their capacity and stimulate sustainable growth while increasing local and global competition (Cavanagh Freeman, 2012). This figure stagnated in the following year and declined in 2010, when the government offered $4.5 billion. This fluctuation was attributed to the global financial crisis of 2008/9 which paralyzed economies across the globe. The government of Australia reports that in the last ten years alone, it had allocated more than $50 billion in industry assistance (Produc tivity Commission, 2014).This means that to a larger extent, it is the people of Australia who are footing the bill. The financial assistance accorded to Australian car manufacturers takes both direct and indirect forms. Whereas direct cash injections have been dominant, the Australian government is also involved through tax incentives (Clibborn., et al, 2016). These have been gaining popularity since they are widely acceptable as more impactful and empowering than cash injections. The government through the Australian National Chamber of Commerce undertakes to give manufacturers tax deductions and export subsidies. By reducing the tax rates, companies are able to manufacture more and expand their global competitiveness. For most of the 64 car manufacturers in Australia, the tax rates have been a major hurdle especially in trying to cut down the operational costs. Thus, the government realized that in order to enable companies to increase their capacity and reach out to the global market, it was critical to review the tax rates and settle on a rate that is favorable for the companies, the governmen t as well as the manufacturing industry as a whole. The Australian government, in the same context helps car manufacturers by offering subsidies so that the prices of finished automotive can remain competitive in the local and international market. This takes the form of tariff protection so that in the end, the prices that the Australian-manufactured cars fetch the highest prices possible in the global market. One of the benefits of tariff protection is that the number of cars being imported into Australia will go down significantly. The influx of car imports will increase competition negatively and hurt the local manufacturers. Tariff protection and subsidies will continue to play an important role in shaping the destiny of the market and how its fortunes translate into national growth. In the year 2013, the Australian government under the Labor Party set aside $A5.5 billion to cover for subsidies for car manufacturers covering the period to the year 2020. A breakdown of the figure showed that Holden and Toyota Australia will receiv e a bigger percentage of the money (a combined $A 2.9 billion).This amount will among other things assist companies to invest in innovation, research and development. The involvement of the Australian government in the automotive industry also comes in the form of trade agreements and partnerships at the national or regional level. The government works with other governments in the region to forge common policies that increase trade and innovation. Considering that the automotive industry contributes about 15% in terms of GDP, the government takes a leading role in stimulating growth through signing agreements with countries across the globe so that any existing barriers are eliminated to enhance trade across the borders. The fundamental role of regional trade agreements is to open the borders and establish the export/import balance. This benefits local and international companies because most of the tariff barriers are eliminated in the process. The Free Trade Agreements Australia signed a trade pact with the government of Thailand in 2005 (Baldwin Jaimovich, 2012). This agreement involved among other provisions sought to lift import tariffs imp osed on car imports from Thailand. This, in return stimulated local manufacturing in anticipation of competition and low-cost cars made in Thailand. It is worth noting, however that the pact did not live to its billing as Thailand exported more cars to Australia than it was able to import from the same market. Did the Government Make the Right Decision to Withdraw Financial Support? The Australian government in 2013 undertook a major policy shakeup targeting the automotive industry in the country. Part of the changes included withdrawing financial support for companies and taking a more market-driven assistance. The government promised to create an enabling environment that would increase efficiency, accountability and self-regulation so that companies would become more independent (Magg, 2016).This move came as surprise for manufacturers but for most experts, this was bound to happen at some point especially after the realization that the financial injection was not contributing significantly to economic growth. This opened a long-running debate on whether the government was right to take such a move, and particularly, what was the possible implication on the economy. However, years later, it is evident that the government made the wrong move. The closure of Toyota, General Motors and Holden, the three biggest car manufacturers will have a lasting negative impact on the economy of Australia. Fundamentally, we are looking at a sector that contributes to more than 12% of the countrys GDP and provides thousands of Australians with jobs (Wanhill, 2012). Therefore, the present and looming pullout by manufacturers will push up the unemployment rate in the country. Toyota, the countrys biggest vehicle manufacturer has been part of the economic transformation in Australia and has become an integral part of the nations culture (Conley, van Acker, 2011). Therefore, the impending withdrawal means that many people will become jobless. It is estimated that more than 30,000 jobs could be lost when Toyota finally exits the Australian market. This, adding to the numbers that have been rising in the backdrop of decreased government funding means that the country might be staring at its worst unemployment crisis in decades. The estimated fi nancial cost of the withdrawal runs into billions of dollars ($2 billion) in the first year alone. Another reason why the governments decision is wrong is because the withdrawal of car manufacturers will expose the local consumers to low quality or expensive imported products. The presence of Toyota, Ford and Holden among other automotive manufacturers in Australia created a competitive environment in which companies strived to raise standards (Herald Sun, 2017). However, there is a possibility that more international companies will dump sub-standard cars in the Australian market at inflated rates. In the same context, it will take a very long period for local assembling companies to fill the gap left by the exit of giant manufacturers (Dowling, 2014). During this period, the forces of competition might have risen outside Australia and local manufacturers might find it hard to gain a foothold in the international market. This will affect the economy and the effect will be felt across all sectors that are indirectly involved such as banking institutions. The government assistance given to automotive manufacturers has been able to make a huge difference in terms of research, development and innovation. The automotive industry has been credited as the most innovation-guided industry and by such; it has contributed significantly to the scientific and technological revolution whose impact spills over to other sectors (Howes, 2013). Consequently, the looming withdrawal of renowned brands from the Australian market is a step backwards in the strides that had already been taken. This is both an economic and psychological setback that will take more years to heal. Ultimately, this can portray the Australian market as unfavorable for foreign investors. Amid the fear that has gripped the car manufacturing industry in the country; the government has consistently tried to put on a brave face, arguing that the closure of businesses means that new ones will come up. However, this assertion is not enough to calm the nerves or reverse the current situation (Sydney Morning Herald, 2015). The number of local manufacturers is high, but their capacity to fill the void is unclear. Besides, they will take long to catch up. In totality, the governments move was ill-timed and uncalled for. Whereas there was a need to decrease government injection as a way of promoting growth and self-sufficiency, the process might have been hastily taken without enough attention to the possible implications. 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