Subsidy is the money given by the government to a chosen firm or individual from the taxes it collected from the general public.
It means the government pays for part of the costs of production.
Recently the Australian car industry is undergoing dramatic changes with GM-Holden (December 2013) and Toyota (February 2014) announced they will cease manufacture operations in Australia, followed Ford’s announcement in May last year.
According to the media reports one of the main reasons behind the ending of the automotive industry is the Federal Government refused to provide further financial assistances to the car companies. (Vaseh and Maher, 12-01-2012)
The car industry is one of the most heavily assisted industries in Australia. The Productivity Commission (PC) estimates that “the equivalent of around $30 billion (2011-12 dollars) was provided to the industry between 1997 and 2012 in the form of tariffs and various subsidies.” (2013, p8)
Many economists argued governments should not interfere with the market economy and it is bad economics to subsidise the car industry.
Others pointed to the fact that the car makers and associated industries (such as the parts/ component industry) is a big employer and contributed a sizable portion of the GDP. The benefits they brought to the community far outweigh the subsidies they received.
Case For Subsidy
Case Against Subsidy
“Australian manufacturing costs have risen far above costs in nearby Asian nations in recent decades, prompting successive governments to attempt to pay to keep factories…