Modelling economy-wide effects of future automotive assistance

In response to a request in March from the Review Panel chaired by the Hon Steve Bracks, the Government asked the Productivity Commission to model the economy-wide effects of various options for future assistance to the automotive sector. The Commission's report is being released today.

The Commission's modelling indicates that there would be economy-wide benefits from further reductions in assistance to the automotive sector, particularly for tariffs. It also suggests that the benefits would be larger under the current assistance reduction program than options entailing lesser reductions. The model projected potential net benefits to the community of some $0.5 billion a year under this program, with gains to consumers and other industries outweighing negative impacts on the automotive industry.

Modelling also confirms that a significant further appreciation of Australia's currency, associated with the mining boom, would have a much greater impact on the automotive industry than scheduled tariff reductions.

In the Commission's assessment, these conclusions are not materially affected by consideration of factors, such as adjustment costs and scale economies, not captured directly by the model.

In undertaking its research, the Commission benefitted from early meetings with Mr Bracks and his Secretariat, and from the feedback of modelling referees and other experts who attended a workshop in April to examine the model and the Commission's preliminary results.

• Preliminaries
  Cover, Copyright, Foreword, Contents, Abbreviations, Overview
• Overview
• Chapter 1 Background and approach to the study
  1.1 Introduction
  1.2 The Bracks Review and the Commission's study
  1.3 Background to the current assistance regime
  1.4 The Commission's approach to this study
• Chapter 2 Current assistance to the industry
  2.1 Tariff assistance
  2.2 Budgetary assistance
  2.3 Other policies
• Chapter 3 Modelling the assistance scenarios
  3.1 The choice of a model
  3.2 Key features of the MMRF model
  3.3 Implementing shocks to the model
  3.4 Key outputs
• Chapter 4 The modelling
  4.1 Main mechanisms at work
  4.2 Reference case results
  4.3 Results for option scenarios and sensitivity tests
• Chapter 5 The modelling in perspective
  5.1 What do the model simulations indicate?
  5.2 How robust are the model specifications and key parameters?
  5.3 Accounting for 'exogenous' considerations
  5.4 Summing up the economy-wide effects
• Appendix A Study request
• Appendix B Referee comments - summary
• Appendix C Supporting tables
• Appendix D Database modifications
• Appendix E Additional simulation results
• References