Government refuses a subsidy to Coca-Cola

Yesterday the government decided not to give $25 million to a Coca-Cola subsidiary to help fund restructuring of a factory.

The factory in question is SPC Ardmona, which is Australia's only fruit processing factory (they basically can or package the fruit). The firm claim that they need the money to be able to reorganise and retool their factory so they can compete.

The decision of the government not to support the restructuring with public money has made a lot of people unhappy. This is an important issue and there are arguments on both sides. Amazingly the idiot Abbot has some good points on his side.

Those who want the government to subsidise SPC argue that without it jobs will be lost in the Shepparton area. Not just those who work for SPC, but also farmers who grow fruit locally.

In support of this argument there is the point that those unemployed will claim benefits paid by the very same taxpayers who would have to provide the $25 million investment. In the long-run this could prove to be a higher cost to the taxpayer. Also Shepparton may well decline as a regional centre and the farm land around it fall into disuse.

Another argument, that is sadly used all the time in Australia, is that it is all the fault of cheap imports. The implication being that their cheapness is somehow ‘unfair’.

The government argues that it is not their job to fund private firms, but to create the conditions where firms can operate profitably. (This is a supply-side argument.) They say that if firms can’t operate profitably it is better for them to shut down and the resources will be employed elsewhere where they can.

The argument about cheap imports is spurious. Cheap imports benefit the majority of the population; those who buy the fruit. The only losers are inefficient producers and their employees; a much smaller group.

Overall there is a short-run versus long-run argument here. In the short-run protecting (by subsidy) Australian firms can prevent immediate unemployment. By not protecting Australian firms mean in the long-run the economy will become more efficient as resources are released to new and profitable endeavours.

The Australian reports the story below. Notice how Tony Abbot implies that the working conditions of the workers are contributing to the high operating costs of SPC.

This is a matter we need to debate.

The Australian article is here