One man’s tariff is another man’s tax. That economic fact needs to be comprehended by all of us.
For too long, Australia suffered behind a wall of tariffs foolishly thinking it protected local jobs. Thankfully, they are being abolished and reduced.
Tariffs may protect particular jobs, but prejudice many other jobs.
Take, for example, the tariffs which applied to imported cars. They were designed to protect Australia’s car manufacturing jobs.
The tariffs helped the car industry to limp along. But every single Australian family had to pay more for their family’s car and every workplace had its production costs commensurately increased with the extra cost of the motor vehicles required in the cost of production, be it building, agriculture or mining.
It was, therefore, refreshing to witness a lucid moment in Australia’s Labor government’s economic actions, with the removal of about 500 nuisance tariffs—5 percent on a host of products as varied as toothbrushes and toasters.
These tariffs meant all these products ended up being more expensive than they needed to be.
The removal of these tariffs will “cost” the budget’s bottom line about $30 million (US$20 million) each year. On the other hand, there is the removal of red tape, increased efficiency, and a small but nevertheless, not insignificant cost of living relief.
While Treasurer Jim Chalmers was correct in not over-emphasising the cost of living reduction that would flow from the tariff removal, it was an acknowledgement of the inescapable economic truth that each remaining tariff continues to ruthlessly impact on cost of living.
This modest, yet important decision by the federal government, was a unilateral move suggesting there may be an appetite for economic reform.
“One swallow does not a spring make” is a worthy saying.
Similarly, a rare lucid economic statement does not allow the conclusion that it is the harbinger of further reform.
Not Popular, but Is True
An area where Australia is lagging in economic performance by any metric is productivity. Tariff reform, irrespective of its modesty, does assist in increasing productivity.While the change is modest, it serves as a reminder of the wonderful work of Bert Kelly, a former member of the federal parliament who served the people of Wakefield as their representative in the Australian Parliament. He wrote a regular newspaper column under the pen name, “The Modest Member.”
In those columns, he railed against the distorting nature of tariffs, pointing out that one man’s tariff is another’s tax.
As the years have passed the truth of Mr. Kelly’s analysis, which was highly unpopular in its day, is receiving acknowledgement year after year as tariffs are slowly but surely being abolished and reduced.
Full marks are to be accorded to the Australian government for this reform, modest though it be.
Its most important and potentially lasting impact is the acknowledgement by the treasurer that a reduction in tariffs leads to a reduction in the cost of living.
This linkage has not been widely understood but its recognition by the treasurer surely begs the question—if the abolition of tariffs, which are applied at the lowest rate of 5 percent, can provide cost of living relief, then how much more can the cost of living be reduced by tackling the even heftier and higher tariffs?
This initiative should remind all Australians that economic rationalism, demonised as it has been, is so named because to do otherwise is irrational.
Next time you brush your teeth remember that tariffs are a tax.
