With Toyota exit, cracks appear over Aussie PM's tough line on corporate handouts

Tony Abbott, Australia's prime minister, speaks during a session on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, Jan. 23, 2014.
Jason Alden | Bloomberg | Getty Images

Australian Prime Minister Tony Abbott's tough stance against bailing out struggling industries has caused a rare public split inside his conservative government, which may suffer as a result of the divisive policy.

Japanese automaker Toyota Motor's announcement this week that it would stop manufacturing in Australia by 2017 has heightened concerns over political fallout from the hard line position, which the opposition Labor Party blames for thousands of job losses.

On one side, those lost manufacturing jobs have deepened the acrimony between the government and the powerful trade unions, who accuse Abbott of being more concerned with conservative fiscal orthodoxy than protecting Australian jobs.

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On the other, the concentration of decision making in the hands of a few key ministers has some feeling left out as Abbott embarks on structural changes that one insider compared in their breadth to those under then British Prime Minister Margaret Thatcher in the 1980s.

"Those very close to Abbott will say 'no, it's fantastic and it's cohesive and he's a consensus manager', but there are other very loud members in the background who are not as happy as any attempt to portray them," a person close to the government told Reuters on condition of anonymity in order to speak openly.

Toyota to stop production in Australia

End of the road

Toyota's withdrawal marks the end of the road for a once-vibrant Australian auto production base - General Motors and Ford Motor have already said they're moving out - and will mean the loss of thousands of direct and indirect jobs as high costs and a strong currency squeeze manufacturing.

All of which could test Abbott's conservative government, which is seeking to manage a slowdown in Australia's $1.5 trillion economy as a decade-long mining investment boom slows.

Abbott and Treasurer Joe Hockey have chosen to take a stand over the issue, arguing for fiscal discipline in the face of disagreement from senior ministers including Immigration Minister Scott Morrison and Barnaby Joyce, deputy leader of the Nationals Party, Abbott's coalition partner.

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It's not just the big auto manufacturers, however, that are struggling. Fruit cannery SPC Ardmona's request for A$25 million ($22.6 million) in federal aid was also rejected last month, prompting a rare public rebuke for Abbott from coalition MP Sharman Stone.

Other potential flashpoints include support for a push by business to reduce operating costs through cutting so-called penalty rates for working odd hours, and broad changes to what the government describes as an unsustainable social welfare system.

David Oliver, national secretary of the Australian Council of Trade Unions, says the government's position is aimed at blunting the unions' political power, but it will ultimately backfire.

"I'd say there are now a lot of Toyota workers, (GM) Holden workers and SPC workers who would have voted for this government, probably based on the promises that they were out there providing jobs," he said. "They'd have to be scratching their heads now."

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Broad impact

Toyota's exit had been widely predicted because of the blow to the parts supply base from GM and Ford, though initial fears that it could trigger a recession in the affected states may have been overblown.

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Australia's car industry includes about 150 companies - from components to tooling, design and engineering - with more than 45,000 people employed directly in making cars and parts, according to government data.

The impact of the decision not to fight to keep auto manufacturing, however, goes well beyond those directly connected to the industry, says Rick Kuhn, an adjunct professor of political science at the Australian National University.

"Blue collar workers tend to be Labor voters, but I think the fallout will be more widespread," he said. "The crucial determinant of its impact will be whether or not it intersects with a broader slowdown in the Australian economy."

"Mining is slowing down," he added. "If that slowdown continues and intersects with layoffs in manufacturing, then I think the government is going to face a very difficult situation in the medium-term."

Both major political parties have for two decades pursued policies of economic liberalisation to make Australia's economy more competitive in a global market, says Peter Reith, a senior minister under former PM John Howard.

That doesn't, however, mean voters are necessarily on-side with the changes they have made.

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"The advocates of protectionism have been a minority in Australia for 20 years," Reith said. "That's at the political level. The population is a bit more uncertain about the policies than the policymakers."

Still, he says there will not be any fallout if the government is able to move quickly to right a shaky budgetary ship and return a semblance of economic stability.

"The fact is that the Australian public, overall, what they really want is what we'd describe as mainstream and effective economic management," he said. "And, provided the Abbott government is sort of largely on that pathway, I don't see dangers ahead for them politically. To the contrary, really."

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Distress test

That could be tested in places like the district of Murray in Victoria, where Stone is still fighting to keep SPC Ardmona, and the jobs it provides, alive.

Earlier this month, she sent shockwaves through the political establishment by publicly accusing Abbott and Hockey of lying when they said that overly generous conditions for workers were the cause of the company's economic woes.

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She says the government has been blind to the nuances that have contributed to SPC Ardmona's financial struggles in recent years, such as the dumping of cheap foreign goods on the market, and worries the human factor has been taken out of the equation.

"You can imagine in my electorate there's 8.5 percent unemployment, we don't have a whole set of alternative job vacancies for these people and it's not easy for people to shift to other places," she said. "It doesn't bear thinking about what the consequences would be if we saw SPCA having to close."

Already nearby electorates have begun shifting to political independents, a move she says she would have considered herself in the previous government, when independents held the balance of power.

"People are very, very distressed. They're very upset," she added.