The complexity of the nation's tariff system is hampering competition from imports and adding millions to the cost-of-living burden for households, one of the government's top economic advisers has warned.
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Sounding the alarm on the cost to consumers from the barriers facing importers, the Productivity Commission said the "complex labyrinth" of the tax system was costing importers up to $3.6 billion a year to navigate and pushing up prices for consumers.
"The system [is a] complex labyrinth of protection, favouring some domestic producers as imports are artificially more expensive," the PC said in its annual trade and assistance review.
"[This is] an unnecessary source of costs to [importing] Australian businesses and an additional cost of living burden for Australian households."
The PC's warning came as peak employer organisation the Australian Industry Group called on Australia and New Zealand political leaders to act to simplify and harmonise regulations that were hampering trade between the two countries.
Ai Group chief executive Innes Willox said "divergent regulatory schemes" between the neighbours were "negatively impacting businesses and consumers, resulting in higher prices and reduced product [choices]".
The commission urged the federal government to take care that its programs to invest in industry and promote renewables and the critical minerals sector did not hamper free trade and undermine the national interest.
Warning of an international drift toward increasing industry protection, the PC reported that government spending on industry assistance and tax concessions was rising, growing by $460 million in 2021-22 to reach $13.8 billion.
"It is unlikely to be in Australia's interests to try and compete in a protectionist contest via large scale industry assistance," commission deputy chair Alex Robson said.
The PC said the international system of free trade that has helped underpin the nation's prosperity in recent decades was under threat from actions by governments to foster domestic industry despite the potential harm to consumers and the global economy.
"The world's largest economies are increasingly engaged in policies to favour selected domestic industries through subsidies, local content rules and trade barriers," Mr Robson said. "In many cases this is simply a form of old-fashioned trade protectionism."
The Productivity Commission executive said the shift was being driven by growing strategic competition between the United States, the European Union and other major economies, as well as concern about the vulnerability of supply chains highlighted by the pandemic and national positioning to benefit from renewable energy transition.
The US government's Inflation Reduction Act and the European Union's Net Zero Industry Act showed how countries were jostling to seize market share in favoured sectors like renewables.
While not in the same league, Mr Robson said the Albanese government's National Reconstruction Fund, the Critical Minerals Strategy and the Hydrogen Headstart Program were steps in the same direction.
"As a small, open economy, our future prosperity depends on global economic integration and low trade barriers," he said.
Though Australia's tariffs are low by international standards, set at around 5 per cent, Mr Robson said other government processes and policies favoured domestic businesses and made it harder for foreign rivals to compete.
He said this industry assistance was increasingly taking the form of subsidies and concessional finance, tax concessions and credits, local content rules and domestic reservation policies.
"Concessional finance is a growing source of industry assistance, and may grow further," the PC report said, noting that the $15 billion National Reconstruction Fund was due to start operating this year.
The commission estimated total concessional funding may have reached $220 million in $2021-22, but complained that a lack of transparency by some government funds made this difficult to calculate.
It also expressed concern about government support for climate change businesses and technologies.
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The PC said many greenhouse emission abatement measures "appear to possess some of the characteristics of ... industry assistance", including selectively available tax concessions, grants, concessional finance and "regulatory obligations that only apply to some sectors".
The government economic adviser warned the trying to foster the domestic production of some forms of clean energy technology could prove costly.
"The costs of building and maintaining a domestic production capacity in non-comparative advantage sectors are likely to be large," it said.
"Each dollar spent on subsidising [such] production is a dollar taken away from sectors in which we enjoy a comparative advantage."