The government is here to help us! Australia’s new handout mentality.

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Where did it come from?

There seems to be a spate of self-serving demands on the government by vested interests.

Farmers are ‘doing it tough’ and need to have the government step in and protect them from their own poor business decisions (like borrowing too much). See here.

Industry is facing rising energy prices and shouldn’t have to pay export-parity price for gas that is sourced from Australia. Indeed, some gas fields should be reserved for Australian use (at a cheap price). See here.

In isolation, each of these would be bad policy.

Many small businesses suffere from risk and poor business decisions. So why should the farmers receive special treatment? And if they do, what are the incentives for farmers to ‘get it right’ next time?

And ‘reserved gas fields’ is just an inefficient way to tax gas producers and subsidise energy-intensive industries.

If taken seriously, these demands will simply lead to more claims for support as vested interests work out that it is more profitable to lobby government than to run their businesses properly.

But perhaps the farmers and Australian Industry Group are simply following a path that was cleared by the car industry and the aluminium industry earlier this year.

As I have argued before – both the politicians and the populace would be better off if government could commit to not support these self-serving claims from vested interests. But instead, the politicians (at least in the case of the farmers) appear to be encouraging it.

 

 

8 Responses to "The government is here to help us! Australia’s new handout mentality."
  1. Stephen,

    farmers have been getting government aid for decades in tough and not so tough times, in fact they were the trail-blazers for government aid. The raison d’etre of the Country Party and Jack McEwen was help for farmers. Australia rides on the sheep’s back, surely you heard that when you were at school?

  2. Some points to consider:

    * rural areas have long been a hotbed of economic ideas that would get laughed out of the common room in a university department.
    * Farming communities have been depopulating for at least a century. The social consequences are real and in the main not that pleasant.
    * Many farmers simply don’t accept the idea that they are just another small business. It’s a lifestyle, tradition, blah blah blah. Never was this more obvious with the unintentionally hilarious campaign to keep cattle in Victoria’s alpine national parks.

    So while I don’t think farmers are deserving of bailouts either, it’s unrealistic to expect politicians who serve those communities to simply tell them to harden up.

  3. I think vested interests worked out lobbying was more profitable than competing a long time ago! Take for example the restricted trading hours in Queensland. Coles and Woolworths have to shoo people out their front doors at 5pm on a Saturday afternoon. As one drives home slightly confused, one passes a small corner shop in every suburb (called ‘milk bars’ in Victorian) with blinking lights and very poor, run down looking facades. It starts to make sense if you go inside. You see a comfy happy small business owner glance at you briefly, then you see 2 or 3 ailes of essentials that each cost about $3 more. Queenslanders live with a permanently shrunken retail and services economy so that these business owners have their easy jobs. And I say easy because without the restricted trading hours, you see the same businesses in every suburb in Melbourne. Except they offer specialty products, have brightly lit, pleasant atmospheres and the people working there make a point of offering something Coles and Woolies do not (for example a smile and a hello). So the question for me isn’t why do these small business owners get this special treatment (who cares really?), it is why are we all paying this? If people understand the costs and they are willing to pay, then so be it (including for the beloved farmers). But I wonder if most do understand the costs.

  4. Stephen, you appear to be applying the concept of handouts to every deviation form the the economic ideal of perfect markets. Yet I think we can both agree that there are no perfect markets in the real world.

    Let’s take a slightly different view to some your examples.

    First the farmers dealing with debt. If the public can insure private banks for free, I can’t see why farmers don’t have a better claim to the public purse. We have the second lowest agricultural subsidies in the world, so we seem to be at the frontier in regards to ‘free’ agricultural markets.

    Next, gas prices. What if, say, every other gas producing country legislated a price ceiling for domestic industries, with the global price being set by the sale of national surplus production. Why wouldn’t we also do it? It is just a choice whether to allocate society’s rents to gas producers or other energy-intensive sectors of the economy by allowing them to export.

    As Tim mentions, why has the government been subsidising academics with their often pointless grants?

    Or Alcoa. If you believe that economic networks are valuable, why wouldn’t you support a crucial supply-chain link. Do you believe there is any value from preserving a diverse domestic industrial base?

    The prominence of the idea that markets are the only tools available to generate social goals worries me. Especially since market regulations are open to gaming anyway.

  5. rumplestatskinn, I am certainly not applying perfect markets. Protecting small businesses like farmers from facing the consequences of their decisions is bad policy in any market. It leads to a system where the business gains the ‘upside’ and socialises the ‘downside. The result is that Australian tax payers are harmed and Australian farmers will make poor decisions.

    Having gas ‘reserved’ for Australia at a price below the world price is Pareto-inefficient policy, regardless of the structure of the gas market. It is simple to design a policy that taxes the gas companies and makes Australian consumers of gas better off.

    Your defence (they do it overseas so we should do it here) can be used for any stupid policy. There is a stylised fact in economic policy that for any policy in one country it is possible to find the exact opposite policy in operation in some other country. Or put another way, lots of countries do stupid things. That does not mean that we should do them too!

  6. With concern to the “they do it overseas, so we should do it here argument”, I say let other countries subsidize goods for Australians.

    When another country subsidizes the output of particular goods, tax payers of that country are effectively footing the bill for those goods to be reduced for Australians to buy at a lower price.

    If the the Australian government subsidizes nothing, but is able to reduces tax rates due to the subsequent savings made, business and investment decisions will flow to where Australia has a competitive advantage.

    With money saved purchasing those goods subsidized by the tax payers of another country and the lower tax rates, there will be even more for Australian’s to invest in those things we can do profitably.

    These favourable investment conditions would also lead to greater flexibility in the Australian economy when there is significant structural change.

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