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Subsidies Are Bad

Words by Matthew Lesh
Illustrations by Giles Dewing

About a year ago, an 18-year-old was ecstatic when he got the call offering him the factory floor job at Holden. A non-academic type, he entered the workforce straight after school with the expectation of gaining long-term job employment in a safe Australian industry.

But like thousands before him, he had unfortunately been sold into a con, one that the government has been perpetrating for decades. It’s a con so intricate that it continues to see governments piss away hundreds of millions of dollars.

The con is the illusion that governments can create jobs and economic growth through subsidies, taxes on imports, loans, or so-called ‘co-investment’.

The truth, acknowledged by a large majority of economists, is that governments cannot create sustainable jobs by giving money or help to specific businesses.

All this money can do is create short-term jobs. These jobs are lost when businesses do not innovate or respond to demand.  All subsidies do is encourage businesses to be stagnant. It enables them to increase their costs and prices, only for them to eventually ask for more money.

Take the car industry. For decades the Australian government has given Holden, Toyota, and Ford the highest subsidies in the world, most recently totalling about $US1885 per vehicle. This amounts to hundreds of millions of dollars. These companies were also given a competitive edge through a five per cent tax on imported cars.

Over the past months all three companies have announced intentions to end production in Australia. The 18-year-old process worker, and thousands of others, will lose their job. Their jobs were a fraud that could only exist temporarily, pushing thousands in the wrong career direction.

However, the impact of subsidies on job opportunities and the Australian economy is much worse than just pushing workers into loss-making industries.

Subsidies require higher taxes. This takes away opportunities from other Australians to spend their money as they please and support competitive businesses. Subsidies also lead to a misallocation of jobs; high skilled workers are not available to work in other industries that are naturally profitable.

Ultimately any business that requires a subsidy cannot convince enough people to buy their product. If you cannot convince people to buy your product you either innovate, or exit the market entirely.

This is a constant occurrence, with about 44 small businesses closing their doors every day. Every lost job is unfortunate, but the economy is more dynamic and responsive than we can imagine.

Millions of Australians are trying, with some succeeding and some failing, to find sustainable businesses. This means jobs are constantly created and destroyed. This is how the economy works.

Government intervention hurts this natural process, raises prices, and will ultimately fail with inevitable job losses.