The announcement of drought relief funding for farmers by an Australian prime minister would not normally be a cause for surprise. But last week’s A$324 million drought package comes amid a concerted push by this government to end what it has described as “the age of entitlement”.
The package includes generous criteria for accessing income support, concessional loans and additional funding for emergency water infrastructure schemes, pest control and social and medical health services.
As Mr Abbott remarked:
Farming is a very significant part of our economy and will play a critical role in our economic future.
But other sectors have not been treated in the same way. This has been seen in the decision to deny further government support to the Australian motor vehicle industry and the fruit processor SPC Ardmona. The consequences of both decisions risk the loss of thousands of Australian jobs and the economic collapse of the regions that depend on them.
Government support may be coming to an end
The decision to extend drought relief to Australian farmers comes despite a recently published report from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) that recommends rather than giving farmers more direct assistance, government policy should focus on the removal of regulatory restrictions. These include removal of restrictions on the use of genetically modified (GM) crops, or foreign ownership of land and farms. Also targeted are indigenous land rights, environmental protections, use of chemicals, native vegetation land clearing, and quarantine and food safety regulations.
The ABARES report points out Australia has the second lowest level of support for farmers of any country in the OECD. This has led to significant increases in the rate of productivity growth across the farm sector, but it concludes that there may be limits on the level of future productivity due to a range of factors. These include high production and labour costs, “red tape”, changes to community attitudes over the ethical treatment of animals, and climate change.
The report states that broad acre farms comprise around 53% of all Australian agricultural businesses, and contribute just over half of all the gross value added. Further, the Australian farm sector is strongly export oriented with Japan, China, Indonesia and South Korea being major customers.
According to the ABARES report, the average productivity growth across all broad acre farming over the past 30 years has been around 1% per annum. But this rate of growth has slowed in the past 15 years due to climate and lack of investment.
Since the 1970s the level of government regulation of the farming sector has significantly declined. In the early 1990s there was also a change to how drought policy was handled. Self-reliance was a major feature of these initiatives, with drought no longer being viewed as a natural disaster. The 2008 review of drought assistance found that such programs did not help farmers improve their level of self-reliance, preparedness and ability to manage climate change.
In fact the “exceptional circumstances” support measures were found to be ineffective and likely to result in encouraging poor management practice. Such payments were often limited to areas that were able to become “drought-declared”, but this left farmers in other areas unsupported. The end result was that the management of drought relief was often “inequitable and unnecessary”.
Entitlement for some, but not for others
On 17 April 2012, while he was still in opposition, federal Treasurer Joe Hockey delivered a speech to the Institute of Economic Affairs in London. The thrust of his presentation was that the age of entitlement was over. According to Hockey the western economies had become burdened with debt due to excessive spending by the state.
Hockey suggested that social programs such as education, health, housing, subsidised transport, social safety nets and retirement benefits had “reached extraordinary levels” as a proportion of GDP. He cited China as a potential role model where a relative lack of state welfare meant that families had to become self-supporting, which created a “brutal” but “financially sustainable” system.
“Let me put it to you this way,” Hockey said,
The age of entitlement is over…the social contract between government and its citizens needs to be urgently and significantly redefined…Entitlement is a concept that corrodes the very heart of the process of free enterprise that drives our economies.
Industry Minister Ian Macfarlane described the rejection of the SPC Ardmona funding request as a “defining moment” in the future of the government’s approach to industry assistance. The woes of SPC were blamed in part on the overly generous wages and conditions of the employees of the factory, despite the average annual wage in the factory being around A$45,000.
So the recent announcement of the drought relief package raises some questions over what the government will or will not support.
The federal government is likely to introduce many of ABARES’ proposed measures as its term of office unfolds. These policies are bound to be controversial and provoke significant debate. But the fundamental question of whether farmers should be treated differently to other business owners will remain. If the age of entitlement is to be ended by this government, it will need to be applied uniformly across all sectors.