Tasmanian Times

Economy

There’s no such thing as a free lunch

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Remember the saying “there’s no such thing as a free lunch”?

This week we heard from the Tasmanian hospitality industry that some tourist accommodation operators might be looking for interest-free government loans to bring them up to scratch to maintain or improve their star-ratings. They might have to buy 20 television sets, it was argued, to lift them from 3.5 to 4-star rating. They couldn’t afford it. They would need interest-free loans, from the government; that means from us, from taxpayers. Tourism Minister Scott Bacon said he was considering it.

There really is no such thing as an interest-free loan from government. It means that someone is getting access to our money free of cost, money that we should be using elsewhere, like improving health, education, housing, emergency services, public infrastructure. We have to borrow money to do that. We pay the interest. That is called the economic cost of giving away interest-free loans.

The same goes for handouts to noisy interest groups.

Most of us, before we go into business, assess the risk. We examine the market forces operating in that industry sector, do our SWOT analysis, understand what risks are foreseeable and manageable; and only then make the decision whether or not to invest.

The “T” in SWOT stands for “threats”. For the log truck owner, the factors under “T” would have, or should have, included conservationists closing down their industry – especially when there was previous history of that happening.

For the tourist accommodation industry, “T” should have included the threat of ratings upgradings, the need for capital equipment upgrading and replacement and the depreciation factor of accommodation components. If you don’t have the capacity to be able to afford to spend the money to address foreseeable and manageable threats, then you probably shouldn’t enter the business in the first place.

Of course, not all threats and risks are foreseeable or manageable. For the tourism sector, things like Icelandic volcanoes erupting or avian influenza were probably not predictable and were certainly not manageable. Similarly, farmers can’t control the weather nor can they predict or manage the impacts of interest group interference on their industry.

If farmers went cap in hand to government every time they faced a challenge to their livelihoods, they would never leave the doorstep of Mr Bacon or his colleagues. Farmers don’t operate like that.

They take the good with the bad, because agriculture operates in cycles and that is simply how life is on the land. If their path is blocked in one direction, then they seek another. It may be another crop or another market, but they generally have to find their own way through.

Apart from genuinely unforeseeable and unmanageable circumstances, the only time governments should look at investing public funds in industry is when that industry is part of the ‘base load’ for the economy.

Where there is a need to invest in infrastructure for the future, often funding that investment is beyond the means of the businesses in the sector. In these circumstances, a hand up may be what is needed to get them over the line. A case can then sometimes be made for government co-investment for the common good, i.e. when the co-investment will deliver clear and quantifiable benefits to the broader community. This is the equivalent of the ‘poles and wires’ situation we are now seeing in the electricity industry. Of course, the players in the industry must also be prepared to put their money on the table, too.

The base load industries in Tasmania are agriculture, forestry and mining. They have been the key economic drivers for the state for generations. Other industries, tourism included, are largely supported by these keystones – and any public investment needs to be focused on future-proofing these sectors to ensure we keep core capability in our struggling economy.

Farmers are putting their money on the table – and expect to see ongoing co-investment by government in our industry to ensure we can keep delivering benefits to all Tasmanians.

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6 Comments

6 Comments

  1. John Boy

    September 2, 2012 at 6:42 pm

    Good on you Jan, I always look forward to a bit of commonsense, so lacking on this website of backslappers.It as a farmer always surprises me how much more connected people are to rural issues the further they live from a rural commuinity???? The Greens have their least popularity in the bush than they do in the cities,Something basically wrong here.Maybe the people in the bush know that all the Green policies are crap but the people in the cities have been sucked into their propoganda. A generation ago people in the city had a family member who was farming out of town and knew about rural matters but that connection has been lost and now Townfolk beleive all the crap that the Greens are propogating.I’m a farmer, and I produce food of the highest quality to the consumer, You, and so do all the farmers I know.

  2. Steve

    September 1, 2012 at 2:18 pm

    #4; John, you obviously gave up in disgust before reaching the bottom of her article.
    Anything forestry related is part of a “base load industry” and it’s perfectly OK to help them as they keep the State going.
    Have to be the biggest load of tosh Jan has produced for a while. Starts off with a rational enough argument that Government shouldn’t be bailing out private businesses but then the prejudices come through and we read that it’s OK to bail out some industries because they’re special; or should that be “more equal”?
    A notable omission from her list of “more equal” industries is manufacturing which probably brings more money into local economies than her beloved extractive industries which only serve to make investors elsewhere wealthy.

  3. John Powell

    August 30, 2012 at 8:31 pm

    Jan, the TFGA should unbundle you immediately.

    This comment …

    “There really is no such thing as an interest-free loan from government. It means that someone is getting access to our money free of cost, money that we should be using elsewhere, like improving health, education, housing, emergency services, public infrastructure. We have to borrow money to do that. We pay the interest. That is called the economic cost of giving away interest-free loans.

    The same goes for handouts to noisy interest groups”.

    …. is a perfect description of the activities of FT, and the logging industry in general, over the past many years. Did not Brittons get interest free loans in excess of $2milion dollars over the past few years? Do you have the guts to be critical of poor old Glenn?.

  4. Stephan

    August 30, 2012 at 2:39 pm

    “The “T” in SWOT stands for “threats”. For the log truck owner, the factors under “T” would have, or should have, conservationists closing down their industry.”

    Market forces, generated by a now technically bankrupt woodchipper closed down many family owned sawmills in northern Tasmania.

    I see no conservationists here!

    Investment demand driven by an untested product generated investment in ONE species of tree in “bonded” farms created on “free” land generated a non existent demand for the end product that has finally been seen to have the value it always had.

    I see no conservationists here.

    Compensation demands generated a hefty series of grants to businesses that were struggling due to poor management, poor decision making and poor marketing of a product that had only one perceived use (wood chips for Gods Sake?). Even with Millions of dollars handed over the businesses stumbled and stumbled on until the big one waved a magic wand and put everyone into stasis.

    I see no conservationists here.

    While this was all happening many of the businesses dependant on the big one tried to make ends meet in the only way they knew how. What they did concerned both conservationists and local citizens because it seemed excessive and nhilistic where the future economy and environment of the State was considered.

    Here I see conservationists. I see members of the public and I see families with kids who would like to walk through forests with their kids and grandkids.

    To blame the conservationists for the whole problem is just a little off.

  5. john Hayward

    August 30, 2012 at 2:37 pm

    Jan should consider refraining from economics lecturing until she has consulted the relevant factors.

    The bulk of forestry in this state is what is termed a “liability”, even before you calculate the normally unconsidered factors of environmental damage, damage to public infrastructure, and damage to competing industries.

    You also need to factor in the dysfunctional effects of corrupt and/or incompetent government which by itself can cancel out any advantages conferred by natural resources.

    Finally, all these things need to be assessed in a public interest context, rather than than the normal Tas Inc perspective of immediate self interest.

    John Hayward

  6. Russell

    August 30, 2012 at 1:43 pm

    The “F” in TFGA obviously stands for “Forestry.”

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