John Howard announced yesterday that the government will provide $1,000 per household so that up to 225,000 homes can upgrade to an energy-saving solar hot water system.
For fuck's sake, laboratory rats learn faster than governments.
Subsidies don't work. They merely enable producers to lift prices. Here are three real life examples from personal experience;
i) We have decided to install a water tank. We are lucky to have both a garden and a decent sized swimming pool. In the summer, the pool water evaporates at the rate of 1,000 litres per week. Given that Australia has a water shortage and that i am still a guest in this great country, we have decided to 'do our bit' by installing a 5,000 litre rainwater tank. This decision is not remotely driven by economics as despite our using a disgraceful 500 litres/day of water (i still dispute that, Sydney Water), the government charges me a derisory $1.26 per thousand litres. One witty plumber described the situation as 'like buying your own cow rather than getting milk from a supermarket'.
Households who set up a water tank are entitled to a subsidy of up to $1,500 depending on the size of the tank. The total cost of installing a tank is about $4,000. My tank guy, Jim, a pleasant ocker Aussie, had this to say,
"this is wonderful news for us as it means we can now raise our prices".
Nationals Member for Lockyer, Ian Rickuss, did some research on the rising price of rainwater tanks since the introduction of subsidies and the drought, and discovered that prices had gone up by between 40% to 75% from June 2006 to May 2007. He has since referred the manufacturers to the Office of Fair Trading for the crime of err, 'profiteering'.
( I swear to you that i haven't made this up).Unsurprisingly, the Greens want to double the size of the rebate.
ii) With the rising price of crude oil, petrol is getting more expensive. Hence we recently looked into converting our car to LPG (net about 25% cheaper than unleaded petrol) and supposedly greener (cuts emissions by around 20%). Last year the Liberals announced a subsidy of $2,000 to help motorists convert their cars. Labor small business spokesman, Joel Fitzgibbon, thinks Howard should go even further.
Not surprisingly, industry body, LPG Australia, welcomed the move.
"The government subsidies for new LPG vehicles and conversions are a sensible response to current petrol price trends because they recognise that LPG Autogas is a readily available alternative fuel,"
Autogas Supplies converter, David Tangey, also supported the $1.6 billion tax-payer package adding that his company was going through its busiest patch in its 20 years.
In December 2003, the cost of converting your car to LPG was a maximum $2,500.
I got three quotes for our car. The cheapest was $4,400.
No wonder Dave's happy.
iii) We have two young children, and hence use Sydney's marvelous childcare centres. The daily cost is now around $50. If you earn less than $110,000, the government will hand you a significant rebate (can be up to 40% for lower earners). Despite the government already shelling out an annual $2.4 billion, there are now calls for child care fees to become entirely tax deductible.
A Parliamentary paper from 2004 raises this insightful question,
'There is the possibility that child care fees may rise and that much of the extra support available from the CCTR [rebate] will be soaked up by these higher fees.'
Really? No shit sherlock.
Child care fees rose 12.4% in 2006, four times the rate of inflation.
There can only be three explanations for continuing with these useless subsidies,
i) government officials have shares in tank, solar heating and child care businesses.
ii) government officials are stupid.
iii) government officials know subsidies don't work but the pressure to be 'seen to be doing something' is too overwhelming.
For their sake, i hope it's option (iii).