Subsidies for everyone!

Subsidies are all the fashion right now. Jim Chalmers and Anthony Albanese have offered $300 energy subsidies for one year. Steven Miles has offered 50c transport for six months. Politicians appear to have fallen in love with subsidies. Of course, these subsidies only last until after the respective elections. So, the political calculus is writ large.

The reaction has been rather unkind. By which I mean, accurate. As some have pointed out, the money must come from somewhere. And that somewhere is not from the politicians themselves. It is from the voters. Politicians only bare a very small cost of the subsidies in the form of the impact on their tax payments. But, they get a massive financial windfall from being re-elected. Politicians are highly incentivized to spend their way into reelection.

Steven Miles has indeed promised more largesse as he approaches the election.

The problem with these subsidies is clear when you think through how they impact inflation and the fact that they do nothing to help inflation. I have talked about this in the context of the federal budget.

A subsidy of this nature is a one off reduction in prices. In a very naïve sense, this is a short term deflation. BUT, the prices rise again at the end of the subsidy, which is inflationary. It is absurd to paint that as a deflationary move. Furthermore, the subsidy does nothing to help with underlying growth rates and related dynamics. For example, energy prices will continue to grow even with the subsidy.

The transport subsidy has some differences from the energy subsidy. Government sets transport fares. Thus, the growth rate could be suppressed by dint of government fiat. But, then someone must keep paying for the ever-increasing gap between the cost of providing transport and the receipts from fares. That is, the Queensland population must pay either directly via their duties or indirectly via worse other government services or an increasingly shaky state budget.

The net result is that Steven Miles, Anthony Albanese, and Jim Chalmers are spending your money in service of their own personal desire to be reelected. They then misinform people about the policies, spreading economic misinformation and disinformation themselves.