19 February 2004

The PM's pork-barrelling protectionism

We know that as an economic rationalist he hates taxes, especially new taxes. But as a prime minister with elections to win he loves a levy. A levy is, of course, not a tax, because it is spelt quite differently. So when the deregulation of the sugar industry began to cause the prime minister political problems in 2002 he went straight for his bag of levies.

Australian consumers are currently paying 3c a kilo of sugar. The deregulation of the industry was designed to lower costs and increase efficiency. The sugar levy was designed to increase costs. Howard might have found it hard to think of a reason to isolate the sugar industry from the reforms faced by the rest of the economy, but his party strategists made sure that he also thought up a reason to keep sugar-farmers in marginal seats happy all the same.

And now he has to worry about the impact of the so-called free-trade agreement on the voting intentions of the sugar-farmers.

While his early proclamations on the benefits of an FTA were designed to shore up his credentials as a free-trading economic rationalist, his ultimate decision to press ahead with a deal that gave up on free trade in sugar was based firmly on domestic politics.

Much has been made of the importance of United States domestic politics in determining the nature of the Australia/US FTA but it was Australian politics that was the major constraint.

There was no real need to wrap up the agreement so quickly. The Australian negotiators took only half the time taken by those of other countries who have negotiated FTAs with the US. The PM is right that such an opportunity comes along only once in a generation, but it was politics, not ideology, that drove him to rush the deal and deliver a disappointing result.

But, having failed to extract a price from the US sugar-farmers, Howard is now determined to extract a price from Australian taxpayers. The fact is, someone has to give the Australian sugar farmers some more money or Howard may lose office.

The problem for the PM now is that having placed the sugar-farmers on the public teat he cannot remove them before the next election, no matter how much they demand.

Ah well, we'll see how bitter the pill is when the fine print, for that matter the gross print, is released. I wonder if anyone's yet told the cattlegrowers about the floor price which allows, even after 18 years, for tariffs and quotas to cut back in?

Apparently the Bush administration will not submit the FTS to congress for ratification until May. Why then was it announced but not published in January? The urgency because of US politics theory was based on the behaviour of US legislators in an election year. Surely that would mandate submitting it ASAP?

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